Thursday, 29 October 2015
Wednesday, 28 October 2015
TRADE STATS FOR 28 OCT 2015
Trade Stats for 28-10-15
| Product | No. of contracts | Turnover( cr.) * | Put Call Ratio | Premium Turnover ( cr.) |
|---|---|---|---|---|
| Index Futures | 8,92,824 | 28,996.34 | - | - |
| Vol Futures | 0 | 0.00 | - | - |
| Stock Futures | 19,53,864 | 66,845.91 | - | - |
| Index Options | 1,28,10,561 | 3,14,505.50 | 0.92 | 1526.72 |
| Stock Options | 5,80,803 | 17,981.78 | 0.61 | 204.81 |
| F&O Total | 1,62,38,052 | 4,28,329.54 | 0.90 | 1731.54 |
Friday, 23 October 2015
Call Calendar Spread
Using calls, the calendar spread strategy can be setup by buying long term calls and simultaneously writing an equal number of near-month at-the-money or slightly out-of-the-money calls of the same underlying security with the same strike price
Calendar spreads, also known as time spreads, are extremely versatile strategies and can be used to take advantage of a number of scenarios while minimizing risk. A calendar spread consists of buying or selling a call or put of one expiration and doing the opposite in a later expiration. More often than not, this involves buying or selling an option in the front month (the expiration closest to the current date) and selling or buying an option of the same strike either the next month or a few months out. They can also be done using weeklies instead, especially around events. Call or put calendar spreads look alike on a graph of profit and loss.
Saturday, 17 October 2015
'Outright Option' call & put
An option that is bought or
sold by itself; in other words, the option position is not hedged by another
offsetting position. An outright option can be either a call or a put.
When option traders first get their feet wet trading options, they often just buy call options for a bullish outlook and put options for a bearish outlook. In their defense, they are new so they probably do not know many if not any advanced strategies which means they are limited in the option strategies they can trade. Buying call options and put options are the most basic but many times they may not be the best choice.
In addition, simply buying call options and put options without comparing and contrasting implied volatility (Vega), time decay (theta) and how changes in the stock price will affect the option premium (delta) can lead to common mistakes. Option traders will sometimes buy options when option premiums are inflated or choose expirations with too little time left. Understanding the pros and cons of an option spread can significantly improve your option trading.
BREAKING DOWN 'Outright Option'
Most option trades involve outright options. The opposite strategy to purchasing outright options is a spread trade strategy, which involves purchasing one option and selling another option of the same class but of a different series
When option traders first get their feet wet trading options, they often just buy call options for a bullish outlook and put options for a bearish outlook. In their defense, they are new so they probably do not know many if not any advanced strategies which means they are limited in the option strategies they can trade. Buying call options and put options are the most basic but many times they may not be the best choice.
In addition, simply buying call options and put options without comparing and contrasting implied volatility (Vega), time decay (theta) and how changes in the stock price will affect the option premium (delta) can lead to common mistakes. Option traders will sometimes buy options when option premiums are inflated or choose expirations with too little time left. Understanding the pros and cons of an option spread can significantly improve your option trading.
BREAKING DOWN 'Outright Option'
Most option trades involve outright options. The opposite strategy to purchasing outright options is a spread trade strategy, which involves purchasing one option and selling another option of the same class but of a different series
Wednesday, 14 October 2015
Option Volatility
variable in option pricing
formulas showing the extent to which the return of the underlying asset will
fluctuate between now and the options expiration. Volatility, as expressed as a
percentage coefficient within option-pricing formulas, arises from daily
trading activities
One of the most important steps in any option trade is to analyze implied volatility and historical volatility. This is the way option traders can gain edge in their trades. But analyzing implied volatility and historical volatility is an often-overlooked step, thus making some trades losers from the start.
Volatility changes can have a potential impact - good or bad - on any options trade you are preparing to implement. In addition to this so-called Vega risk/reward, this part of the options volatility tutorial will teach you about the relationship between historical volatility (also known as statistical, or SV) and implied volatility (IV),
Implied Volatility and Historical Volatility
Historical volatility (HV) is the volatility experienced by the underlying stock, stated in terms of annualized standard deviation as a percentage of the stock price. Historical volatility is helpful in comparing the volatility of a stock with another stock or to the stock itself over a period of time
In contrast to historical volatility, which looks at actual stock prices in the past, implied volatility (IV) looks forward. Implied volatility is often interpreted as the market’s expectation for the future volatility of a stock. Implied volatility can be derived from the price of an option. Specifically, implied volatility is the expected future volatility of the stock that is implied by the price of the stock’s options. Implied volatility is often interpreted as the market’s expectation for the future volatility of a stock. Implied volatility can be derived from the price of an option. Specifically, implied volatility is the expected future volatility of the stock that is implied by the price of the stock’s options.
