What happened with options trader in March 2020?

F&O
1

I am new to options and is carrying positions since last 2 months. I am wondering what actually happened to options trdaers in Mar 2020 when VIX was at 80.
I believe only PUT options buyers were in great positions and must have enjoyed the profit, rest all must have suffered a loss, if not squared off by there stop loss.

Looking for a reply from someone who was into options trading at that time and have experience the overall marketwide scenario.
Thanks!

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2

I was a bit late and joined the after party in April but from all my friends who were doing options trading told me this

  1. In March there was no incentive for hedging ( margin benefit ) so you could short naked options at a much lower margin as compared to today

  2. Because of this most people generally wouldn’t hedge for the greed of higher profit

  3. So when the crash happened some people lost out on all the margin deposited as the the fall led the option values being more than the margin itself.Sometimes they had to pay more as by the time positions were squared up the price was much higher than the margin and they had to pay extra .

  4. this was first time seen after a very long time so the new traders were spooked and were not used to such heavy movements

  5. You have to be careful. When vix shot up from 15 to 80 then obviously the put buyers made good money both direction+ higher IV. Likewise when the vix fell from 80 to 30 option writers made heavy profits .

  6. when i started trading in April-May , option writing calls was still very manageable as the vix fall was compensating in any directional movements.

  7. Some option put writers lost money when the vix shot up betting against the fall and likewise some put buyers also lost money after the fall when the market started rising. Nobody knew where the market would bottom out hence only the nimble guys who switched side when they knew they were going against the direction (both during fall and recovery) were the ones who profited the best

SO in short, during such events there will always be people who lose heavily and those who gain heavily. Always Hedge and be prepared for a day with the calculated max loss.

Cheers

[ note - this is from my view point, for sure there would be people who had different experiences which i might not have covered ]

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3

Thanks for taking out your time for such a reply. It has given me perspective.

Apart from this, i have a different query regarding recent margins changes - will it be affecting non-intaday (NRML) traders of FnO?

4

Hi Jatin, the new rules have no effect on non Intraday trades, margins will remain the same for overnight positions.

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5

Hi all,

how can a option seller hedge against such black swan events? would hedging with Nifty puts monthly help? I primarily sell stock options and was wondering if a nifty over hedge would help with such events

6

People buy yearly options to hedge there portfolio or lock profits.Premium is 6% PA to hedge fully/lock at certain level.Monthly, is not that cost effective but will help based upon your strategy. For monthly, can roll over next month 1 week before as thera decay is max last week.

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7

how about an overhedging strategy? If i sell 6 naked puts, I can buy 10 nifty monthly OTM puts easily for low cost

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