A little confused about buying PUT option. Help needed..

F&O
1

Hello guys,

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.

2

Option pricing not as straight forward as stocks.

Refer to Varsity Options modules and all your doubts will be cleared. Refer to Greek Interactions module for your specific query.

If you are fairly new to Options, it will be too much for you to initially grasp. Keep learning.

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3

Options price is driven by lots of factors not just price movement in underlying price.

Give Options module on Varsity a careful read, you will understand everything.

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4

Buying deep ITM options are much better then buying ATM options , ITM options behave like a"Future" but keep in mind that buying a option is a risky & has less "edge " Time decay is the option buyers enemy.:slightly_smiling_face:

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