Comments for Options Trading In Indian Market

Comment on Covered Call v/s Short Put ? by shankar Vijayaraghavan

shankar Vijayaraghavan — Thu, 18 Oct 2012 11:52:46 +0000

Dear Anup, I came across your blog just today and was very impressed with your profile. The way you have gone about chasing your dream is inspiring.I am basically an engineer and have taken up nifty option trading very seriously from end of 2009.I started off with short strangle and moved on with different stratgies as my reasearch and knowledge increased with time.coming to the point now, I currently am on a strategy which involves about 5 or 6 strikes of the next month selling both put and calls Example: if market is at 5700 then my position will be from 5500 to 5900 (or even 5400 to 6000) November series, I am contantly figuring the adjustments during the intra month movements of market to maintain some sort of delta neutral, this strategy is perofrming very well from june till now,but I am on a constant persuit to interact with people like you to learn and fine tune.Kindly let me know your first cut feel of my strategy and any immediate advice,suggestions.also let me know if i can use any other forum to explain my strategy more in detail and interact with you better than here.thanks.awaiting your response eagerly.
shankar vijayaraghavan

Comment on Covered Call v/s Short Put ? by Trader anup

Trader anup — Wed, 01 Aug 2012 10:43:51 +0000

Your welcome Alpesh. Hope this exchange of idea has added atleast a few drops in ocean of trading knowledge that you are building up.
Happy Trading.

Comment on Covered Call v/s Short Put ? by Alpesh

Alpesh — Wed, 01 Aug 2012 10:37:27 +0000

Thanks Anup
Thanks for your Valuable thoughts and their sharing.

Comment on Covered Call v/s Short Put ? by Trader anup

Trader anup — Wed, 01 Aug 2012 08:49:32 +0000

I agreed Alpesh that I was talking about worst case scenario. But they do occur. Point I am highlighting is that 1 such event is sufficient to ruin your account, and that will have huge impact on your trading psychology for future trades. To me, Trading is about risk management and options give you that choice where you can pre-define your risk, irrespective of any event in the world. I normal rangebound market conditions, Short Strangle (short call+short put) has very good success rate. But that has to traded under the umbrella of 1) identifying range bound market on right most bar of the chart 2) Very Strong position management and risk management discipline 3) traders agility to be realistic about change in market direction and react quickly.

Don’t get me wrong that I am against short strangles. I do use them when market is appropriate. It is just that I don’t want people to ignore the dark side of such high risk strategy.

Regarding your point on stoploss – Stoploss gets triggered when your trigger price is traded at the exchange. If you are overnight position traders and trade in non-24hrs market open, stoploss are not guaranteed. Such 3 standard deviation events may happen overnight, and market generally opens with wide gap.
Regarding – short call, covering short put, it only partially covered cause short put has unlimited /open risk, whereas short call comes with Limited reward.

I am not sure, if you traded in May2008 (our election result day). Try to backtest short strangle on 15-May and see what happened to it on 18-May. Infact we couldn’t get any trade executed on Monday, and by Tuesday, all damage was done. Similarly backtest for Jan-2008 and Feb-2008.

Happy Trading

Comment on Covered Call v/s Short Put ? by Alpesh

Alpesh — Wed, 01 Aug 2012 07:17:29 +0000

Yes Anup
Thanks for sharing
But I want to notify u that u have consider worst scenerio. Trading should be done with stoploss. In your example market droped and broker squre off your put but at the same time there is price loss for the call option you have short and u can square of call to cover the loss in some extent.

I am not master of option but trying to study logically and has observation that shorting call and put is profitable in rangebound marcket with specific stoploss. (With respect to buying Call and Put simulteniously or buiying anyone)
Pls let me know i am wrong I am wrong.

Comment on Covered Call v/s Short Put ? by Trader anup

Trader anup — Tue, 31 Jul 2012 16:19:23 +0000

No Alpesh. In my view, Protection / Hedging is correctly done when any kind of obligation is nullified by some type of rights or ownership. It is a risk management approach to effectively reduce the risk. If you take another obligation to reduce the impact of previous obligation, then you will be adding on to your risk.
Assume the case, when you have short put and short call position, market drops vertically and broker squares-off your short put position due to margin call (and you are hit by a big loss). Next day, market bounces back strongly and your account, which is smaller in size due to previous loss, gets into another margin call on remaining open short call position.
And broker squares-off your position once again and you are hit by one more big loss.
I agreed that this might not happen frequently, but just one such event is enough to blow your profitable trading of few years. I know traders who have were consistently collecting money with short put strategy in bull market, but when market changed the direction in 2008 and volatility skyrocketed, they lost 2 years of earning in Sept/Oct 2008.
So to summarise, I wouldn’t recommend protecting one short position with another short position. By the way, this argument is not valid with 2 long position cause with Longs, you are not doubling your obligation.

Comment on Covered Call v/s Short Put ? by Alpesh

Alpesh — Tue, 31 Jul 2012 15:50:00 +0000

It is my observation that we can protect sold put by sold call
(Suppose Nifty at 5000 then we can sell 4800 put and 5200 call so protection will be around upto 400 rupees)
Is any one agree with this pls letme know?

Comment on Home by Nifty Charts|Nifty Tips|Tips Nifty|Nifty Live Charts|Stock Tips

Fri, 11 May 2012 03:15:51 +0000

Comment on How to trade bearish view with options ? by Trader anup

Trader anup — Sun, 06 May 2012 07:24:34 +0000

Patel, In my view, there is appropriate time for each of the strategy. Long Strangles are great when market has been in low range, low volatility i.e. has been sleeping for some time. As it breaks out from the low range, the strangle will give good return. Being a market neutral strategy, one leg of Strangle will always be the looser, hence it is important to cut the loosing end after breakout is confirmed and let the winner run.
Do keep in mind that high volatility might not last for long time (cause we human being are not tuned to live in stress for long time hence we take action to adjust asap).

As you rightly mentioned, when market tanks, strangle will make money. But please do check the historical chart. You will notice then whenever market has dropped vertically, it has bounced back almost 50% or so very quickly before resuming the drop again. That means timing for booking the profit, cutting the loosing legs are more important points.

Worst part with strangle is the larger time decay hence you have to backtest your system for strangle trading and see if it really profitable or not. If you use this strategy at appropriate market condition then it is profitable strategy.

Happy Trading

Comment on Interpreting top 10 open interest – 15-July-2011 by Friendly

Friendly — Mon, 30 Apr 2012 02:33:07 +0000

Friendly…

[...]Interpreting top 10 open interest – 15-July-2011 | Options Trading In Indian Market[...]…