HOW TO WRITE OPTION WITHOUT "RISK"

One of the less risky option strategies is called “covered call writing.” For example, you own a stock that has increased in price but you don’t want to sell it because of the capital gains tax or some other reason. However, you also think the market may be going down and it could affect the stock price. So, you sell a call option against your stock and receive a premium for that option. If the stock does go down, then the option will probably expire worthless and you keep the premium. However, if the stock goes up in price, you may have to sell the stock if the buyer of the call option exercises his right. Before that happens, you can buy back the option and keep your stock, so your only cost was the difference in the initial premium received and the amount you had to pay to buy back the option.

Now let’s say you sell a naked call option on XYZ stock when the price of the stock is Rs100 but you think the price is going down. Someone bought that option from you because they thought the price was going up. So, before the option expires, the stock moves to Rs120. Now the buyer uses his call option to buy the stock from you at Rs100. You then have to go into the market and buy it for Rs120 and sell it to him for Rs100. You've lost money obviously, but the stock could have moved much higher so the potential for loss is unlimited. If you had owned the underlying stock and sold that option, you could just deliver the stock to the buyer of the option as we discussed in the covered call writing example above.

Trading options is not easy and should only be done under the guidance of a professional who not only has the knowledge but also the experience in this area. 

TRADE STATS OF 23 NOV 2015

As on Nov 23, 2015 15:30:15 IST
Product	No. of contracts	Turnover (cr.)*	Premium Turnover (cr.)
Index Futures	3,68,542	20,896.75	-
Vol Futures	1	0.08	-
Stock Futures	11,58,844	57,633.36	-
Index Options	38,40,300	2,23,665.22	1,199.70
Stock Options	2,95,009	15,217.50	148.01
F&O Total	56,62,696	3,17,412.92	1,347.71

Hedging

Hedging is the practice of purchasing and holding securities specifically to reduce portfolio risk. These securities are intended to move in a different direction than the remainder of the portfolio - for example, appreciating when other investments decline. A put option on a stock or index is the classic hedging instrument Options are a great way to hedge against your existing positions to decrease risk
When properly done, hedging significantly reduces the uncertainty and the amount of capital at risk in an investment, without significantly reducing the potential rate of return.
Hedging is what separates a professional from an amateur trader. Hedging is the reason why so many professionals are able to survive and profit from stock and option trading for decades
Downside Risk
The pricing of hedging instruments is related to the potential downside risk in the underlying security. As a rule, the more downside risk the purchaser of the hedge seeks to transfer to the seller, the more expensive the hedge will be.
Spread Hedging
Index investors are often more concerned with hedging against moderate price declines than severe declines, as these type of price drops are both very unpredictable and relatively common.
The Bottom Line
Hedging can be viewed as the transfer of unacceptable risk from a portfolio manager to an insurer. This makes the process a two-step approach

  

Option Delta

Delta is probably the first Greek an option trader learns and is focused on. The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative
In fact it can be a critical starting point when learning to trade options. A positive delta means the position will rise in value if the stock rises and drop in value of the stock declines. A negative delta means the opposite. The value of the position will rise if the stock declines and drop in value if the stock rises in price. Delta is one of four major risk measures used by option traders. Delta measures the degree to which an option is exposed to shifts in the price of the underlying asset. Delta tends to increase as you get closer to expiration for near or at-the-money options. Delta is not a constant

Call Options

Whenever you are long a call option, your delta will always be a positive number between 0 and When the underlying stock or futures contract increases in price, the value of your call option will also increase by the call options delta value.

Put Options

Put options have negative deltas, which will range between -1 and 0. When the underlying market price increases the value of your put option will decreases by the amount of the delta value. Conversely, when the price of the underlying asset decreases, the value of the put option will increase by the amount of the delta value.

 

 

How to Trade Nifty Options in Bearish Markets

Trading Nifty options in bearish market, in bearish people traders say they lose money but fact is bearish markets offer best money making opportunity as panic is higher in these markets so markets react fast. In case of bearish market you always look for selling opportunities or selling signals in technical indicator. We are talking about nifty option so we will be buying out of money put options if time of expiry is greater than 15 days, or else we will go with at the money or in the money put option. After selecting the type of put option now we will completely focus on the price action of the underlying i.e. nifty future and wait for pullback to buy that nifty put option. Target will be 50% of the total premium paid while purchasing put option and stop loss will be 25% of the total premium. In trading nifty options always remember a golden rule that you will never risk more than 10% of your total trading capital at any point of time.
Also it’s very dangerous to trade Nifty Options without proper guidance & knowhow. So, why don’t you leave the dangers to us and take yourself the most lucrative profit margin in the stock market.