does option spread actually tell you direction of price?

I am going to share something that some or many of you may not agree. I studied deeply the effect of options spread OI (Open Interest) on price movement, away from expiry and near the expiry. And this conclusion is what I have come to believe:-

1. 

Open interest has no effect on price movement. It shows the interest of number of players. It may serve as a mass reaction level, but it has no effect on price movement or direction. 

Reason? 

Option writers/operators are only interested in the premium. Any strike price a retail trader wants, they will happily write a cheque and sell that option. whatever strike price! whatever quantity! 

The secret is that operators have written all strike prices from the floor to the sky. They know, even if the price moves, their loss of intrinsic value will be offset by the gain in the intrinsic value of the other option (put or call). They are not bothered by the strike price, only the premium. Whichever way the market goes, they make money via premium. They are not after intrinsic value per se. For that, they buy cash or futures imho. So, all this noise about strike price OI barrier is an eyewash and a distraction. Otherwise how do you explain big moves on expiry day? Every once in a while, you see 5 rupee call becoming 150 or 300, piercing through the OI thick walls. 

Markets move options, not the other way around. If the market has to move, operators will drag the options, period.

2. So, what actually matters in options spreads? It is the premium.  That too, you can't use to guess the direction. operators start with a "predetermined" premium of at-the-money option and work the rest premium on both sides. Thereafter they keep increasing the premium the side the herd rushes and keep crashing or maintaining the rest. 

Even a broken clock shows the correct time twice a day.

which strikeprice option to buy?

- very far out of the money, like 5-10 value = for thrill, not trading

- far out of money like 30-35 value = for aggressive betting on profit from earlier trades

- out of the money like 70-100 value = normal trade position

- in the money like 100-150 = when you are confident 

- deep in the money like 250-400 = alternate to buying futures

- deeper in the money = not much extra benefit though risk increases

Once the value of the option enters the next, higher level, you may skim the option to lower/earlier category and take some profit/money off the table.

Caution : Never put 5% (at worst 10%) of your trading capital in single trade.

except aggressive betting of profits of one trade. eg you turn 10 to 12 lac....and want to bet aggressively with that 2 lac profit, provided you have an evolved dependable tested plan. several traders have made big sums with that approach.

should we buy or sell options? my take

Selling options only if you have backup funds to withstand big adverse moves and still have a plan. And when you have that much, it is better to buy stocks the investor way. Almost all big professionals do that. I mean those beyond 10-20cr funds.

I know some traders who made crores, lost crores multiple times selling options. They falter tragically in trending and volatile markets. 

They failed to go beyond a level because they didn’t know how to know the trend, which is the same reason they switched from buying to selling.

IMHO a disciplined, successful options buyer has all it takes to become an investor ultimately. The %cagr on a big corpus makes them financially free without anxiety and still grow their net worth.

--

Traders think that they need more money to buy 100 lots instead of 10 lots. Actually, they need a mindset.

Money comes easily. Mindset doesn’t

--

Mental maturity and stability are required. Not money. Money comes.

Until our thinking changes, our financial standing doesn’t change.

If trading doesn’t change you, you are not progressing

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Option buying is gear one and two. Not required after 15 km/h and 25 km/h. Option selling is the third gear. Investing is 4th gear and overdrive,

--

Option buying is like buying futures with a premium as interest of borrowing or hafta. People don’t buy options except for the reason that they don’t have larger money. 

Those who have money to short options have either inherited or are blowing their savings OR are geniuses.

--

Both buying and selling are good tools. Nothing wrong with both. Both are different tools for different situations and stages imho.

--

Both shouldn’t be looked down upon. These are not show-off concepts.

I mean buying and selling options

DIIs FIIs use all tools at their disposal as per the situation. They also buy options.

--

It is difficult to make trading difficult

 A trade is like the sail of a wind sail boat. All a trader needs to do is to judge the direction of the wind and adjust the direction of the sail. A trader, like a sailor, can’t decide on the amount of thrust the trade boat will get. That depends upon the velocity of the wind decided by factors not under his control. Big storms or good winds or short bursts come randomly. To be ready to catch them is all that is that a trader sailor has to align with. 

--

Trading is easy because that is all a trader needs to do. The rest market does. It is difficult to imagine that someone may find it difficult to judge the direction of the wind. It is difficult to make trading difficult.

