"Kaha sai aate hain yeh log" (Option Buyers) - Jolly LLB

General
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I am picking one of the dialogue from Jolly LLB 1 Where Arshwad Varshi asked a question about poor people in Delhi. Kaha sai aate hain yeh log.

Now coming to my questions. I have been trading for 10 years and mainly stocks and have started playing in option for about 1 year. Like a good student I went through all the courses and gurus and website. I even attended few large scale conference about trading and to my surprise 80%-90% of the people i talked who is in option is Seller of option (many of them are semi professionals and working class) . If you try to create a strategy like condor which has 5% above and below strike for Nifty has Buyers.

My question is who are this option buyers.

  1. If you say institutions : Then Institutions are smart enough to know the theta decay will eat away their profit.
  2. If you say they are hedging : Then there should be volume in Put but why calls are so liquid
  3. If you say they are hedging against adverse market news : Then do we have adverse market news every month.

Hope some option buyers can tell me Why they Buy so out of the money strike prices

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Absolutely true I was one of them few months back

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@mastertrader21

Not insulting your intelligence. But after 10 years of trading your should know why FNO exists in first place.

FNO are PRIMARILY hedging products designed for institutions , they are rarely used for speculation by institutions.

Institutions when buy options are also hedged and when they sell are also hedged.

Retail fools are not hedged because either they don’t know how to hedge or don’t have a account big enough to hedge.

Note that retail should always be a option buyer and NOT a seller.

Please don’t take these comment personally and start a war… its Christmas and holiday times. Please.

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Chalo I present you with a scenario. I was terribly bullish on Bata and now am terribly bearish.

The reason is fundamental so I made some technical hypothesis forcefully and shorted it even though it didn’t triggered - [Positional] Bata India Failed Breakout for NSE:BATAINDIA by Amit_Ghosh — TradingView India

I had shorted 1120 CE naked as well which will goto 0 Bata India Vega Trade 1120CE for NSE:BATAINDIA by Amit_Ghosh — TradingView India

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Tomorrow one interesting thing will happen. It will trigger proper technical short as well. But the main thing is what I did is insanity. Naked fut sell and Naked options sell.

https://unofficed.com/options-calculator/?save_id=5c20f77a27692986729067

This is a correct approach.
Here comes the thing of option buy.

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If it stays below 1090 I will make money or maximum I can lose 7590.

What is the better solution?

Buy Bata 1000 Put options !!

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It is deep OTM but I can finance 11 points (I am assuming I will get it at 11 which is quite likely.) by selling some call options OTM later on in mid January.

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@mastertrader21 what should exactly retail invester should do buy option or sell option

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Hey @trader_dude, I am not here for war at all buddy. Asking a genuine question ? If you see my previous questions and reply , none of them suggest the same. I have battle to win with markets.

I completely buy your point that institution hedge their short and long. I am looking for motivation for people to buy OTM and Deep OTM from buyers perspective. @unofficed kind of hinted to the same. Will try to see more reason for option buying

And Wish you very Happy New Year and Marry Christmas buddy. Happy Trading in 2019

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Because that’s a lottery ticket. OTM options are very cheap and attract retail attention quick. When i was introduced to markets, i straight away bought OTM nifty cuz i read somewhere that i get my lambo very fast with options!

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Thanks @soller

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There are two types of retail. One who knows what he is doing, One who doesn’t know what he is doing.

Its the thing that people call themselves traders by trading which is very troll.

Its like calling yourself doctor knowing the fact when fever comes you suggests paracetamol.

So - “Dumb Retail” and “Educated Retail”.

As the criteria of dumbness is too dumb, the quota is likely 95% while 5% reads some material.

Obviously those dumb people will buy lottery. Like buying NIFTY 9000 PE January with his half salary after seeing the movie Bazaar. #procrastinators

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cheap insurance for your existing positions.

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It’s a pure speculative trade. Nothing more than a gamble.

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You have been in trading for last 10 years, I am curious to know whether it changed your life forever? Did you make enormous wealth that your life have been changed for good?

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Thanks @sabyasachi_sadhu for checking about my life but my questions still remains unanswered why people Buy Deep OTM .

Wish you a Marry Xmas and Happy Trading for 2019 .

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Hello,

Most retail/small traders are buying options because of their limited knowledge and mostly because they have limited money. Also if you start searching about Option Buying, you will find everyone saying that, “Buy options to get unlimited profits with limited capital and therefore with limited risk”. But no one looks at the other side of the story.
Hope this clarifies your question (which I think is not only related to Deep OTM but also true for ATM and OTM).

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the day when deewan housing fell 50% ,on that day certain otm puts becomes atm making 5x and 10x returns, so many people buys them to make quick money but they forget 9 out of 10 it never happens,but they still keep doing same as they never have enough money and resource to remain profitable for long time

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i mostly sell options and most of the times i hedge it by buying deep OTMs …
for ex when anyone do condor or butterfly in BN , their hedge might be 500/600 points from the spot

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Good writing strategy. What is your success rate, 9 out of 12 times (12 - I am considering months)?

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can’t exactly guess because trading in BN is my secondary strategy , mostly i trade on results/events and the remaining 6/7 weeks i trade in BN options …
made losses in august and october , but in october i lost mostly because of long in stock options

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This is how gambling works in options.

  1. Buying options - 9/10 you lose premium and you win once to cover the loses thus breaking even or losing more than you intended. It doesn’t matter if it near or deep OTM.

  2. Selling options - 9/10 you make money but you lose everything , thus breaking even and sometimes you lose more than you intended. Same applies if you sell deep OTM.

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If one can make profit in 9/10 trades then this is surely good a option. Also one can put proper SL to avoid big loss.

1 Like