BC OPTIONSLEARNINGS
Saved by @SAnngeri

A THREAD

Topic: HOW TO TRADE IN RISING PREMIUMS SCENARIO

Option sellers specially Straddle sellers feel that rising premiums give them excellent opportunity to make easy money. So what they are seeing is the theta aspect of options & ignoring the delta/gamma/vega forces.

1/

 With rising premiums come high delta moves. There is a reason why premiums are all increasing up in the first place. High uncertainty & fear is what's controlling the markets during such times. So a volatile 200 point move in nifty is always on the cards.

2/
Adjusting during such delta moves involves high slippages. Such costs go in our system & are irrecoverable. So if the ATM straddle is around 400 & after 200 point downmove, the next straddle is at 450 & the loss is not just 50points but compounded much more.

3/
Also there are chances that there is no decay throughout the day. So a straddle seller has to take that heavy risk of carrying it forward & chances of gap openings are high during such times. If converted into Ironfly, then the cost of the wings is too expensive.

4/
Thus cutting down the initial credit significantly.

There will also be very few instances when premiums don't fall till expiry day. So with each delta move the cost of holding a straddle gets accumulated & pressure keeps mounting for the stubborn option sellers.

5/
So what should be done during such times?

Compulsive straddle sellers can keep a close SL & do quick scalping. But such profits don't give you much satisfaction, as speculation element is high in such trades.

6/
Better way is to trade directional. If you have a little sense of market direction, then one can make good use of rising premiums.

There are many option strategies like Ratios, Ladder, even far OTM naked/spread selling which can give good opportunity to take advantage.

7/
The advantage can also be taken without directional knowledge. The bias that the premiums will fall in one direction & rise in another. Example if premiums are rising in a downmove, then Call Ratios or OTM calls can be sold. It's because they will not rise much in an upmove.

8/
All said, sometimes premiums do fall heavily during such times. But it's better to not try to sell them speculating that the top is made. It's better to wait it out & let the premiums settle a little. Then one can enter cautiously & with decent gains go agressive again.

9/
So basic crux is to find an objective system to follow the market. There are lot of forces at play in option selling, apart from THETA decay.

If one can find a way to forsee how volatility or direction is going to play out, then it's a different ball game altogether.

10/
Idea is to not get caught up in wild moves when premiums are unstable. If we do get caught, then we are not in a good vantage point to take advantage of inflated premiums.

Patience is the key & being ready to let go of some premium decay. Don't get caught up in FOMO.

11/
A good example is today (18/06/21). Premiums were giving repititive spikes since morning, with a big spike at 11am. The spikes were only in the downmove which is important observation.

In this scenario, we could have sold inflated OTM calls, which were not falling.

12/
We can also use strategies like credit spreads or skewed call ratios. So we are trading direction here with the premise that premiums will fall in the upmove.

When market bounced back calls also fell at first. If market starts rising, we can start neutralizing our position.

13/
We can do it in two ways:

• If IVs are falling then sell otm puts
• If IVs are increasing then buy higher delta calls to make Call ratios

The above example is when we want to trade directional & take advantage of rising premiums.

14/
For non-directional best was to not enter till 11:30am. We can't really know where the top will be made. So let the dust settle & premiums to start falling. Then we can slowly build our position & ride the falling IVs.

I traded in both the ways in different counters.

15/
The risk was IV spike in upmove for my directional position, for which i would have bought higher delta calls to protect.

Risk for my non-directional straddle was an IV spike at EOD, for which i exited early (much regret), as profit received was high in short time.

16/

More from Sarang Sood

Sarang Sood
Sarang Sood
@SarangSood
@javia_savan You answered it yourself 🙂
Adjustment cost is way too high for bnf. Sometimes bnf does exceed nifty in vol crush, but nifty overall is more consistent.
TRADING
Sarang Sood
Sarang Sood
@SarangSood
FINDING EDGE IN OPTIONS

24/08/15: Nifty gap down 250 points & another 250 after that. Previous few months return gone, but since I'm quick to take my losses, was saved from ruin. Before that my only edge in option selling was adjustments & my forever edge of following PA. (1/n)

I soon realised that theta decay with sound adjustments is not an edge, which i earlier thought was & which gave me good returns over the years. After that i went deeper in understanding volatility behaviour, how/where it manifests & all the discrepancies in option chain. (2/n)

With finding edge in logistics i mean how to keep the greeks in check, SL in place & optimum ways of adjustments with minimum slippages. So the main aim here is to write theta without following vol behaviour & having any actual knowledge of what's going on in the markets. (3/n)

A dedicated trader can learn all this in few years & it is something which is 'obvious' to become successful. But majority can't reach this level, as this also requires consistent hustle in live markets. All the seminar/webinar business teaches you till this level only.(4/n)

If you get passed this level though, the real work starts, when you have to find your real edge. This can't be taught in a webinar. It needs serious introspection of your trading skills, psychology & strategies in use, which ultimately allow you to book excellent profits. (5/n)
TRADING
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Sarang Sood
Sarang Sood
@SarangSood
THREAD ON DELTA (The most important GREEK)

Many traders don't indulge in understanding GREEKS because they think they are very complicated.

There are 4 primary greeks:

Delta
Gamma
Theta
Vega

In my experience, understanding DELTA is enough to take benefit of greeks.(1/n)

Delta measures the rate of change of options price based on the directional movement of the underlying.