All we have to decide is whether to buy a put or call. One of them is always right. It is the only gambling with a 50% assured result. We still lose because we either buy too big to hold without anxiety, or we change our mind at the drop of a hat, or we don’t have any logic to pick the trade side. Self talk

hedge funds hedge...simple (& decisive)

i always kept on bleeding till I started hedging.

hedging is like insurance to the trade. it costs something, but it gives safety cover. it reduces/eats from the profit but it ensures that you don't lose big plus you profit more often due to less stress and panic.

after the safety cover of hedging, i focused on better prediction of the direction in short and medium term. 

many say it can't be predicted. well, that's what operators want us to think. while it may not be possible to predict accurately or everything, like rain....but you can always find a way to predict the chances of rain vs snow
 

learning to predict better and better takes a lots of time. i once equated it in one of my articles to drug discovery. it is painful, costly, exhausting and time consuming. many don't survive that arduous journey. that's why i say to myself that surviving is crucial to winning.
 

hedging takes care of our longevity till we discover the wonder drug
 

if you want to take short positions, eg, take 200pe vs 100ce position...or similar traps....

of course, i have seen operators play premium eating games even there and it may appear that if market moves down, 200pe would gain much much less than 100ce would gain....reducing, apparently, the logic behind the trap. but that is temporary and is part of the trap....operators are desperate to get you off their side. they carry the helplessness of going against the weight of the broad macro fundamentals of companies/sectors/economies.
 

master any 1-2 indicators and mix them with game theory....observe the historic moves over different time lines and start betting small in hedges....that's a good path to pro-trading imho....
 

you have to do Ph.D. in 1-2 indicators than matriculation in 10. no wonder, the richest funds and operators are called "hedge funds".

the game we shouldn't play, at least that way...

nobody will buy options if there were no leverage and only premium....who would need it then?

these were cleverly created to make profit form those who were otherwise not getting trapped and were otherwise difficult to beat. this way, through options they would potentially stand to lose via premium erosion even if they were not in the wrong trade direction.

and guess who gets naturally lured into buying options? those who have less money and/or want to get "rich" fast. options trading is a legal drug.

....small traders...millions of them...in herds....pan continents

the operators tried giving tickets of futures also, at small margins as an alternative to options (in fact, if i am not wrong, futures came earlier than options), but they have now started folding up the scale of the spread of the futures products as it lured lesser people than the genius options, scared more besides being constantly under the government and watchdog eyes for being politically and economically too risky for the returns

the game is overwhelmingly tilted towards option writers. and, mind you, not everyone can or should write options. just because you have the money to sell one or more option lots doesn't mean it is for you. if it is not for you, going the writing way is like being 100 times bigger fool and prey than an option buyer.

only "they" can and should write....

when f&o were not there, only way to beat the masses (though the numbers of traders then were far lower than those today) was in pure price volatility, on real and imaginary pretexts. as economic prosperity became more and more luring and desirable but less achievable, masses got started getting attracted towards stock markets. the invention of f&o made this possible. infact, these were created in first place to tap that potential casino market.

the best way to avoid this fatal slow poison trap is not only not to write options but also not to buy these. even if you are right in getting the direction right, you will eventually lose. i bet and i can prove it. because premium erosion is not the only trap. there are more traps lined behind it. including illogical surprise moves or lack of any.

not just f&o, every kind of leverage is poison including intraday margin. all are traps masked with mouthwatering "opportunity" promise to make a fortune with so less...

if you still want to do options you stand no chance if you don't have a very solid trading system which can fairly accurately predict portion or pattern of price movement with amazing dependable repeatability. many may think that they have got such a system but more often they are tragically betrayed by it.

besides such a "really loyal" system, you need immense patience to accept the unending delay in your becoming a millionaire (or billionaire) from the debt ridden tie-wearing failed masked mortal with injured ego you are (oops...sorry)

not that people are not getting their market calls right. in fact, many are....more and more traders in the world are beginning to crack  a part of the puzzle (though the overall %age is till miniscule). but despite getting it right they book profit too soon for fear of losing because of guaranteed unexpected surprise moves, or booking loss too late. this may sound like a cliche' but this is true with everyone. it is bot stupid and therein lies the tragedy of success of this trap.

this is the single biggest factor of masses being on continuous losing side despite their knowledge and skill.

so what's the message here?

1. i am not asking you to stop trading. half of the world is into trading...incl. potatoes, mobiles, souls, bodies and what not. trading is essential and good. but stop trading leverage. trade with what you have. earn, beg, borrow, steal the principal from somewhere (pardon the slang) but don't trade leverage. atleast, for heaven's sake, reduce it.

