I recently started F&O selling after so many hesitations and warnings. I have been doing options selling for past two months. So far it is going as expected. My strategy is very basic (short strangle) as every noob. Also I don’t want to do stable profit so decided to take only 0.3% of profit per trade and which in turns gives me 1.2% per month. I’m pretty much ok with that.
I usually takes positions with difference of 400 points above and below the current trading points. One of my friend told that I’m trading in good time that’s why you were able to make profits and when he was trading, there was huge up and down movements of 300 points.
I was thinking about what we do in this kind of scenario. How can we adjust our positions according to the huge movements ?
I take position before expiry day with difference of 400 points above and below the current trading points in NIFTY.
Is my strategy is not viable and obviously I feel I’m missing few things in F&O selling.
I don’t have an answer on what to do, i don’t trade options.
But for any system to be viable, at least you need to test it across market environments. Only testing when things are favorable is not going to work.
Volatility has its own cycles, 2020 was an outlier with extreme volatility and this year seems to be on the other side and somewhat similar to 2017.
option sellers must be prepared for sudden burst of volatility similar to 2008/2020 etc. Perhaps through hedging / stop loss or whatever. Such years must not break you.
Test your system over say last 5-10 years to get answer whether your system is viable. That’s no guarantee that future will be same as things can change, but its a start. And don’t assume that something that happened long ago wont happen again. Its easy to assume that whats happening will continue to happen.
Finally, my advice is to trade small and to trade with only what you can afford to lose or lower. It takes a few years to really have a chance at trading. Most people lose money in the long run and only 1-2 % make above FD over 3 years. So there is much more risk of ruin and not much reward for newbies. Trading for living is possible, but be prepared to work through failures for initial years. For most people, best to focus on job and just invest for long term. good luck.
I suppose you are writing/selling weekly options… which indices are you writing the options in…? Beware of the unwanted stoploss trigger happening in finnifty and sensex indices since the past week… it can cause huge loss if you set up your stoploss trigger and price at much spread (to make it work like SL Market order). you can see the related discusson at Freakish trigger of stoploss - #3 by RazZ
Dear @Lognath,
I am a novice myself so I advise you to use your own analytical skills for interpreting the following points which I take into consideration in my similar trades:-
We usually stick solely with nifty index options because of our general unfamiliarity with other indices. I spent a few months getting myself a hang of the other weekly indices by watching their spot and different strike movements and their daily fluctuations till expiry and carrying out virtual trades through sensibull (which is free now).
Subsequently, when I started feeling comfortable, I started writing options in different indices instead of just nifty and reduced my expectations from each individual strategy. (eg. instead of writing one strangle a week in nifty with 0.3% target, I write 3 option strategies a week in different indices with only 0.1% target, which raises the POP to above 90%) Thus, giving a broader range to the strangles.
Thirdly, I feel that in current geopolitical situation the indices may easily open gap-down or gap-up of more than 1%. Therefore, I never leave my overnight strangle positions naked and I convert them to iron-condor if I have to leave them overnight. If the market is stable the next day, I sell the “buy” legs of my Iron-Condor to make it strangle again. (The small loss, if suffered, is negligible compared to the unexpected loss which can accrue due to sudden reaction of the market to some development in the current geopolitical situation).
Fourthly, I have stop putting stop-loss on the expiry days of finnifty and sensex due to their freakish triggering since last week and instead I watch the spot and decide to exit a particular leg as and when I feel it’s not moving in my favour.
Hope it helps…