When to exit position in options
- Thread starter giridhart
- Start date
I believe you have written both the options too near to the spot price. As your 5100 put already running in the money around 120 points. Your chance to keep all the premium would be if the nifty close between 5000 and 5100 at the expiry, which seems difficult as the gap between two option is bit narrow, and can spill over any side at the expiry.
In the present downside biased scenario, I would square off the 5100 put and take chance with 5000 call. Even you square off both the options , you will have around 110-00 profit, which is not bad also.
In the present downside biased scenario, I would square off the 5100 put and take chance with 5000 call. Even you square off both the options , you will have around 110-00 profit, which is not bad also.
Giridhart, Do u understand the most profitable time when option writer make money ?
If not then, plz understand the game of option writing first and have clear cut game plan
of managing your options trade.. till then end.
Lets come back to your trade.. with 300 rs of premium in yr pocket, your breakeven point (point beyond which u will start making loss in the position) is 5100 PE-300 = 4800 on lower side and 5000 CE+300=5300. So as long as mkt is within 4800 to 5300, u will be in profit.
How much will be profit ? you have to simulate various scenarios to know the answer.
All the profit of short option position comes from time decay. And this is at the max near expiry. Lets analyse the premium in yr position when mkt is at 4975. 5000 CE is worth nothing, so real value is 0 for this.. and 5100 PE is worth 125 Rs. so real value of your position is 125.. With mkt price being at 185.. you still have 60 rs of time value left in it and you are very well within your profit range. i.e. roughly 10 rs per day of timedecay for rest of 6 trading days on this month assuming mkt just halts at 4975.
Your max profit from this position shd come around 5050 level.. where u can keep all 300 in pocket and profit from 5000 CE will pay out the loss from 5100 CE at expiry. (*correction on max profit related part - Please read my next post below)
So the choice is between 182 to 300 rs of profit.. Option writing tests your patience..and in my view, you will be quitting at the best time when yr trade is working in your favour.
The decision also depends on your view about the mkt. if you think it is going to head towars 5050 i.e. yr max profit area.. then hold on to the position.. If u think it will fall further then, decide how much of paper profit of 182 u want to leave on the table with mkt and accordingly set stoploss exit for both position and trail it.
My only suggestion will be close position at the same time. Else u will be left with naked Short option which could hurt u badly with Gap open.
Hope this helps .. all the best.. and better planning for next trade.
Happy Tradnig
If not then, plz understand the game of option writing first and have clear cut game plan
of managing your options trade.. till then end.
Lets come back to your trade.. with 300 rs of premium in yr pocket, your breakeven point (point beyond which u will start making loss in the position) is 5100 PE-300 = 4800 on lower side and 5000 CE+300=5300. So as long as mkt is within 4800 to 5300, u will be in profit.
How much will be profit ? you have to simulate various scenarios to know the answer.
All the profit of short option position comes from time decay. And this is at the max near expiry. Lets analyse the premium in yr position when mkt is at 4975. 5000 CE is worth nothing, so real value is 0 for this.. and 5100 PE is worth 125 Rs. so real value of your position is 125.. With mkt price being at 185.. you still have 60 rs of time value left in it and you are very well within your profit range. i.e. roughly 10 rs per day of timedecay for rest of 6 trading days on this month assuming mkt just halts at 4975.
Your max profit from this position shd come around 5050 level.. where u can keep all 300 in pocket and profit from 5000 CE will pay out the loss from 5100 CE at expiry. (*correction on max profit related part - Please read my next post below)
So the choice is between 182 to 300 rs of profit.. Option writing tests your patience..and in my view, you will be quitting at the best time when yr trade is working in your favour.
The decision also depends on your view about the mkt. if you think it is going to head towars 5050 i.e. yr max profit area.. then hold on to the position.. If u think it will fall further then, decide how much of paper profit of 182 u want to leave on the table with mkt and accordingly set stoploss exit for both position and trail it.
My only suggestion will be close position at the same time. Else u will be left with naked Short option which could hurt u badly with Gap open.
Hope this helps .. all the best.. and better planning for next trade.
Happy Tradnig
Last edited:
Thanks for the suggestion.
I did crude analysis in which band I'll be safe before taking position. I'll go through the posts in this forum and plan better next time.
