Friday, 27 May 2016

RELIANCE FUTURE & OPTION COMBO STRATEGY FOR JUNE'2016

"BUY 1 LOT RELIANCE FUTURE @ 970"
"1 LOT RELIANCE 960 PUT @ 19 "
"1 LOT RELIANCE 980 CALL @ 21"
FOR FURTHER UPDATES KEEP READING....

Wednesday, 4 May 2016

FUTURE & OPTION COMBO STRATEGY FOR MAY'2016

"SELL HINDALCO FUTURE @ 92.5" 
"BUY HINDALCO 92.5 CALL @ 4"
"BUY HINDALCO 92.5 PUT @ 4"
FOR TGT UPDATES KEEP READING...

Saturday, 23 April 2016

Friday, 22 April 2016

OBLIGATIONS OF AN OPTION SELLER

UNDERSTANDING ASSIGNMENT RISK
Option sellers collect a cash premium. That's the primary reason that investors sell an option. When that option expires worthless, the cash premium represents the option seller's profit, but it does involve some risk of losing money. Pretty simple stuff.
Similarly, traders may sell an option as part of a spread position. Once again, collecting a cash premium drives the sale. However, this time, the cash collected is used as a hedge, or a trade that offsets the risk of owning another position. Hedging is a bit more complex than simply selling an option. For example, when you buy one call option (hoping for the stock to rally), you can sell a different option, collect some cash, and reduce the sum of money at risk -- just in case your expected rally does not occur. The concept is easy to understand once you learn to understand how options work.) About options for beginners will help.
Options do not always expire worthless, and it is essential that every option trader understands what happens when the option does not expire worthless.
Whenever you sell (write) an option that you do not already own, you become legally obligated to honor the terms of the option contract sold.
WHAT ARE THOSE OBLIGATIONS?
The call seller agrees to sell 100 shares of the underlying stock to the call owner. The trade occurs at the option strike price.  This obligation remains in effect until the option expires.
The put seller agrees to buy 100 shares of the underlying stock from the put owner. The trade occurs at the option strike price.  This obligation remains in effect until the option expires.
 WHAT TRIGGERS THE OBLIGATIONS?
The obligations are only theoretical until something happens that triggers the process. Call owners have the right to force the option seller to honor his/her obligations by exercising those rights. As soon as the call owner instructs his/her broker to exercise, the option seller's obligations are triggered.  Note that the option seller cannot force the option owner to exercise. That decision rests entirely with the option owner who bought the option and paid cash to own the right to exercise.

Tuesday, 12 April 2016

Saturday, 9 April 2016

NIFTY STRADDLE STRATEGY FOR APRIL 2016

"BUY1 LOT NIFTY 7550 CALL @ 110"
"BUY 1 LOT NIFTY 7550 PUT @79"
TOTAL INVESTMENT 14175
PAY OF TABLE :-

IS COVERED CALL WRITING FOR YOU?

ONE BASIC STRATEGY
Covered call writing is a very popular option strategy and is especially well suited for people who are first learning how options work. Once you gain a fairly good understanding of the basic concepts involving options and understand the risk and rewards associated with owning stocks, that is a good time to consider adopting this strategy.
However, there is more to this simple strategy that is apparent at first glance. It is important to understand why an investor would want to write covered calls. Thus, you want to know about the philosophy. Next it is essential to know about the risk, or what can go wrong when you buy stock and sell one call option for each 100 shares owned.
NOTE: The name of the strategy comes from the fact that the stock owner is covered -- if and when he/she is ever assigned an exercise notice on the short call option. In other words, if assigned, the trader already owns the shares and can deliver (sell) them to the person who exercised the option.
IS COVERED CALL WRITING (CCW) FOR YOU?
·         CCW is a strategy for the investor who does not believing in trying to time the market. As long as you are willing to have your cash invested in the specific stock (or index), it is a reasonable idea to own the stock and write the calls. However, if you never want to sell the stock and if your intention is to hold for a long time, then this is not a suitable strategy.
·         CCW is for the investor who wants a higher probability of earning a profit with every trade, even when the profit is limited. Clarification: The profit is earned more frequently than the trader who simply buys stock and does not hedge the position by selling a call option.

