SELLING PUTS VS. BUYING CALLS

The bullish trader has a variety of strategies that can be adopted. Buying calls or selling put spreads are two of the most popular choices.
Let's look at the choices for the typical bullish option trader. The market is rising and he wants to makes some money from that rally. Not having a specific stock in mind, he decides to trade index options and chooses SPY, an ETF (exchange traded fund) that mimics the performance of the S&P 500 Index.
Using live data, it is Jun 12, 2014, 9:15 am CT. 
SPX is priced at 194.62.
Let's assume that we prefer options for which expiration Friday is Jul 18, 2014.
Our trader has a few possible choices. Keep in mind that most newer option traders prefer to buy out-of-the-money (OTM) options because they cost less than in-the-money options. More experienced traders understand that buying OTM options is a losing strategy over the longer term, but rookie traders have not yet reached that level of sophistication.
An at-the-money call option, the SPY Jul 18 ‘14 195 calls option costs $1.82, or $182 per contract.
Partial list of OTM options, and their premium (cost to buy):

·         SPY Jul 18 '14 196 call; $1.32

·         SPY Jul 18 '14 197 call; $0.98 

·         SPY Jul 18 '14 198 call; $0.68

Partial list of OTM put spreads and the premium available from selling them:

·         SPY Jul 18 '14 193/194 put spread; $0.39

·         SPY Jul 18 '14 192/193; put spread  $0.33

·         SPY Jul 18 '14 189/190 put spread; $0.20

Although there are other choices, let's assume that your choice is limited to these.
Call buyers, especially buyers of out-of-the-money calls must see the index price increase before they have any chance to earn a profit. That increase must come before the options expire, and the sooner the better.

THOUGHTS ON TRADING IRON CONDORS

"BUY DLF 85 PUT @ .90 TGT 1.65/2.2"
The iron condor is an option strategy usually adopted by traders with some option trading experience. That is as it should be because managing these positions requires an understanding of how money is made and lost -- something that most novice traders are unaware that they have not yet learned.

Below are some of my thoughts about trading iron condors.

Is trading iron condors the same as gambling in the stock market?

·         If you open a randomly chosen iron condor, you are gambling. When choosing a specific iron condor, it is important to pay attention to the underlying asset, the premium collected (i.e., the maximum possible profit), the money at risk (position size and worst possible loss), and your willingness to own a market-neutral position. 
·         If you open an iron condor, but have an edge -- perhaps the implied volatility is very high, or there is a good reason to believe that the underlying asset will not be too volatile during the lifetime of the options -- then you are not gambling. However, because you must pay commissions to own the investment, you need a significant edge to place the trade.
·         If you open an iron condor based on a stock market prediction -- bullish, bearish, or neutral -- then you are gambling if your proven track record of predicting direction is poor. You are not gambling when you truly have a proven, successful, track record of predicting market direction. A 60/40 profit/loss record -- after commissions -- meets that need.

PLAIN VANILA STRATEGY FOLLOW UP ; HINDUNILVR BOOKED PROFIT

OPTION STRATEGY GIVEN ON 3 FEB 2016
HINDUNILVR 820 CALL ACHIVED THE TGT OF 36 HOPE U HAVE BOOKED PARTIAL PROFIT (1 LOT)….

PROFIT IN 1LOT IS 10800/-

CONTINUE TO HOLD 2^ND LOT...
NEXT TGT WILL BE UPDATED SOON.....
KEEP READING.....

PLAIN VANILA STRATEGY FOLLOW UP ; HINDUNILVR BOOK PROFIT

OPTION STRATEGY GIVEN ON 3 FEB 2016
BOOK PARTIAL PROFIT (1 LOT)  IN HINDUNILVR 820 CALL @ 35
KEEP READING FOR FURTHER UPDATE......

OPTION STRATEGY FOR FEBRUARY SERIES ; PLAIN VANILA STRATEGY

"BUY 2 LOTS HINDUNILVR 820 CALL @ 18"
FOR TGT UPDATE KEEP READING.............