One of the most important steps in any option trade is to analyze implied volatility and historical volatility. This is the way option traders can gain edge in their trades. But analyzing implied volatility and historical volatility is an often-overlooked step, thus making some trades losers from the start.
Volatility changes can have a potential impact - good or bad - on any options trade you are preparing to implement. In addition to this so-called Vega risk/reward, this part of the options volatility tutorial will teach you about the relationship between historical volatility (also known as statistical, or SV) and implied volatility (IV),
Implied Volatility and Historical Volatility
Historical volatility (HV) is the volatility experienced by the underlying stock, stated in terms of annualized standard deviation as a percentage of the stock price. Historical volatility is helpful in comparing the volatility of a stock with another stock or to the stock itself over a period of time
In contrast to historical volatility, which looks at actual stock prices in the past, implied volatility (IV) looks forward. Implied volatility is often interpreted as the market’s expectation for the future volatility of a stock. Implied volatility can be derived from the price of an option. Specifically, implied volatility is the expected future volatility of the stock that is implied by the price of the stock’s options. Implied volatility is often interpreted as the market’s expectation for the future volatility of a stock. Implied volatility can be derived from the price of an option. Specifically, implied volatility is the expected future volatility of the stock that is implied by the price of the stock’s options.
Saturday, 10 October 2015
DEFINITION of 'Iron Condor'
An
advanced options strategy that involves buying and holding four different
options with different strike prices. The iron condor is constructed by holding
a long and short position in two different strangles strategies. A strangle is
created by buying or selling a call option and a put option with different strike
prices, but the same expiration date. The potential for profit or loss is
limited in this strategy because an offsetting strangle is positioned around
the two options that make up the strangle at the middle strike prices.
BREAKING DOWN 'Iron Condor'
This strategy is mainly used when a trader has a neutral outlook on the movement of the underlying security from which the options are derived. An iron condor is very similar in structure to an iron butterfly, but the two options located in the center of the pattern do not have the same strike prices. Having a strangle at the two middle strike prices widens the area for profit, but also lowers the profit potential.
Short iron condor
A short iron condor consists of four legs as described above and results in a net credit received. As for profit potential, the maximum potential profit is the initial credit received upon entering the trade. This profit will occur if the underlying stock price, on expiration date, is between the two middle (short) strikes. One of the benefits of a short iron condor (and potentially options in general) is limited risk. For short condors, the maximum loss comes when the underlying stock price drops below the lowest strike (long put) or above the highest strike (long call). If you want an equation for max loss, think of it as the difference in strike prices of the two lower-strike options (or the two higher-strike options) less the initial credit for entering the trade
BREAKING DOWN 'Iron Condor'
This strategy is mainly used when a trader has a neutral outlook on the movement of the underlying security from which the options are derived. An iron condor is very similar in structure to an iron butterfly, but the two options located in the center of the pattern do not have the same strike prices. Having a strangle at the two middle strike prices widens the area for profit, but also lowers the profit potential.
Short iron condor
A short iron condor consists of four legs as described above and results in a net credit received. As for profit potential, the maximum potential profit is the initial credit received upon entering the trade. This profit will occur if the underlying stock price, on expiration date, is between the two middle (short) strikes. One of the benefits of a short iron condor (and potentially options in general) is limited risk. For short condors, the maximum loss comes when the underlying stock price drops below the lowest strike (long put) or above the highest strike (long call). If you want an equation for max loss, think of it as the difference in strike prices of the two lower-strike options (or the two higher-strike options) less the initial credit for entering the trade
Wednesday, 7 October 2015
How Option Delta and Gamma Influence Each Other
How Option Delta and
Gamma Influence Each Other
As the market has been very volatile lately. Stocks have been moving in sometimes dramatic on a daily basis so it might be wise to review how option prices change when the underlying changes. The option “greeks” help explain how and why option prices move. Option delta and option gamma are especially important because they can determine how movements in the stock can affect an option’s price.
