Option buyers and option sellers are poles apart from each other. One try to earn 40-50% return in 10-20 thousand capital while other try to earn 2-3% return in lacs capital.
What are the points you think where option sellers fears in market?
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Iv is only thing which fears option seller
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1 directional move in short amount of time .
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There is only 1 fear, that the premium we got was worth it?
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i do both, no fear. Small size and large number of occurrences, only way to trade without fear.
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Meaning that, returns are not that good sometimes??? In camparison to risk
option buyers dont look at the premium before they buy. They look at momentum & direction. They are ready to pay Rs100 for ATM CE eventhough its intrinsic value is say 80. And they are not worried if their entire premium is lost because they know thats the max risk.
option sellers mainly look for high premium & then try to digest the risk. Remember a trade happens only when a seller is ready to sell - so someone is pushing up the prices to cover the risk !
If option buyers look for premium valuation before jumping in - they will not lose that much.
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You do both! So you get the profit always regardless whatever the market is doing. When it is standing, you sell options, when it is in trend you buy options and even if you have sold the option in trending market, by buying option in that direction, you cover your loss to the great extent, nice! Seems like a sweet spot!
But being option seller, how do you judge that market will move in that range or like will not break that level? Does it entirely based on support resistance and option chain data???
I think i have little doubt understanding this line, you mean option sellers try to push prices when it try to break their selling level? Pls clear it…
the prices go up before that. sellers ask for higher premium & buyers are ready to pay absurdly high -thats how price discovery is done.
after a while the craziness will settle and price will revert at par
open up 15 adjacent strike prices premiums on days bank nifty moves more than its ATR you will get it.
also once the option goes in the money, the dynamics change. option seller cannot ask that easily because the liquidity comes down
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Your basic question is, when should I enter and exit an option selling trade. Any analysis of market: ta, s&r, oi, volume & countless others are all very subjective and will not give you any objective idea of how to define your entry and exit criteria.
So, what actually works is this: how are options priced? What does an option premium represent in a mathematical sense? What are Greeks & how do they work?
Once you’ve read and understood these concepts in depth, you can begin to form rules to trade options, sell/buy.
It depends on volatility. When market is volatile (refer VIX), we may go for buy option as per trend or sell the opposite options.
But when the market is sideways, selling option is preferable.
Buy or Sell need compulsory s/loss.