RBI CREDIT POLICY ; 2 FEB 2016

RBI LEAVES REPO RATE, CRR, SLR UNCHANGED

3 TIPS FOR USING OPTIONS

TATAMOTORS CALL GIVEN ON 29 JAN ACHIEVED 1ST TGT
Options have been misunderstood by the majority of individual investors for as long as they existed. Options have been around for a long time (since biblical times when a clever person bought call options on as many olive presses as possible and reaped large profits when the harvest was huge and people had to come to him to gain access to the presses), but they have been traded on an exchange only since 1973 (when the CBOE opened its doors).
Despite the fears of uneducated investors, these two statements are true: 
·         Options are risk-reducing investment tools.
·         Many option traders adopt very risky strategies using options, despite the fact that far more conservative strategies are available.
TIPS: HOW TO USE OPTIONS EFFECTIVELY WITH LIMITED RISK
1.       DON'T BE GREEDY.
Be willing to own positions where profit potential is limited, rather than unlimited. 
Adopt strategies where losses are capped -- preventing a financial disaster -- and with a high probability of success.
Bullish traders can sell out-of-the-money put spreads.
Bearish traders can sell out-of-the-money call spreads.
In either scenario, do not sell spreads with a tiny premium.
Selling naked options places the seller at risk of a large loss. Remember that markets do unexpected things every so often, and it is important to practice sound risk management by avoiding owning positions that could -- no matter how unlikely -- blow up your account.
Note: It is acceptable to sell naked put options if two conditions are met: (a) You want to own shares of the underlying stock, even if the price plunges below the strike price; (b) you have enough cash in your account to buy those shares, if you are assigned an exercise notice on those puts.
2.      Understand that using options as mini-lottery tickets is a money-losing proposition. It is understandable that you want to dream big dreams. However, when placing your money at risk (every trade comes with some risk), it is important for traders to consider the probability of earning a profit, and not only the size of that potential profit. 
Do not make a habit of buying inexpensive, low-Delta, out-of-the-money options. Sure it is tempting to buy an option for $10 or $20 when there is a chance of scoring a 10-bagger (i.e., earning 10 times the cost of the option), but those options have very little chance of performing as you hope. 
You may believe that the price of a specific stock has a good chance rise from $44 to $57 over the next couple of months, but that is a very unrealistic expectation (unless you have inside information -- in which case it is against the law to buy options). Buying calls with a $55 strike price options is just foolish because such options tend to expire worthless. Sure the loss is small, but the chances of earning money with this strategy are even smaller.

TRADING WITH ADDITIONAL RISK

It concerns risk taking, and although the statement may seem to be trivial, it is far from it. It is an important concept. 
Don’t expect to make more money for taking risk; just know you have to take additional risk to make more money.
If you don’t understand the difference, you should not be taking risk.
One of the basic concepts regarding investing is that there are no free lunches and that you, the investor, must take some risk in order to earn a return on your investment.
If you are a very skilled trader, you may be able to get away with taking very little risk. However, for the vast majority of investors/traders, we must take on additional risk when we seek to earn a higher profit.
I hope that makes sense. If you were able to earn a high reward on your investments with very low risk, then almost every investor on the planet would go after those rewards.
Usually, no further discussion is required because we all understand when many people go after the same investment product, then there are often those who are willing to accept a slightly lower reward. That in turn drives down the overall reward available to investors. To understand why this is true, just imagine a $100 bond that returned $10 every year. You love that 10% annual return. But another investor may we willing to accept less and may bid $105 for that bond. When that happens, you can no longer buy the bond for $100. The price is now higher and the reward is now less. The process continues (i.e., the cost of the bond increases) until equilibrium is reached and no one is willing to pay a higher price.
By the time that happens, the bond could easily be selling for $120 and the annual return would be 8.33%.
THE MAJOR POINT IS THAT EXTRA RISK DOES NOT GUARANTEE ANY EXTRA REWARD. IN FACT THERE MAY BE NO REWARD. Imagine a careless, inexperienced trader adding risk to his/her portfolio with the expectation that it will lead to greater gains.
Using the above bond example, the fact that the business had to pay as much as 10% to sell the bonds initially suggests that the company may never be able to repay the debt. Financially sound companies do not have to pay so far about current market rates when selling bonds. The fact that this company has to pay so much in order to attract lenders says a lot about the high risk involved when lending money to them. It's great to earn $10/year per $100 investment, but if the company defaults and you never get back any of the $100 invested, that is an example of no reward.