Option Gamma
The gamma of an option indicates how the delta of an option will change relative to a 1 point move in the underlying asset. In other words, the Gamma shows the option delta's sensitivity to market price changes.
Gamma is important because it shows us how fast our position delta will change as the market price of the underlying asset changes. When you are "long gamma", your position will become "longer" as the price of the underlying asset increases and "shorter" as the underlying price decreases. If you sell options, and are therefore "short gamma", your position will become shorter as the underlying price increases and longer as the underlying decreases.
Option Delta
The delta of an option is the sensitivity of an option price relative to changes in the price of the underlying asset. It tells option traders how fast the price of the option will change as the underlying stock/future moves.
Call Options
Whenever you are long a call option, your delta will always be a positive number between 0 and 1. 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. Conversely, when the underlying market price decreases the value of your call option will also decrease by the amount of the delta.
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.
Option delta and option gamma are critical for option traders to understand particularly how they can affect each other and the position. A couple of the key components to analyze are if the strike prices are ATM, ITM or OTM and how much time there is left until expiration. An option trader can think of option delta as the rate of speed for the position and option gamma as how quickly it gets there.
As the market has been very volatile lately. Stocks have been moving in sometimes dramatic on a daily basis so it might be wise to review how option prices change when the underlying changes. The option “greeks” help explain how and why option prices move. Option delta and option gamma are especially important because they can determine how movements in the stock can affect an option’s price.
Option Gamma
The gamma of an option indicates how the delta of an option will change relative to a 1 point move in the underlying asset. In other words, the Gamma shows the option delta's sensitivity to market price changes.
Gamma is important because it shows us how fast our position delta will change as the market price of the underlying asset changes. When you are "long gamma", your position will become "longer" as the price of the underlying asset increases and "shorter" as the underlying price decreases. If you sell options, and are therefore "short gamma", your position will become shorter as the underlying price increases and longer as the underlying decreases.
Option Delta
The delta of an option is the sensitivity of an option price relative to changes in the price of the underlying asset. It tells option traders how fast the price of the option will change as the underlying stock/future moves.
Call Options
Whenever you are long a call option, your delta will always be a positive number between 0 and 1. 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. Conversely, when the underlying market price decreases the value of your call option will also decrease by the amount of the delta.
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.
Option delta and option gamma are critical for option traders to understand particularly how they can affect each other and the position. A couple of the key components to analyze are if the strike prices are ATM, ITM or OTM and how much time there is left until expiration. An option trader can think of option delta as the rate of speed for the position and option gamma as how quickly it gets there.
Thursday, 1 October 2015
LT BUTTERFLY STRATEGY FOR OCTOBER'2015
BUY 1 LOT LT 1400 CALL @ 101
BUY 1 LOT LT 1500
CALL @ 43
SELL 2 LOTS LT 1450 CALL @69
Total risk=750
Upper break given point=1550
Lower break given point=1350
PAY OFF TABLE:
Tuesday, 29 September 2015
DLF STRANGLE STRATEGY
BUY DLF 140 CALL @3.3
BUY DLF 110 PUT @ 2.7
COST=6
TOTAL RISK = 12000
RETURN = UNLIMITED
UPPER BREAK GIVEN POINT=146
LOWER BREAK GIVEN POINT=104
Pay off table:
Monday, 28 September 2015
What Is Options Settlement In The First Place?
Settlement
in options trading is the process where the terms of an options contract are
resolved between the holder and the writer. In options trading, the holder is
the one who owns an options contract and a writer is the person who sold the
holder that options contract. Settlement in call options contracts involve the holders
of the options contracts paying the writers for the underlying asset at the
strike price. Settlement in put options contracts involves the holder of the
options contract selling the underlying asset to the writer at the strike
price. After settlement, the options contract will cease to exist and all
obligations between the holder and the writer would be resolved.
Settlement can happen under 2 circumstances; Voluntary exercise by the holder or automatic exercise upon expiration.
The holder of an American Style Option could choose to voluntarily exercise their options any time prior to expiration. Once that happens, settlement takes place between the holder and the writer and the options contract is resolved.
Settlement can happen under 2 circumstances; Voluntary exercise by the holder or automatic exercise upon expiration.
The holder of an American Style Option could choose to voluntarily exercise their options any time prior to expiration. Once that happens, settlement takes place between the holder and the writer and the options contract is resolved.
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