So this means we can know in advance (theoretically) how much an option will move with the underlying & so we can prepare our strategies accordingly. (2/n)

Value of delta varies between 0 & 1 for calls and -1 & 0 for puts. This figure tells how much an option price will change, when the underlying moves 1 point. So example a delta of .2 of call indicates that for every 1 point change in the underlying, the price will move .2 (3/n)

For option writers who want to trade in neutral strategies like straddle, strangle, ratios, calendar etc, delta can be very helpful. So be it any complex strategy, knowing the NET DELTA can give you an idea of how your strategy will perform in different scenarios. (4/n)

Net delta is just the sum of the deltas of all the bull options (call+ & put-) minus the bear options (call- & put+).

So if we can track this, we will always be in the know of how much exposed our position is. It makes it easier then to adjust our position. (5/n)
TRADING
Sarang Sood
Sarang Sood
@SarangSood
My previous b'day which fell on expiry day was in 2010. On that day Nifty straddle opened at 45. Day range of nifty was around 30pts :)

(High 5415, Low 5380)

At that time:

•Didn't know the word Straddle though i used to trade them regularly
•Greeks existence wasn't known

•Adjustments felt like a superpower
•Everyday theta decay was a birth right
•Any strategy thought off felt like a personal invention
•Listening to people warning about unlimited loss in option selling was normal
•Making unlimited gain in long straddle seemed a possibility

•Volumes & Oi were closely tracked
•Overnight positions without hedge was a normal routine

All the above points have been changed over the years. But the underlying market psychology & following the price action still remains the same.

Thank you all for the warm wishes 🙏
ALL
Sarang Sood
Sarang Sood
@SarangSood
Low VIX doesn't necessarily mean ideal time for option buyers. If premiums aren't falling consistently during the day in low VIX, it usually gives those small delta & IV spikes, just enough to irritate both option buyers & sellers. Same happens when VIX is ultra high.
OPTIONSLEARNINGS

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HMK alias MANOJ
HMK alias MANOJ
@scorpiomanojFRM
#FreeTip
Basic rule for day trading in option buying for beginners.
1) Stick to monthly atm options.
2) Suppose u have a capital of Rs 5 lacs. Your max risk appetite is 1% which is 5k. Assume u look at BNF chart and find a buy setup at 35000 ...

...
with a stop of 34900 ( 100 point difference). This essentially means that the 35000 atm options will have a stop of Rs 200 ( delta 0.5) assuming all other things are equal. So the number of lots U should typically deal with based on 1% Risk on 5 lacs capital ...

....
is 5000 / 200, which is 25 , ie 1 lot. If your risk appetite is 2%, then u are allowed to take 50, ie 2 lots. Hence if option price is say, Rs 400, ur stop will be 200 and u have to deal with one lot which means your deployment is 25 x 400 = Rs 10,000....

...
On the contrary if you deploy the full amount, 500000/(25x400) = 1250 , 50 lots, u r bound to lose the capital at the shortest possible time.
3) This might appear ridiculous, but this is the only way to go steady with control over risk.

Option stop difference is Rs 50 and not Rs 200 as mentioned. Simple calculation overlooked. Accordingly number of lots will increase . However concept remains unchanged.
OPTIONSLEARNINGS , OPTIONS BUYING LEARNING
AP
AP
@ap_pune
Tata Consumer too

There u have 30 now

Stick to these only !!!!


I keep getting msgs from ppl stuck in other stocks.

Just yday, someone asked abt Mindtree.

he shorted a CE and then when he wanted to cover,
the spread was 70 / 92 !!!

How many have faced such a problem?

Please add to this thread with actual examples

stock / strike price and rate
OPTIONSLEARNINGS
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HMK alias MANOJ
HMK alias MANOJ
@scorpiomanojFRM
#Knowledge
#Options
Ever wondered y gamma is the enemy of straddle / strangle sellers and what it means?

Presume readers are aware of option Greeks meaning...

To understand , first ...

Relationship between delta, gamma, theta and option premium.
....

....

Theta + (int Rate x Underlying price x Delta) + ( 0.5 x variance of underlying x Underlying price x Underlying Price x Gamma ) = Int rate x Option premium.

Strangle and straddles are delta neutral setup;For a delta neutral setup, the second term becomes zero; Hence,
...

....

Theta +
(0.5 x variance of UL x UL price x Underlying price x Gamma)
= Int rate x option premium

Straddle and strangles have typically zero delta at initiation; they also have positive theta, meaning they gain over time assuming other components of option r constant ..

...
In a delta neutral portfolio, if theta is largely +ve , Gamma will be -ve by a large extent to satisfy the above relation mathematically, which means that as expiry nears the strangles and straddles will have large -ve gamma; This is wat u see traders telling gamma effect.
OPTIONSLEARNINGS
OptionSeller(Vardhan)
OptionSeller(Vardhan)
@CaVardhanCa
This Simple Strategy has given around 18500/- in 20 days with a ROI of 3% on 5 lakh capital.

If we buy hedges, Margin will reduce & ROI increases.

More strategies will be shared going forward.

All u need is execute with Discipline & sticking with system when in DD.

(1/n) https://t.co/3KH9v0tgsb


to learn more about Algo Trading (in both directional & non directional) , you can visit my Telegram channel especially created for Algo Strategies.

Will be updating Daily Performance of our Algos in below
OPTIONSLEARNINGS
\u0154aja\u0155\u0161h\xec\u021ba \U0001f4a1\U0001f4c8\U0001f4c9
Ŕajaŕšhìța 💡📈📉...
@RajarshitaS
Which is the best YouTube channel for learning Technical Analysis and Basics of Option...kindly share your feedback and name of channel as so many have asked me on DM so it will help others 🙏
OPTIONSLEARNINGS

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