Is option writing useful only on nearing the expiry? (as time decay happens faster here)
What are the important points/data to be considered while writing option?
Any special tricks/suggestions while playing in Option Writing?
Check this post on option writing.
Option writing has a slightly higher odds of winning, but what you need to remember is risk is unlimited. Option writing towards expiry again has higher odds, but so is the reward (the premium that you get to pocket if right).
I guess knowledge of option greeks is quite important if you are trying to play the decay , volatility,etc. We just took a post live, do check that section out.
Special tricks, hmm.. I guess where people typically go wrong is that they try to pyramid when position goes against them to lower the cost. The thing with option writing is that though it might not seem very risky but the impact of this increases significantly as soon as the option strike turns in the money (assuming you had shorted when it was OTM).
Nitin, agreed that writing options has slightly higher odds of winning. But considering the amount of capital being locked in, is it prudent to go for it?. I can BUY loads of options with that money. As such getting the directions right is a must in both cases … bit confused here
Just few of my observations.
You I agree with huge investment for option writing. But worth it, Buying seems always a nighmare to me. My personal opinion. I was successful when I wrote options few times, but never substantially when I bought options. The time decay, range bound market or downward market always kills the option buyer. In my personal opinion Futures are good.
Also OTM options when bought are quite risky, even when the underlying shows uptrend, OTM options go down or stay flat.
Also as nithin said, option buyers should never average when the OTM option price goes down, I have personally experienced this several times. The price would further go down and your quanity will increase to a level where you cannot find a buyer to sell those many qty and finally you end up in severe loss.
Thanks AstroGuru for your insights. I think I understand a bit now.