Hey @Arun9999 The trick is there are always other buyers or sellers in the market you can square off with, and your squaring off need not happen with your original counter party
So some people can square off, and some can hold till expiry. The ones who square off buy sides will trade with ones who square off sell sides. And the ones who hold sell trades till expiry will be matched will ones who hold buy trades till expiry
1, 2, 3 Let us take four people. John, Paul, George, and Ringo.
John Bought option at 10 from Paul
George and Ringo are on the sidelines now (much like real life )
So now John sold it at 15.
And Paul bought it at 5. These prices cannot have happened at the same time, as they are far apart. So I am guessing John must have sold it to George, and Paul must have bought it from Ringo.
When John squared off his position, he is out of the market, with some random buyer (George). It could have been Paul, who is the original seller, but given the price difference, I am guessing it is someone else John square off with. If he got another buyer to square off, then the Paul can hold till expiry.
If the buyer who paid premium waits till expiry he will be matched with someone who waited with a sell position till expiry. He will get the money from that seller.
I will slightly refine that. Number of sold contracts = No of bought contracts
Either the buyers and sellers will make the trades and square off, or everyone will go to expiry, after which the settlement is done at settlement price
That was a long question. Let me know if something is not clear. Cheers!
Thanks for sharing valuable information in this forum…
I like to trade Options Occasionally for intraday only.
I would like to know, How can we calculate Target for Options?
Hey @Amit_Rajderkar
There are three things Options options depend on
Underlying Price
Time
Implied Vol
If you are doing intraday, 2 & 3 wont come into play.
2 will if it is a Friday, or one or two days before expiry
3 will only if there are events
So I am guessing your question is:
“NIFTY is at 10300. I bought NIFTY 10300 Call at 50 Rs. Now my target on NIFTY is 10350. What should be my target on options?”
In other words, what is the connection between underlying price and option price.
This is one of the questions we are solving with Sensibull. We are making a tool which will help you set option target.
For now, what you need to know is Option Delta. There are tonnes of calculators which will give you this online. Zerodha - Black & Scholes calculator is a decent one
So if the delta of a call is say .5
If underlying moves 10 point, option price will move 0.5*10 roughly.
So just find the delta of an option, and multiply by the underlying move. Note that this works for small movements only since delta itself changes. For big moves, use
Hi @Abid_Hassan. it’s nice to have a people like you at tradingqna.
I am trading in currency options since last three years specifically in USDINR. Would like to know your opinion about trading in options using IVs.
I was trading USDINR IVs prop on NSE for IIFL for a couple of years. Could you be more specific about your question please? Opinion can be on hazaar axes
@Abid_Hassan Ya sure. I would like to know how IVs can help in trading options. Can we simply buy lower IVs strike and sell strikes with higher IVs. I also need hostorical data of IVs of USDINR to find the nature of IVs and then finding a range based on Standard deviation.
Basically the idea is sell higher IVs and buy lower IVs. But it goes way beyond that.
Let me try to simplify that. In USDINR going by what you said, upper strikes will have higher IVs than lower strikes. So if you sell 65.5 Call and buy 64.5 Put, you have sold a higher IV, and bought a lower IV. And yet, you will lose money if USDINR goes up. In fact, how to trade IVs goes beyond the scope of this post. I will do a Webinar on it. Promise!
Historical data of IVs - not sure. We were on Bloomberg. And yet, none of that meant anything. When I started USDINR, IV was 3.5%. Within a year, I saw 18%
May be @nithin can help with the historical data bit?
Generally, institutions are profitable in options trading. And yes, retail makes losses. I don’t think they “play” against retail .It is just that most of them are on the same side, and they have more information than we do, so they don’t end up making the wrong trade. So retail is the only group left to make the wrong trade
I have made the below assessment for the bank nifty options tomorrow and could you please let me know whether is there any other variables that we have to consider while buying the options. Kindly guide and help us in understanding this better. Eagerly Looking forward to your answers.
With the end of day, below are the points i assessed before buying the put option 25500 PE 30th Nov tomorrow (Cheap and because of the minimum capital)
Bank Nifty broke all the moving averages and took support from the 50 day EMA today. Well, this could be a reason there was some buying interest after the initial sell out. May be, It could initiate fresh buys that will take the index to move upwards.
There is so significant writing happening at the current levels and the call writing has happened right from 25700 and upto 26300. This results in indecisiveness as well as restricts the further momentum I believe.
@abid_hassan if say I am of the view that USD INR will not Cross 66 in next 10 trading days . Two options I have . 1) Buy 66 CE and sell 66.25 CE to get the time value and squreoff the trade post 10 days 2) sell 66ce and buy 66.25ce to protect sold position .
What can be the best out of above options or else you can give me any other strategy
I was under the impression that the value of an option at any strike price is the total value of the greek calculator.
This is a new info to me. So im guessing that the value of an option at any strike price is the total of the product of greek calculator + the extra value that people are ready to quote. And it cannot go below the value of the options calculator.
For buying one lot of option 4 days max how much is the risk
on it if next day market opened just opposite far from entry because there will be no stop loss in place.
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