Ask me anything about options

AMA (Ask Me Anything)
87

Hey @Abhimanyu_C_Jivraj

It is very very tough. You cannot make a living trading stock unless you take it as a full time professional career. You can start trading with as less as you can. But the point is, for it to be worth your time, you need to make decent money. The best fund managers in the world make around 20-30% a year. So that gives you an idea

88

i know that but the probability and average risk makes sense too.:grinning:

1 Like
89

Hey @mparmar

  1. In Option 1, you will actually LOSE time value
  2. Option 2 makes sense. You can play it more aggressively by playing 66 CE sell 66.5 CE buy
90

@Abid_Hassan : Hi Abid - are you able to provide me an answer today as you indicated before ?

91

Hey @abbanerjee

Market making by exchanges is a practice they follow when a product is newly launched, and is not very liquid so that volumes pick up. Not sure which segment/ product will offer you market making incentive right now. Can you please let me know the exact purpose of this question so that I can answer this better?

Anyway, here is all that I know about it. In this scheme, you are generally assuming that the money you make by way of incentive will make up for the money you lose.

If I were to be a market maker, there are two ways in which I will approach this

  1. If I have an “axe”, or a directional view, I will tend to play that side more in market making. Say I have a buy view, then I will bid more than offer and vice versa.

  2. If I do not have an axe, then ideally market should not trend, and shouldn’t moving much. Then I will offer both sides bid and offer in the hope that I will keep earning the bid offer spread, and the incentive, and it may compensate for any loss I pick up because of movement.

I full disclosures, I have never done market making on exchanges, but only traded with a view. I have done market making in interbank, but that is a different game

92

Hey @Vigneshwaran_Vick

That is some deep observation.

Honestly, my answer to this would be an I am not sure. Nah, I would go with I don’t know . If you have two conflicting signals, it is better to not take that trade,

Here are some questions to think through so that you can have a better opinion

  1. How did the market act the last time when there was OI as above?
  2. Do you think this is significant OI?
  3. You can see that there is a bigger decrease in OI in calls than puts. What does that tell you? It could mean that call writers have folded the hand and are probably bullish

Sorry, I am not being of much help here. But I don’t want to ask you to play a marginal trade and get it wrong. I would sit this out

There is always a better trade to take

4 Likes
93

Thank you so much @Abid_Hassan for taking your time to respond to my query. I am definitely thinking through the questions you have asked

To be honest with you, been trading only for the past 6 months and beginning to understand the options. So, I haven’t had an opportunity to see something like this and confused.

I suppose some of them got significant OI which misleads us and showing a shrewd picture.

This makes me ponder and gives a new insight on this. That could definitely be a case.

Overall, I completely agree that I should have not taken that trade. Will keep you posted on my positions tomorrow on this and I am pretty sure that will be exciting. Thanks again for sparing your time and this is truly encouraging.

94

Can I interpreted this way option 1) theta of 66ce will be higher than 66.25 so I will lose it 2) I will actually have the benefit of loosing theta for 66 ce and 66.25 will be lesser so will not loose much .

What say @abid_hassan

95

hi dude good analysis, i have been trading banknifty for a while and these are the levels the market is respecting. 25871 and 25740 ie 1 week candle. bnf should give a breakout if these levels are broken tomorrow or friday. lets see

1 Like
96

Thanks @Abid_Hassan. Grateful for your time.

My question isnt about any segment. Its more about how do sellers of options make money in general as I assume they quote both sides. I have not worked in market making as well, and hence I dont know how this works and I thought you might be knowing.

I really dont understand the statement where you say that in case there is no view one can quote both sides and earn the bid offer spread. This is exactly what my question is infact. Say that you are quoting Nifty Put at bid-offer spread of Rs 3. How would you do this ? I can think that one would put a limit order to both buy and sell at 3 Rs apart. Is that how it works ? And what happens if one of your limit order is filled. How do you then earn the bid ask. Can you setup a limit order such that the moment one of your legs are filled you can go arround and square it off hence earning the bid-ask. This is what I am not able to get my head arround. Hopefully you can understand my question - and maybe the answer is more basic than how market making works, but thats really what I am trying to ask. How exactly does one earn the bid-ask spread.

97

Hi Abid,

Thanks for conducting this AMA.

How do you recommend we correct our legged positions as per the changed volatility

Ex: I have formed a iron condor by selling 10200 PUT and 10500 CALL based on VIX index 1SD probability.

Now the IV’s have expanded a lot and the safe range according to VIX is 10000 - 10700. What you recommend in this case ? Should we sell our old positions and create a new leg as per current volatility ? I am ready to bear some M2M loss but want to make sure I am still in the game and make some money by end of the month .

1 Like
98

@Abid_Hassan
I AM STUDYING OPTIONS.
MY QUERY IS, SHOULD WE FOLLOW FUTURES PRICE OR SPOT PRICE OR OPTION MOVEMENTS.

99

Hey Hi,

How are you? I have 2 3 queries.

  1. How to find mis priced option?
  2. Any option arbitrage software that you can recommend.

Thanks,
Prashant Sakore

100

@maddy_Des,
mean time, you can check Fyers site, its enough good for start. there are strategies with related explanations and calculators.

101

glad to be of help mate

102

Hi @Prashant_Sakore

  1. Tough one man. It is almost impossible to find mispriced options in liquid markets. Your ability to exploit mispricing also depends on your costs. My point is, if there is a mispricing of 58 bucks, you cannot exploit it if there is a cost of 75. But a bank or a hedge fund with 30 rupees cost can. And you need speed to exploit before anyone else sees this. Most banks and funds have lower execution costs than you do.
    And faster algos. So :frowning:

  2. I am not sure they exist. Because the bigger banks with lower execution costs will be better at this game

103

It does not matter much, really. Theoretically future price is showing the expectation on the expiry price of spot. So there is a case that options reflect the expectations in line with futures. But seriously, dont worry much about it, unless there is a massive discount on futures over spot

104

Hey @dexter007 ,

Tough question. If I were you I would not get out of a position unless

  1. Your iron condor is making losses.
  2. You are seeing the possibility of a big move (in which case you should not have the bigger condor either, and rather have options bought)
105

Hey @abbanerjee - Let us logically think it through.

  1. We know this happens in illiquid markets . So they bid offer is wide.

  2. We know the market maker has no definite interest. He/ She thinks rangebound

  3. So in a mild range- bound market let us assume you are quoting a wide bid offer, say 3 points on NIFTY. You get hit on bid and offer 10 times. Thats 30 points. and let us say that NIFTY move is very small, so any losses you might have had to take by improving the bid/ offer after one side got hit, or by covering at a loss is smaller than the 30 points.

The catch is getting hit 3 points many times. You get it hit 100 times, it is 300 points.

I guess. Again, have not done it in real life, sorry about that bit. I’m asking this to people who I know who have done that. Will get back!

106

yes my Iron condor will make loss due to volatility skew where I will start bleeding more in my short PUT position compared to CALL position short gain :frowning: So what you recommend at this state ? Exit or reposition ?