I am not looking for very high returns. I know people talking about 50-60% returns in a month. However I don’t want that. I am good with low returns but my capital should be at least risk. Is Option Writing a good strategy. How much return can one make on monthly basis writing options? What are the key points one should remember writing options?
first nothing is less risky like thing in stock markets, about options writing , this thing requires great expertise and control on markets and good amount of knowledge, options writing does not mean that you choose a strike and premium will credited to u, it is not as simple as u are thinking , a single move here and there in market can wipe out all ur capital , then why people write options because odds of gaining are very high in comparison to buying options but it requires great amount of expertise and knowledge, get some knowledge and learn how to hedge ur position in option writing , do not jump into this lucrative look like thing , u will burn ur hand
Option writing is any day a better option than buying options especially if you are not into intraday trading. The time value of options will always favor you and your chances of profits and much higher though they are limited. A few things to keep in mind:
Trade in liquid option so that you always have an opportunity to hedge or exit any time.
Trade long term rather than short term contracts because the time value will be huge in them Like if you are trading in NIFTY, its better to write options with expiry a few months down the line.
Always keep your position hedged because risk in writing is unlimited. So use good strategies and keep the positions hedged. This will reduced your profits but you can sleep peacefully and make good enough if your view and strategy is good.
very true. i just burned my hands in gail which was very obviously hiked on the expiration day if the fall on the following day is any proof. If you have time please explain how to hedge position in option writing or let me know a source of info on the net.
This is a “straddle strategy” when you trade calls & puts of the same strike. You will benefits well if the the contract is settled at the money. But if it breaks out either way then there will be high risk so to cover your risks you could buy OTM Calls and puts too and make a butterfly spread. You will have to do your calculations well while adopting such strategies. To learn more on option strategies you could refer this - http://zerodha.com/varsity/module/option-strategies/