From an intraday trading perspective, is it true that option writing is more profitable than buying?
yes they are profitable , but if you have strategy to write them because if you does not have strategy you will expose to unlimted risk
Provided the underlying is range bound or very low activity in volatility, option writing is always a better intraday strategy than option buying. Time erosion within the day from morning to evening will be your friend and even when the underlying shows a little flat uptrend, option prices tend to go low or stay same, helping the option writer more than option buyer. Option buyer survives only if underlying moves substantially positive.
option writing means selling option instead of buying them correct?
against buying on intraday basis? Thanks Nishant
yes, whether on intraday basis or positional , option writing is always profitable but with strategy always
odds of winning are always high in option writing than in option buying vidya, you know what vidya 90% of market turnover is made by HNI and institutional investors , they always write options , that why they were always in profit.
I am not understanding the “unlimited” risk part. Is it that we don’t have a stop loss option when shorting options?
Yes we have stop loss options, you can trade like regular intraday equity shorting.
You sell today when price is high and buy later when price is low.
In case of stop loss, you set a value higher than the price what you have sold. (taking up some affordable loss)
The same thing works here in option but on premium price.
Let me explain the unlimited part thing.
For example you sell 8200 put of nifty today at 100 rupees.
Nifty is going to 8180 and 8230 in wavy nature.
Since you expect Nifty to close above 8200 in this month end 24th dec (not today) you will not likely square off when Nifty goes to 8180 and put premium price might be close 130 now, say.
Assume Nifty closes at 8180, and you get some bad news aboud crude oil etc today night.
Tomorrrow Nifty open 8100, then what would happen is your premium price will be above 200 and you are in huge loss. Since you expect nifty to claim back 8200 on 24th dec, you are not squaring off at 200 rs premium.
Nifty again falls, and finally closes at 7800 say. Then you have bear the 400 rupees as loss - 100 rupess.
This situation only comes if you dont square off when in loss.
If you set stop loss when you sold at 100 and Stop loss at 110 or something, you are saved from the unlimited risk thing and you can have only what loss is affordable to you.
Thanks for the detailed explanation AstroGuru. I got it clear. Only one more query is that, in the example above, stop loss of rs. 10 is valid only for the day … am i right? … for the next day i have to place a fresh stop loss … am i right? . thanks
it seems to be true as most of the time markets go sideways…throw up some good strategies for options writing if u have any idea.
I have hardly traded around 80 days. So I am not the right person to suggest strategies.
Will soon start doing option writing. Will let you know if I form any strategy as such.
When when I did option writing in intraday for few times, I was succesful in case of sideways market.
Thanks for your replies. Actually predicting if the day’s going to up/down/sideways is where the strength lies in my opinion. And yes, I have observed that on a few days, both CE and PE prices hit lows and erode in values even if the index stays flat - more so in expiry week and the far OTM options to be precise.
capital requirements between option buying vs writing…???
Stock option writing minimum 40k per lot, afaik.
Index options around 20k per lot or less
capital requirment same as that needed in futures
Nishant, If my understanding is right, capital requirement is NOT same as futures. It’ll be always more depending upon the price of the option. For eg. If the nifty future price per lot is, say, 20K. Now suppose you want to write options whose price is 100 per share. That means, you should put in 20+2.5 = 22.5k. Am I right? Can some one correct me if I’m wrong? Thanks
geeth i am giving only a general view about margin and if you go by exact margin required it can sometime be very less than futures because it all depends upon VIX , if VIX is low margin required is low , if VIX is high , margin required is also very high and about your second question , i am telling you one hillarious thing , suppose there is a line of 30 words which cannot be break away , if we break away meaning of whole line will change , same is with option writing , it is just a misconception rather we can say that a line is made jointly by saying that option writing is profitable but they carry unlimted risk ! if you have good managment option writing will only increase your margin rather than decreasing your capital
do not write options bindlessly , do not think that writing options will make you rich overnight , yes they are profitable but you have to keep certain factors into account when you are writing options , i hope you understand
Nishant, can u explain a bit further … what are those “certain factors”?