2. avoid the cake laced with the cream or honey poison of "premium". premium is the sign to look for. minor premium is ok. but anything more than a "small" premium is shady.

3. trade only clear cut opportunities. otherwise stay out, till you identify one. spend a lots of time in the jungle to identify the real non-fake opportunities. real opportunities don't look like one, except to a very trained seasoned eye. go the long route.

(decide what is "small" for you)

4. once you know that you have taken the right trade, hold onto the trade and don't get bluffed or ejected even if you were to lose big. that's why i say everything depends on the accuracy of your trading method and that's why i say trade only that big which is perfectly ok for you to lose all.

5. ignore the short term volatility, try to figure out (though system) what they are trying to achieve in the medium to long term. where are they taking the market. i know 99% still won't get it. if 99% get it, the operators will change the game to make sure only 1% get the ne version. but atleast, here's your and our chance to try to be in that 1%.

in the end i would say two lines....trade like you were a potato trader....play the trading game, don't trade the trade.

they never say "no"

DM : Even call writers feeling heat now in this rally....

Js : imo operators are 95% writers. they never feel the heat wherever the market goes. they write all strike prices unconditionally. they just charge (much) more premium for the strike prices where they are planning to take the market or expect it to go. they are great shopkeepers. they never say no to write any strike price, any kind of option when someone asks for or is willing to buy. options spread anaylses should be done with this in mind.

how i learnt trading with options (self talk)

: what i want to say is this

: that we can know when the trend starts or ends but can't tell how long it is going to last....

: and i have often noticed that

: indicators go silent / mute / meek / underground during strong trend storms.......

: they neither signal up nor down nor pause.....

: like a warning system signal which develops a snag when it is needed most

: the best and perhaps the only strategy available at such times (the one i am following now) is to keep trading in the direction of the trend with trailing auto stop loss

: options become virtual futures when they come in the money (after adjusting for the premium)........but are much less risky in the initial stages when the trend is not fully formed.

: sometimes markets go berserk.....that's the time we should stay sane.....self talk

: i just have literacy knowledge of options......but that serves me quite well when coupled with indicators/strategy/plan/method

: options are very simple.......complications are optional

: i have learnt options only from practical.......theory was so confusing.....

: i just learnt the basic meanings of options and learnt their behaviour by hit and trial....

: learning their beauty and ugliness on the way.....

: life or options......avoid theory, plunge and learn......

: that way u r spared of the wrong info which u otherwise might have to unlearn later.....

: and unlearning, mark my words, is a very painful, if at all possible....given the "investment" one has already made.....

: fear of losing investment is bigger and more crippling than fear of being wrong in the direction of trade....self talk

the safest gambling in the world

js 

: if you have 500 points worth of dollars and you take 5 shots of options worth 100 each (ofcourse using some head), Atleast one of them is going to click and make 500 for you. and imagine 2 clicking.....3,4,5!!! that's the magical safety of naked options trading.....self talk

jeneel

: 3 out of 5make a good.money

js

: the problem is we don't bet one by one....like James Bond we bet all in one go and get screwed.....

jeneel

: I agree.  I m one of.them.  sab kuch subah ka.breakfast mai kha lena hai.    Lunch dinner ki toh baat hi nai karni ya sochna

js

: trading is the safest gambling in the world.....

ashok

: Best and Safest business

js

: when I was trading,I was losing.....when I started gambling,I started winning.....
: besides, I gamble, not bet
: trading is probabilistic, not deterministic
: if you have 500 points worth of dollars and you take 5 shots of options worth 100 each (ofcourse using some head), Atleast one of them is going to click and make 500 for you. and imagine 2 clicking.....3,4,5!!! that's the magical safety of naked options trading.....self talk
: lemme explain this....
: suppose i have 12500/- rs with me.......
: and i am expecting market to go down.....and i want to play
: i will buy (say) one lot of 8300pe worth 100 points (example). that will cost me 100x25=2500/- bucks
: i can bet 5 times such a bet worth 2500/- in the 12500/- i have
: 12500 dovided by 25 (nifty lot size) = 500 points......2500/- x 5 = 100points x 5 chances
: if my 8300pe trade goes really right, it has potential to zoom to 500 in around 550-600 point zoom/rally
: if it goes wrong, the next 100 point bet can zoom..... or the next one.....or the next one....
: even if one of the 2500/- bet clicks, my 12500/- are safe......
: imagine more than 1 bet going right!!!
: imagine buying multiple lots....
: hope i have explained right...