Friday, 8 April 2016

WHAT IS RISK?

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DEFINING RISK FOR TRADERS
Options were designed as risk-reducing tools, yet most people begin trading options by adopting high-risk strategies.
Why does that happen?
·         Overconfidence. Traders tend to concentrate on profits and ignore the chance of losing money.
·         Some strategies "feel" safe. When investing a small sum, traders ignore the fact that they will lose money at least 90% of the time.
·         It is easy to forget that a string of small losses adds up.
·         Traders do not look at risk in enough detail.
DEFINING RISK
The term "risk" can be defined from different points of view:
A dictionary tells us that risk is 
·         A situation involving exposure to danger. For traders, that danger is a monetary loss.
·         The possibility that something bad or unpleasant (such as an injury or a loss) will happen.
·         The potential of losing something of value, compared with the potential to gain something of value. 
As a trader, I recommend using the last definition because it forces you to consider what you have to gain and compare it with what you have to lose.
In other words, do not make a trade when risk is too high for the potential gain.

Thursday, 7 April 2016

INTRODUCTION TO CALENDAR SPREADS

TIME SPREADS
DEFINITION: A calendar spread is a position with two options; buy one option and sell another. Both options are calls or both are puts, with the same underlying asset and strike price, but different expiration dates.  Buying the option that expires later, is BUYING the calendar spread.  Buying the option that expires earlier, is SELLING the calendar spread. Traders almost always buy calendars because the margin requirement is steep for sellers (For margin considerations, the short option is considered to be naked, or unhedged). 
At one time, it was common to refer to calendar spreads as 'time spreads.'
Example 
     Buy 10 IBM Jul 18 '14 100 calls
     Sell 10 IBM Jun 20 '14 100 calls
The calendar is commonly used when the trader believes that the:
·         Underlying stock will be priced near the strike price at, or near, expiration. 
·         Implied volatility of the longer-term option will increase over the lifetime of the trade.
Note: The options do not have to expire in consecutive weeks or months.
The distance between expiration dates is immaterial; the only requirements for a calendar spread are that the underlying asset and strike price are identical.
How does the calendar earn a profit? 
The calendar spread takes advantage of the fact that options with shorter lifetimes decay more quickly than options with longer lifetimes. Thus, all else being equal, as time passes both options lose value, but the spread value increases.
The world is not quite that simple.  If the rate of time decay were the only factor, calendars would be profitable almost all the time.  Other factors affect the calendar spread. The two primary factors are:
1. STOCK PRICEThe calendar reaches is highest value when the underlying stock is priced exactly at the strike price as expiration arrives. The data in the table below illustrates the point.
ASSUMPTIONS: IBM is $XXX per share; date: Jun 18, 2014, 4:00 PM ET;  Implied Volatility is 45.
NOTE: When IBM is $100 or less, the Jun 100 call expires worthless and the value of the Jul 100 call is the value of the calendar spread.
When IBM is above $100, the Jun call is in the money.  For the values in the table, assume that the IBM Jun 100 call is bought at parity (the option's intrinsic value, or the amount by which it's in the money) and the IBM Jul 100 call is sold at it's value.
 
IBM Price 
 88
 92
 96
100
104
108
112
Jun 100
$0.00
$0.00
$0.00
$0.00
$4.00
$8.00
$12.00
Jul 100
$0.93
$1.80
$3.13
$4.97
$7.32
$10.13
$13.31
 
 
 
 
 
 
 
 
Spread
$0.93
$1.80
$3.13
$4.97
$3.32
$2.13
$1.31
 Look at the data in the bottom row.  The value of the spread is highest when the stock is near the strike price and steadily decreases as the stock moves away from the strike in either direction.