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

More from Optionslearnings

Twitter is like a free workshop.

But 98% of the people miss out on the best tweets.

Here are our threads from March & what they can help you with:🧵

Collaborated with @niki_poojary

1. Benefits of trading in a corporate


2. 12 Technical Analysis


3. Breakdown of Icici Direct Free


4. How to trade debit spreads? Explained by Mr. Ronak

You May Also Like

A brief analysis and comparison of the CSS for Twitter's PWA vs Twitter's legacy desktop website. The difference is dramatic and I'll touch on some reasons why.

Legacy site *downloads* ~630 KB CSS per theme and writing direction.

6,769 rules
9,252 selectors
16.7k declarations
3,370 unique declarations
44 media queries
36 unique colors
50 unique background colors
46 unique font sizes
39 unique z-indices

https://t.co/qyl4Bt1i5x


PWA *incrementally generates* ~30 KB CSS that handles all themes and writing directions.

735 rules
740 selectors
757 declarations
730 unique declarations
0 media queries
11 unique colors
32 unique background colors
15 unique font sizes
7 unique z-indices

https://t.co/w7oNG5KUkJ


The legacy site's CSS is what happens when hundreds of people directly write CSS over many years. Specificity wars, redundancy, a house of cards that can't be fixed. The result is extremely inefficient and error-prone styling that punishes users and developers.

The PWA's CSS is generated on-demand by a JS framework that manages styles and outputs "atomic CSS". The framework can enforce strict constraints and perform optimisations, which is why the CSS is so much smaller and safer. Style conflicts and unbounded CSS growth are avoided.
क्या आप जानते हैं कि क्या है, पितृ पक्ष में कौवे को खाना देने के पीछे का वैज्ञानिक कारण!

श्राद्ध पक्ष में कौओं का बड़ा ही महत्व है। कहते है कौआ यम का प्रतीक है, यदि आपके हाथों दिया गया भोजन ग्रहण कर ले, तो ऐसा माना जाता है कि पितरों की कृपा आपके ऊपर है और वे आपसे ख़ुश है।


कुछ लोग कहते हैं की व्यक्ति मरकर सबसे पहले कौवे के रूप में जन्म लेता है और उसे खाना खिलाने से वह भोजन पितरों को मिलता है

शायद हम सबने अपने घर के किसी बड़े बुज़ुर्ग, किसी पंडित या ज्योतिषाचार्य से ये सुना होगा। वे अनगिनत किस्से सुनाएंगे, कहेंगे बड़े बुज़ुर्ग कह गए इसीलिए ऐसा करना

शायद ही हमें कोई इसके पीछे का वैज्ञानिक कारण बता सके।

हमारे ऋषि मुनि और पौराणिक काल में रहने वाले लोग मुर्ख नहीं थे! कभी सोचियेगा कौवों को पितृ पक्ष में खिलाई खीर हमारे पूर्वजों तक कैसे पहुंचेगी?

हमारे ऋषि मुनि विद्वान थे, वे जो बात करते या कहते थे उसके पीछे कोई न कोई वैज्ञानिक कारण छुपा होता था।

एक बहुत रोचक तथ्य है पितृ पक्ष, भादो( भाद्रपद) प्रकृति और काक के बीच।

एक बात जो कह सकते कि हम सब ने स्वतः उग आये पीपल या बरगद का पेड़/ पौधा किसी न किसी दीवार, पुरानी

इमारत, पर्वत या अट्टालिकाओं पर ज़रूर देखा होगा। देखा है न?

ज़रा सोचिये पीपल या बरगद की बीज कैसे पहुंचे होंगे वहाँ तक? इनके बीज इतने हल्के भी नहीं होते के हवा उन्हें उड़ाके ले जा सके।