Interpreting move of operators from options - II

the first article with the same name was about guessing the broader underlying trend of the market.....typically medium term.....

this article is to check whether the short term trend is in line with the underlying trend or the market is going to do the opposite for some days before it continues in the real (medium term) direction....

lemme take a practical example....

the cmp of nifty on 30th Jan 2015 closing = 8808

now lets go 200 deep on both sides, call as well as put side

8600pe=77/-
9000ce=126/-

now if the market were to go down 100 points, 77 is likely to become 102 (current 8700pe value) (roughly speaking)....that's a profit of 25 points

on the other hand, if the market were to go up 100 points, 126 is likely to become 171 (current 8900ce value) (roughly speaking).....a profit of 45 points

since operators are generally the writers/sellers of the options, they will like to give you 25points rather than 45 points.....hinting thereby that they are taking the market down in the short come.

Interpreting move of operators from options

[11:28AM, 29/01/2015] Mudraa JP: please teach us on how to know the correct value of option... like you said. ..currently high premium. ..etc.. can we take this topic on weekend ??
[11:29AM, 29/01/2015] @: see.....more the premium,more valuable the thing, likely the likelihood
[11:31AM, 29/01/2015] @: e.g. cmp=8867spot.......feb 8800 call is costing 258/-.....meaning a premium of 191
[11:31AM, 29/01/2015] @: feb 8950put is costing 186/-.....meaning a premium of 103
[11:33AM, 29/01/2015] @: assuming operators are the sellers of the options (and assuming they are smart chaps), they must be aware of the costs they are asking for the puts and calls.....so why are they asking less for the puts than calls? (u can see that cmp is approx equidistant from both the strike points i have taken)
[11:34AM, 29/01/2015] Mudraa JP: Ok..
[11:34AM, 29/01/2015] mudraa p murlidhar: Ok sir
[11:34AM, 29/01/2015] @: this indirectly clearly hints that operators know that they are going to take the market up (ultimately) because of fundamental developments (foreseen and current), and they want we sheeps to eat cheaper puts
[11:34AM, 29/01/2015] mudraa Dinu prasad: 
[11:34AM, 29/01/2015] @: there is another aspect.....
[11:36AM, 29/01/2015] Mudraa JP: Alright,  does it mean..the operators will tend to go the other way ?
[11:36AM, 29/01/2015] @: e.g. if feb 8800call is costing 258/- on jan expiry, it might cost 58 or 158 or 358 for the same strike next expiry day (assuming cmp remains same)
[11:37AM, 29/01/2015] @: everything depends upon the travelling plans of operators (up or down)
[11:37AM, 29/01/2015] Mudraa JP: I c..humm getting a bit more closely now
[11:37AM, 29/01/2015] @: yes, operators always go the other way....they have to....otherwise they are not the operators, public is
[11:38AM, 29/01/2015] @: one more thing.....
[11:38AM, 29/01/2015] Mudraa JP: Please
[11:39AM, 29/01/2015] @: the fact that difference in the call and put premiums (or cost) of feb series of equidistant strike points is not that much (258 vs 186) shows that thow markets are finally expected to go up, its not tilted that much towards upside!!!
[11:39AM, 29/01/2015] @: this is indicating intermediate slides and crashes
[11:41AM, 29/01/2015] @: so, u can't decide whether the cost of a particular option is low or high or right
[11:41AM, 29/01/2015] @: u just have to compare the price and premium of strike prices equidistant from the cmp and check

how options open interest hints direction of market movement

​suppose market spot is at 8000

then check 8000CE and 8000PE open interest.

let's assume these are 2500k and 3500k respectively

let's also asssume premium for both is 50 rs. and 120 rs respectively

in this scenario, assuming operators are mainly options writers, which i think is a right assumption

operators​ will like to move in the direction where they gobble up more than they shell out

in this case premium on table for 8000CE is 2500kx50=1,25,000k

vs premium on table for 8000PE=3500kx120=4,20,000k

in this case, operators will obviously want to throw 8000PE "out of money" by taking market above 8000

this way they get to eat 8000PE premium

now, 8000CE becomes in the premium becomes "in the money". operators would risk giving something from this premium to the holders of 8000CE.

thus operators have gained 420000k by losing 125000k.

thus is the direction decided or estimated from the options data as to where the market may be taken by the operators

larger the gap between the "premium on the table" at any strike level decides how strong is that gate for the operators to crash.

