Ask me anything about options

[Sensibull]

@VIPULK

Fair enough Abid… Thnx for d effort

Wud b great to have some option payoff simulator with different strategies so that we can play with inputs also corresponding margins…

Also What deters d small trader is high margin required for selling options …

If some binary spread strategy (locked as simultaneous buy or sell) is introduced then that wud reduce d margins required considerably…

Eg for bull call spread/ calendar spread … Single click enter or exit for both positions simultaneously …

Anything as such to be introduced in kite in near future ?

Hey @VIPULK
Yes, we are building that.

Please mail me at [email protected] for a beta release

[S_Sanga]

Sorry. Maybe It is not relevant to the topic. I was just asking to get some info.

[maddy_Des]

Then plz post in relevant thread.

[S_Sanga]

Ok next time will search for a suitable thread.

[Sensibull]

@maddy_Des

Dear Sir,

Can you tell me what will happen if I Buy Near month Nifty Future/CE and sell next/far month future/CE?

What its called?

hey @maddy_Des

This is a calendar spread. In any case what we call it does not matter

The trade here is that you are betting on the difference between two futures, which is called basis in some circles. So if you bought November (10350) and Sold December (10380), you are betting that this spread of 30 points will reduce. That is December and November get closer.

At a point where this is sufficiently low, say you started at 40 points spread and not it is 25, you exit both legs and make 15 points.

This is a very popular strategy in currency forwards.

[maddy_Des]

@Abid_Hassan Sir,
As far as I know the near and next month futures/CE ITM will be exactly same on expiry. So One will always make profit no matter what if one can keep margins invested till expiry. Plz clarify

[maddy_Des]

@S_Sanga

next time will search for

[Sensibull]

@Nirmal

Hi Abid,

I have been trying Options and i focus on banknifty weekly options. I keep looking at the prices of those 12 banks and try to see if i can make a pattern.

I have a few confusions -

a) I read everywhere that the value of an option is premium + the intrinsic value. Am i correct in guessing that the value of an option is always a computer generated value and the people quoting higher value to buy it does not affect the price (like how stocks work)? I mean, the value is 100% decided by the algorithm and the number of people tryng to buy it has no impact on it?

The reason i ask this is- i want to know if the volume for a particular strike price can have some effect in its price too.

b) How can i track the movement of institutional buyers to guess the trend? I mean, i read everywhere that big institutions short options and people like me who buy call/put should try to go in the opposite direction. So is it a good appraoch to see the OI and try to guess where the big investors have put their bet?

c) I keep looking at the prices and actions of top 3 banks (HDFC, ICICI and KOtak( as they constitute 75% of Bank Nifty, and formulate 10 minute a plan on the basis of this. I go in and come out in 10 mins. Is this a viable strategy? Although people talk about watching real time news and all- it does not help me to find the sudden peaks and drops on a normal day unless some big news are out like the quarterly results.

Thank you for your time.

Regards

Nirmal

Hey @Nirmal,

Thanks for the question

1. Value of an option, just like the value of anything is the price determined by the market. There is no computer to determine this. If there are a of of buyers on a strike, it will go up, and if there are a lot of sellers it will go down

2. brameshtechanalysis.com gives a summary of this. It is a good idea usualy to bet against the retail position in options

3. If there is an arbitrage like you point out, the HFT people will take it out before you or I can reach for our mouse. So my answer is a no

[Sensibull]

@maddy_Des

@Abid_Hassan Sir,

As far as I know the near and next month futures/CE ITM will be exactly same on expiry. So One will always make profit no matter what if one can keep margins invested till expiry. Plz clarify

@maddy_Des I did not understand this mate

[tushjain00]

@Abid_Hassan

Please guide in selecting strike price for Yes Bank Dec series.
CMP is 312

I am bullish around 330-340
Would buying 330 call now is early? And also is it considered a waste of money? As people say dont buy otm options

[btr]

I think what you are missing is that they don’t expire at the same time.
Lets say you buy November series option and sell December series. Now, on last thursday of nov, you might expect their value to be the same giving you some sure profit - but that won’t be the case as even though their intrinsic value is exactly same, the time value of December series is still positive whereas it is zero for nov series. Basically, the difference in their premium will come down, but won’t become zero. So you will earn something but I don’t think it will be more than 0.75 % per month considering the margin, that too before paying tax.

Of course you also can’t hold the naked December series option till December expiry as that would be a directional call and different from this strategy.

[navo]

Hi Abid,

Thanks. My question might be pretty naive. Here is my concern.

Let’s say I’m very bullish on Nifty and buy 2 Future contracts for positional trade.

Now, my primary concern here is although I know where my stop loss will be placed, how do I protect myself in case of on unforeseen circumstance like a big gap down (demonetization gap down event) using Put options.

Awaiting you earliest response. Thanks.

[Abhijay]

Hi Abid,

Thanks for the initiative.

How to trade Nifty Options ? The strategies which will reduce the risk. Is it advisable to trade during the last week of Expiry. Have lost what I have earned for the past couple of months during the last week or when there is a gap down opening. Any risk free pair trade available for Nifty Options. If I buy a December now, will the premium amount gets reduced when the December expiry month begins ?

Is it good to buy 1 lot of Put & Call i.e If the Spot price is 10,326, then is it good to buy 10150 PUT & 10550 CALL at the same time & also if this work, the holding period.

