I’m a little confused about buying PUT option. Please consider the scenario…
Let’s take today’s Banknifty example… It opened at 22613 and closed at 22089. That was a huge 500+ points downward trend.
Now suppose I buy 22500 put option when spot was around 22510. Since that’s the ATM put, it reacts highly to price changes. Even if market goes a little up to 22560, the 22500 PUT option premium goes significantly higher. If the market goes a little higher, that might lead to hitting the stoploss as well.
What I observed today, once the market closed, is that the deep ITM put option, let’s say 22900, was shooting up when banknifty spot was going down, but was not coming down significantly even if banknifty was going 50-100 points up. I mean, it was very responsive to downward trend, but less responsive to upward trend.
So, my question is that should I buy deep ITM options to ensure safety of positions? ATM options are highly volatile and today I got stop-loss hit a couple of times…
Please advice. Thanks.