One more doubt on the max profit, if nifty closes on expiry at 5050 then
5000 ce would 50 and 5100 pe would be 50, so isn't the maximum profit is it 200?
I did crude analysis in which band I'll be safe before taking position. I'll go through the posts in this forum and plan better next time.
One more doubt on the max profit, if nifty closes on expiry at 5050 then
5000 ce would 50 and 5100 pe would be 50, so isn't the maximum profit is it 200?
Oh yes, you are right. For a moment how I assumed that u are long on 5000 call and short on 5100 put.
You are right, with both short position, you max profit will be 200 in the range of 5000 to 5100.
If nifty expires at say 4999, your max profit will be 199 (i.e. 300-(5100-4900)). Or if it expires at 5101, yr profit will be 199 (i.e. 300 -(5101-5000))
So in no condition u will be able to make more then 200.
your current profit is 300-185 = 115 Rs.
My suggestion will be to let profit run as time decay is working in your favour but put a trailing stop on both position so that u protect the profit.
Happy Trading
You are right, with both short position, you max profit will be 200 in the range of 5000 to 5100.
If nifty expires at say 4999, your max profit will be 199 (i.e. 300-(5100-4900)). Or if it expires at 5101, yr profit will be 199 (i.e. 300 -(5101-5000))
So in no condition u will be able to make more then 200.
your current profit is 300-185 = 115 Rs.
My suggestion will be to let profit run as time decay is working in your favour but put a trailing stop on both position so that u protect the profit.
Happy Trading
Hi AW10,
My colleague recently decided to get into share trading. He was very reluctant to take any risk. I suggested that Nifty options would give handsome profit and asked him to invest in 5100 (DEC) PUT @ 30. Now the price is dropping. I feel guilty of making him lose the money. Will Nifty go below 5100 before expiry? Can he save his money? I too have 2 lots of
5100 (DEC) PUT @ 30. I know its a small sum, but I dont want him to lose money because of me. Please help sir.
Thanks,
Sri
My colleague recently decided to get into share trading. He was very reluctant to take any risk. I suggested that Nifty options would give handsome profit and asked him to invest in 5100 (DEC) PUT @ 30. Now the price is dropping. I feel guilty of making him lose the money. Will Nifty go below 5100 before expiry? Can he save his money? I too have 2 lots of
5100 (DEC) PUT @ 30. I know its a small sum, but I dont want him to lose money because of me. Please help sir.
Thanks,
Sri
I feel ... now dec options are abt to expire, the time value is almost nil.
Though you will have profit if NIFTY settles at anything less than 5100-30 = 5070.
I feel a few ways to reduce losses is to write afew a little OTM options. However not much can be saved, but still.. we can make some quick money by writing a few OTMs.
Rest.. i would re quest other to advise also...
AW10, whats you call??
Though you will have profit if NIFTY settles at anything less than 5100-30 = 5070.
I feel a few ways to reduce losses is to write afew a little OTM options. However not much can be saved, but still.. we can make some quick money by writing a few OTMs.
Rest.. i would re quest other to advise also...
AW10, whats you call??
sriugdh, hope u know option pricing and how it changes near expiry. And also know how to read nifty's trend. In my view, these are basic requirements before getting into option trading. Regarding nifty going below 5100 .. frankly speaking I don't know..and as a trader I don't care. Cause I have defined my exits for open trades before opening them.
Your breakeven point is 5070.. even if nifty goes down to say 5100, ur option may not become valuable cause near expiry, there is not sufficient time left to travel below 5070. And if nifty moves further up, then ur PUT will loose value faster cause there will be less chance of it making money in remaining days.
If I were you, then I would either be preared to loose full money and take no action or would put a stoploss order and cut my losses. Just take this trade as another trade and move on to next trade with better plan. One loosing trade doesn't make us Looser.
Happy Trading
Your breakeven point is 5070.. even if nifty goes down to say 5100, ur option may not become valuable cause near expiry, there is not sufficient time left to travel below 5070. And if nifty moves further up, then ur PUT will loose value faster cause there will be less chance of it making money in remaining days.
If I were you, then I would either be preared to loose full money and take no action or would put a stoploss order and cut my losses. Just take this trade as another trade and move on to next trade with better plan. One loosing trade doesn't make us Looser.
Happy Trading
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