[123456789]

You may want to try Market order but less qty at a time. More brokerge but better price.
This Java api, do you have pay 2000/- p.m. to use kite development?

[VelmuruganSengottai]

@123456789

You may want to try Market order but less qty at a time. More brokerge but better price.

This Java api, do you have pay 2000/- p.m. to use kite development?

OFF-TOPIC:-
I think its better we will move to a new thread to discuss about this

yes… we have to pay 2000Rs …
but i find its worth to develop an order management system if we know coding .we can easily create complex option postions and fire the orders in a jiffy …

as of now i am splitting the orders into smaller orders of 5 lots each…

[maddy_Des]

Yes, that solved my problem completely.

[Sensibull]

@tushjain00

Please guide in selecting strike price for Yes Bank Dec series.

CMP is 312

I am bullish around 330-340

Would buying 330 call now is early? And also is it considered a waste of money? As people say dont buy otm options

Hey @tushjain00

Hope I am catching you before the market open

Tough one. Tough one because I don’t want to be seen giving market view, which is advisory, and I dont think I can do that.

But here is the systematic way to answer your question.

More than the view of 330, what matters is the velocity with which it goes to 330. If it goes quickly, say in 5 days, sure, buy this. But then if you think of a move in the next 2-3 sessions, you will get November options for cheaper!

See how many prominent resistances exits in your road to 330. You can see that in Kite Charts. If there are too many in the way, it is unlikely that Yes will go to 330 soon. If there are not many resistances, you might have a chance

I think yesterday’s closing price on 310 Call option was 17 Rupees. 330 was 9 Rupees. The problem is, if it goes slowly, say December end to 330, 310 CE will be at 20 rupees minus STT, 330 will be ATM ~0. You will make nothing on either option. So you might be better off not buying this call.

Three Alternatives

1. if you think there is no downside left, sell that 310 Put at 10, or even better the 320 put with some protection
2. Think of a call spread. Buy 310 Sell 330, or buy 320 sell 330, or one of those. They are cheaper, so lower cost of going wrong
3. Pass. Do nothing. Not having a position is a position.

[Sensibull]

@Abhijay

Hi Abid,

Thanks for the initiative.

How to trade Nifty Options ? The strategies which will reduce the risk. Is it advisable to trade during the last week of Expiry. Have lost what I have earned for the past couple of months during the last week or when there is a gap down opening. Any risk free pair trade available for Nifty Options. If I buy a December now, will the premium amount gets reduced when the December expiry month begins ?

Is it good to buy 1 lot of Put & Call i.e If the Spot price is 10,326, then is it good to buy 10150 PUT & 10550 CALL at the same time & also if this work, the holding period.

hey @Abhijay

1. How to trade options? Long story , longer than this thread. You can watch Options 101 series on Zerodha Youtube Channel

2. Any strategy with a limited loss will reduce risk. Think Call Spread, Put Spread, Straddle, Strangle etc

3. There is nothing wrong with trading last week as long as a) you know what your risks are b) you have built in stop losses

4. Pair trade - No pair trade is risk free mate.

5. Yes, if you buy a december now, the premium will go down with each day.

6. The problem with buying both 10150 and 10500 is that if nothing happens, you will lose money. There is huge OI around 10500 and 10200 if you look at NSE. Normally, it is unlikely that such huge moves will happen and break the OI areas.

[Sensibull]

@navo

Hi Abid,

Thanks. My question might be pretty naive. Here is my concern.

Let’s say I’m very bullish on Nifty and buy 2 Future contracts for positional trade.

Now, my primary concern here is although I know where my stop loss will be placed, how do I protect myself in case of on unforeseen circumstance like a big gap down (demonetization gap down event) using Put options.

Awaiting you earliest response. Thanks.

Hey @navo

You can buy cheap NIFTY lower side puts. Like 10200, or 10150. Ask yourself what is the loss you can take. If your answer is 100 points, then buy a put which is 50 or 100 points below current NIFTY price

[Arun9999]

Hello @Abid_Hassan
I have few queries regarding options.
i am newbie to trading plz answer these queries.

               Call Option(Lot-100, Expiry-30th Nov)

----->buy<----------------------------------------------------->sell<-----
@10-------------------------------------------------------------@10
premium paid=1000 ----------------------------- premium received=1000
Now------------------------------------------------------------Now
square off(sell) @15------------------------------- square off(buy) @5
receive premium=1500-----------------------------he pay premium=500
profit=500(1500-1000)--------------------------------- his profit=500
(1).is it right or wrong?
(2).His(1st buyer) involvement closed here itself or he
need to do anything as seller(buyer who squared off his postion)
to buyer(2nd buyer) if the buyer hold his position until expiry?
(3).if the buyer(who paid premium as 1000) wait until expiry if he made a profit from whom he get the money?(the seller who sold option to him already exit his position)

Let
TCS 2500 CE
Spot price-2700
If buyer wait unti expiry(until auto square off on 30th).

On 30th few minutes before market close LTP@25.

(4).he will get 100*25=Rs2500 or something else(other payment calculation)?

(5).In options, at any point of time the no.of Buyers= no.of Sellers or not?

(6).How settlement is done between buyers and sellers, if at the time of expiry only 2 buyers and 2 sellers available ?

Let
TCS 2500 CE
Spot price=2489
(7).On expiry day at around 9:30am what would be the possible premium?(0.3 or 0.1 or may be greater than these values or something else).

Plz give answers as per question numbers as i mentioned.

Thank U.