OPTIONS ARE NOT STOCKS...!!!!!

"SELL TATAMOTORS FUTURE BELOW 336 TGT 334.5/332.2 SL 338.9" 

"BUY NIFTY 7500 CALL@ 154 TGT 179/194 SL 128"

Whether you are a trader or an investor, your objective is to make money. And your secondary objective is to do so with the minimum acceptable level of risk.

One of the major difficulties for new option traders arises because they do not really understanding how to use options to accomplish their financial goals. Sure, they all know that buying something now and selling it later at a higher price is the path to profits.

But that is not good enough for option traders because option prices do not always behave as expected. 

For example, experienced stock traders do not always buy stock. Sometimes they know sell short hoping to profit when the stock price declines. Too many novice option traders do not consider the concept of selling options (hedged to limit risk), rather than buying them.

Options are very special investment tools and there is far more a trader can do than simply buy and sell individual options. Options have characteristics that are not available elsewhere in the investment universe. For example, there is a set of mathematical tools ("the Greeks") that traders use to measure risk. If you don't grasp just how important that is, think about this:

If you can measure risk (i.e. maximum gain or loss) for a given position, then you can manage risk. Translation: Traders can avoid nasty surprises by knowing how much money can be lost when the worst-case scenario occurs.
Similarly, traders must know the potential reward for any position in order to determine whether seeking that potential reward is worth the risk required.  

For example, a few factors that option traders use to gauge risk/reward potential:

·         Holding a position for a specific period of time. Unlike stock, all options lose value as time passes. The Greek letter "Theta" is used to describe how the passage of one day affects the value of an option.

·         Delta measures how a price change -- either higher or lower -- for underlying stock or index affects the price of an option.

·         Continued price change. As a stock continues to move in one direction, the rate at which profits or losses accumulates changes. That is another way of saying that the option Delta is not constant, but changes. The Greek, Gamma describes the rate at which Delta changes.
This is very different for stock (no matter the stock price, the value of one share of stock always changes by $1 when the stock price changes by $1) and the concept is something with which a new option trader must be comfortable.  

·         A changing volatility environment. When trading stock, a more volatile market translates into larger daily price changes for stocks. In the options world, changing volatility plays a large role in the pricing of the options. Vega measure how much the price of an option changes when estimated volatility changes.

WRITING COVERED CALLS

I prefer to begin discussions about learning various option strategies with Writing Covered Calls because it is easy to understand and because it will feel natural to stock market investors.

First, a definition: A covered call is a position consisting of two parts:

·         Long (that means you own) 100 shares of stock.

·         Short (i.e., you sold) one call option whose underlying asset is that same stock. 

WHY BEGIN WITH THIS STRATEGY?

Although it is not true for every new option trader, most people who come to the options world have some prior trading experience -- specifically, buying and selling stock. Writing covered calls is an extension of that investment strategy. I recommend beginning an options education with this strategy for one basic reason: It is a natural extension of something that most new option traders are already familiar with (buying stock).

That makes it much easier to glide into using options.

This is not the appropriate space to talk about whether an individual investor is better off choosing individual stocks or sticking with index funds or specific exchange-traded funds (ETFs).  I have a deep dislike for traditional mutual funds because of their steep sales charges (loads and/or redemption fees) and excessive management fees. If you are someone who already invests in individual stocks, then the strategy described below is likely to be very useful during the early stages of your options-trading career.

STRATEGY DESCRIPTION

Covered call writing (CCW) is a method for reducing risk associated with owning stock. Stockholders may earn a very large profit when the stock price soars, but they are subject to large losses when the stock price tumbles.

If you prefer to hedge that downside risk, then selling (writing) one call option for each 100 shares of stock owned is an efficient hedging method. 

WHY IS A COVERED CALL A HEDGED POSITION? 

As a reminder, when you sell a call option, the buyer is granted the right to buy your stock (at the strike price) at any time before the option expires.

Therefore, if the stock is trading above that strike price when expiration arrives, the call owner will exercise her rights to buy the shares, and you are obligated to sell. Profits are limited because you cannot sell your stock at any price higher than the strike price as long as you remain short that call option. In other words, you sacrificed the possibility of selling stock at a higher price in exchange for the cash premium that you were paid when selling the call.