Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

General Discussions about writing Options

44 sec read


 

I was thinking about a simple trend line strategy to short
5100 Nifty PE 28 Jan 2010 series
CMP : Rs 93.

1)Just assume that nifty is likely gonna respect this trend line as shown in Nifty daily chart
and likely to stay above the trend line till 28 Jan 2010 seires expiry.

2)And if we assume so, then we could interpret approximately that as per Nifty daily charts then somewhere around 5050-5080 is going to the trendline support for time being.

3)And the trend line increases with respect to time.

4)If nifty is not in a mood to dip below the trend line then it is definitely not
gonna close below 5050-5080(Just an assumption).

5)So if we gonna write 5100 Nifty PE 28 Jan 2010 Series then definitely
our profit is gonna be Rs 93/Lot because if nifty closes above trend line
during expiry of Jan 2010 series then definitely it should be above 5100
and also the supports are also likely to increase with respect to trendline.
and ultimately 5100 PE value has to be zero during Jan 2010 expiry

6)Stop Loss is the trailing support of the trend line and for time being
it is near 5050.

I’d like to hear comments and discussions from you people. on such
simple strategies and risk involed in that .

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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0 Replies to “General Discussions about writing Options”

  1. Option writing though seems tempting involves a lot of risk, especially for Indian markets which is very high beta and reacts lot to overnight clues and unforeseen events, so a gap down in case of put writing here could be killing.could be handled by buying a put of even lower strike price 5000 or 4900 in this case, though will limit the profit, but worth it..

  2. Yeah Looks Buying or 4900 PE could be good hedge for writing 5100 PE. If we do so then our profit could decines to 93-44= Rs49/LotIs there any other better strategy to handle this trend line situation effectively

  3. Today, I had a long chat with my friend on the same strategy coincidentally.You get 93 bucks premium, so effectively if nifty closes the expiry at 5007, you are covered (at least you make no loss).5007 is a good 3 pc down from current levels. So, what do you do if the markets tanks? If 5 EMA breaks, short a Nifty Future. So your loss from writing the Put is covered.In last 1 year, there have not been many falls (gap downs) more than 3 pc. The Election result was a known event and for which no option writing should have been done

  4. Writing Options is not an easy task:It better work if you write PE and Calls when market is sideways. when time decays, both sides would lose cost. But if market goes steep down/up, it burn fingers.If you know market would move up (from my experience, there is no such experienced person can tell movement for next two continuous weeks!!), you can write PE alone!! I experimented things a lot in options and furutres – unless you know atleast 75% of market pshycology for next two weeks on non-sudden events and all graphical(its past min performance – always remember) things looks in your way, writing in one direction is very risky.I never suggest my friends to try more than 5% of your total net capital in options. Its a High risk and high profit! May be too hot to touch for many!!Happy trading! Have a lossless day!!Selva

  5. I expect market to be bit bullish in Jan 2010, ideal NIFTY option strategy would be Call Ratio Spread.Short call 5400 2 lots @Rs.51 per lot.Long call 5300 1 lots @Rs.86.95 per lot.Analysis:If Jan nifty expires at any level below 5300, profit = Rs.15.05If Jan nifty expires between 5300 to 5400, profit Rs.15.05 to Rs.115.05If Jan nifty expires between 5400 to 5515, profit Rs.115.05 to Rs.0If Jan nifty expires above 5515.0, loss(infinity)Trade Wisely and Relax, Narendar

  6. No pain no gain. In trader's context, rather, no risk no reward. As many have mentioned writing options is a highly risky business. I think, the risk involved can be handled with proper exit criteria – strict Stop Loss and timely Profit Booking (I have written it with such ease but it has been really difficult to follow). The strategy is simple and may work if things go as expected. Have you thought of counter plan if things go extremely adverse? WRT point 6. The trading systems we use do not allow us to keep stop loss at index value. It has to be premium of the position which is a complex function of index and N unknown factors. What I mean is, the premium value at which SL gets triggered is difficult to calculate. Please suggest, if you have some idea.There is another difficulty even if we solve above problem. You have mentioned a trailing support of 5050 which is the stop loss level. In my experience, if there is a dip, index may bounce back from any value in the band of lets say +/- 20~25 points. E.g. what if you square off your position @ 5050 and index bounces from 5030.I have been writing options and these are a few difficulties I have faced. I would be happy to discuss on these issues.

  7. I am also experimenting with option selling.The suggested call of 5100 JAJN'10 PUT is bit too near and has higher chances of increase in the premium if NIFTY moves slightly downward.However, I would trade 4900 PUT @ 47 and 5400 CALL @ 42, which earns same amount of premium but provide safer options allowing NIFTY to move in broader range in either side.

  8. Hi Naren Sir,Notetomyself,Arabinda,Naresh,Nishit Vadhavkar,Tarique Anwar Thanks for coming up with tons of ideas.I'd like to explore more with options and justtrying to focus myself with non directional and riskless market strategies. Will try to explore more non directional possibilities in the future. Looking more support and feedback from you people.

  9. 5100 PE now @108.00, anybody holding short position in this should cover it ASAP to minimize further loss. DJIA crashed yesterday, as market is closed today, one can expect gap down on Monday.Also Call Ratio Spread discussed above will give Rs.15 profit even if NIFTY falls below 5000Trade Wisely and Relax 🙂 Happy weekend

  10. Yeah Agree Narendar,Shorting Naked Options are risky. Seems Call Spread ratio works fine even in panic days

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