Hi Abid,
My view is bearish and while buying a deep ITM put I am getting a negative time premium, what’s your view on this strategy.
Regards
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Hi Abid, how to understand “undefined risk” for option writting? Is it "unlimited ?
I am having a hard time understand on what scenarios does one blow up the whole account? Or how can one protect themselves from it?
When suggesting Easy Options in USD/INR, the underlying value selected is the Futures value of the USD/INR instead of the spot value.
For example: If I have a bullish view on USD, and the futures value is currently at 71.56, then it suggests going long on 71.5 CE and going short on 71.75 PE.
But this is misleading, isn’t it? The spot price is around 71.3 and both my options would expire OTM leaving me with the premium of the CE I shorted.
Please correct me if I am wrong.
When we initiate long straddle or strangles the positions won’t be delta neutral on market movements on either side how to do the trade adjustments of this strategy.
And can long deep OTM options premium increase when der is high volatility.
Hi Abid ,
I have couple of question for you since you have worked for institutional desk
- What used to be your bread n butter trades? In USA, spreads generally gives you a gain of 10-12% while due to margin problem in India spread generally give 3-4% on average
- Can we get the direction of stock using change in IV and change in Oi on particular strike price? You share one excel on Telegram
- Sometimes one particular strike price in option gets huge OI buildup without change in price. Can we get some trade out of that? Like
- I have read in many places that institutions generally sell options. But if one looks FII data closely , they sometime go huge in buying option without much complementary selling to hedge it
- What do big hedge fund like citadel or Renaissance trade more options or futures?
Sir,
I didn’t understand , what are you saying.
Please alobrate with example.
- Naked buying, tbh
- This is info that is privy to the brokers. I should stay away from this
- There is no such thing called “best strategy” tbh. And the best strategy is not a function of the strategies return, but of risk adjusted returns where a key input is risk appetite.
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“Institutional is a very broad term. There are HFT institutions who only make money focused on millisecond trades which use market microstructure (bid offer ladder). And there are outright directional folks with medium term trades. Option Desks in Inda mostly sell options and try to get Theta while remaining delta neutral. Here is another interesting class of people I met in Bombay - They sell options, and if it is not a stoploss within the first 5 minutes, they keep the sell position till EOD. So long story short, it depends. But most mid level institutions are sell options and hedge delta people”
OI - Yes. IV change, its tricky. To get the OI thing here is a video. - https://youtu.be/wMKqGKRnskA
Honestly the best indicator is underlying/ futures volume. OI is not a big predictor
That does not mean anything, does it? The price being constant despite underlying move can be because of time value change
I think the trick is what do they do it for. If an institution say an FII is hedging the portfolio they will buy .Similarly they can have a directional view expressed through buying options. If they are trading, I would suppose they would sell though. My guess, not sure here to be honest
No idea
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I am not a fan of adjustments to be honest. The reason is simple, adjustment is almost like repairing something which is going wrong. Its like throwing good money after bad money. In trended markets it can get pretty bad. I think it pays on one of the worst things in human psyche that is sun cost and pot commitment. My idea is to stop out.
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That is almost like giving a view. Not sure if I should
But here is the catch. This seems like a breakout market or a breakdown market. I am not sure if selling vols is a good idea is either, considering the super low IV
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Hi Nihit,
Where did you see undefined? Unlimited usually means you have sold an option without hedging it.
To be honest, blow ups do not happen because market moves. Most blowups I know happened when people did not position size correctly - that i they took big positions bigger than their account. I am pretty much willing to bet that if you trade 1 Nifty lot with 2-3L capital and 100 pt SL you will never blow up, unless of course some catastrophe happens. At that point you have other things to worry about than Nifty 1 Lot anyways
One advice - Take care of your position size. You will not blow up.
Oh and avoid things like results day of Yes Bank
To quote a fellow trader Pran Katariya and Kill Bill
“In Africa, the saying goes 'In the bush, an elephant can kill you, a leopard can kill you, and a black mamba can kill you. But only with the mamba is death sure.”
That Black Mamba in trading is position size.
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The first part is true, the second part is not true. If you check the suggestions today, spot is at 70.80, we suggest and 71 CE buy and a 70.75 PE sell.
That said, if you look inside, all the breakevens are given in terms of spot.
Having said that, yes, we can definitely improve this to be more closer to spot.
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The usual
Always trade small when you start out
Always keep a stop loss
Do not trade frequently. Wait for the right trade
What do you mean by this? Do you mean to say that you are losing Theta? Which option is this? Can you please throw some more light?
There is one way in which this can happen. If you are seeing that you are getting Theta, it is not because of Theta of the option but because the future premium erosion over spot every day
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That is very true, Rohit.
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Yes you can. You will save one leg brokerage. Sorry @nithin 
. On a serious note, I would say that there is an argument to square off. This is because you can free up that margin for something else. Plus if I have a Bank Nifty 150 Point OTM option at 230 PM, I would rather get out than keep that risk of last minute circus happening
Absolutely yes! There are three variables. Delta, Vega, Theta. Think of this as an equation aX+bY+cZ+D. You can always get two of these to be zero by playing around with the others.
Here is an example.
- Take a buy straddle. That will give you neutral delta, a big negative Theta and a small +ve Vega.
- Now take the sell straddle of the next month. Neutral delta, a small positive Theta gain and big -ve Vega.
- Mix 1& and more of 2 till the Theta cancels out
You have your Delta Neutral, Theta neutral, Vega negative strategy
Bonus question - What about gamma
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wah wah, wah wah
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Thank you so much for the response 
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