Stoploss on Options Buying Options

F&O
1

Hi Traders,

I am new to trading and I have a question about stoploss on buying options. Please forgive me if its a dumb question.

If I buy a call option, say BankNifty 23000 (ATM) at a premium of RS.250, I would like to keep a stoploss at 22900. How should i put the trigger price and execution price. Please help me understanding the co-relation between indicex and premium price.

2

Hi,

Options trading is complex. To trade-in option, a trader needs to consider all influencing factors (delta,gamma, vega, theta, rho…,) Best place to learn about options trading is varsity option theory chapters.

3

Hello Arockiya Raja,

I am reading about options Greek, I am wondering about scalping or intraday trading. How can we co-relate premium and index.

4

Stoploss in option does on premium
Not on strike basis

If premium is 250 u can put your stoploss below 250 at anywhere

3 Likes
5

Hi ,

While buying options you need to be aware that there will be huge MTOM swings, hence, its always better to have a proper fledged Risk management, position sizing and money management. for more can refer sensibull

FYI, The price of premium constitutes all options Greeks in it , so its better to concentrate on Price

Moreover, Stop loss should be certain % of premium paid and it should not be based on strike price .

2 Likes
6

An ATM option has a delta of 0.5 i.e. it tracks the price movement by a factor of 0.5

Hence, the target and the stop loss on the option premium should be half of what you have considered for the futures prices.

E.g. in this case, your stoploss is 100 (23000-22900). Therefore, the stoploss on the option premium should be 50 less than the current premium of 250.

Hence, the stoploss will be 200. I hope I was able to convey the message.

4 Likes
7

You need not take account of underlying. Yes you should refer it for understanding… Just consider that option as good as a normal equity share. So it is as simple to place as you do for other stocks… Just check what is the price of that option in that strike where you want to place it… Here the price of the option at 22900 will be your stop loss…

1 Like
8

Many thanks Niraj… A different perspective… I will track this and follow

9

Thanks Sou, Premiums are oscillating very violently +20Rs to -20RS. Whats is the nominal % of risk one can take during these situation, Again I know risk appetite differs. I want to know the minimum % of risk can be taken without thrown out of the trade (I am willing to take risk). I have studied and listened to people who says do not take more than 2% of risk which i feel is very tight (RS.5 in this case).

10

The 2% risk is not on your option price . Its on your portfolio size . Suppose you have a trading capital of 5L , then 2% of risk comes to around 10K .

Fixing the stoploss based on technicals is a better approach .
Risk per trade is ideally used to fix your position size .

1 Like
11

Thanks SUHA… Make sense…

12

Hi

If i don’t use stop loss in options buying in intraday can i lose more than my premium paid?

And

If loss gose below my premium value do i get excited automatically? ( i hope you can understand my question )

Please reply.

Thanks…

13

No, but if you’re trading in stock options, you may be obligated to take or give delivery of underlying if the options expires in the money.

If it expires out of the money, then yes you will be automatically ‘exited’. If it expires below your premium price but still in the money, then you’re obligated to take/give delivery.

Delivery obligations don’t exist in index options.