--

dear siva,

i have shared one of my prime learnings with u. i was always hesitant to share such advanced things fearing that operators will stop using these tactics once formulae are exposed......i think i must be acting naive by thinking this way. 

anyway, i have penned it down courtesy you. now i will archive this in my blog.

hope this learning of mine is right and not flawed

any feedback or query welcome

dilemma of buying when premium is high

dear dheeraj,

whatever is at premium has good value....

also, when u will sell, u will get good part of premium back. premium will not become zero at the blink of eye.

plus, high premium indicates that somewhere in the series market will enter a range.....that helps in trading (ranges). you interpret technicals accordingly, in that light.

i am more jittery buying when premium is too low. generally i avoid it.

never try to recover the loss

dear A

u are holding 8000pe lots @ 95
right now, it is around 33 (loss of 62)

now, u have to recover 62 points, that's obviously ur first aim

well, here is my first, off-the-cuff frank advise

"never try to recover loss, try to gain if there is a possibility

that gain will automatically bridge/erase/cover the loss

but never trade with negative mindset

that fills u with nervousness/fear/anger/frustration leading to wrong decision and lot of stress

if a loss has come, it won't go away just because u need it to

prayers don't work in the market because god's men are on both side of the trade, including those of operators!

while a loss can't be erased per se, profit can definitely come

assume u were not in loss, then what would u have done?

if u knew it might fall, u might take fresh short position
or if u knew it is likely to rise, u might take fresh long position

--

so, if i were in your situation
i would square 8000pe's straightaway (money saved is money gained)
tomorrow morning i might get atleast 30 bucks for it.

putting 35 bucks more, i would have bought 8100pe lots

right now
8000pe=33+
8100pe=62+
8200pe=111

if (and everything depends on this if)
the market falls another 100 points

8000pe will become=30+ (surprising)
8100pe will become=100+
8200pe will become=170+

ur loss of 62 can be recovered only by 8200pe
that comes with condition of "risking"/putting more money on the table!!!

alas, there is nothing called free lunch!

sorry, for ur loss. take it, as of now, as price u pay for learning (i  used to assume losses as fees for my MBA (Trading) from the University of Operators!

pardon my language!

best wishes!!!

---

alternatively,

if market opens gap down tomorrow, or slipss too fast at opening, u gain some crucial points

i expect market to be volatile thereafter till expiry, which is quite away

u will get opportunities to make money

just need to keep ur calm

such experiences help in thickening of skin (which lady traders can't avoid) which helps u gain with less pain

understanding options further

astonishing observation

this morning nifty opens 100 points gap up.

a 160rupee put becomes 80 approx (fall of 50%)

whereas a 160rupee call goes up by a meagre 35points (just 20% instead of 100% rise which is reverse equivalent of 50% fall of put)

shocking, at the surface of it.

but, what does it mean?

does it mean

- that the call was very costly (super premium) which has just come down to realistic levels?

- does it mean that operators are bullish and going to take the market higher.

- they will eat put premiums big way and give nothing to the call buyers? eventually eating their premiums also as they reach sufficiently high?

- does it mean that if a pro trader was to guess the direction of the market rise, than selling/writing puts and calls of the boundaries of the estimated range can be a safe and lucrative bet?

trend check?

one of the most popular, most important and least understood and confusing aspect in trading is.....trend.

"trend is your friend!" it is said. but just as in normal world, it is difficult to know who is your true friend, it is equally if not more difficult to know what is the underlying, undercurrent, true trend of the market as of now.

trading without knowing the underlying trend is like para-gliding without knowing the direction and speed of the wind.

as i said in one of previous articles, if you are pro-trend even your blunders are likely to be pardoned. even if a new trader knows nothing about the market, he or she is almost sure to make money if only he or she takes pro-trend trades, sticks to it and doesn't vibrate too much (which market tries hard to make you to).

while a pro-trend ill-timed casual trade is likely to give profit (or atleast little or no loss), a well-timed studied pro-trend trade can give snowball profits washing away all self-doubts.

trend is decided by the market forces endorsed by the operators who know almost all.

and many a times, the trend is not obvious, by choice. market fluctuates a lot making the retail trader believe that either there is no trend or trapping the poor fellow take the wrong trend as the trend.

how is trend decided? 

i pondered over this question for many many months and came out with different answers. i knew that the key to trading success lies in the lock of "trend". over the time, i shortlisted and devised some methods to know the real trend.

the three top shortlisted tools for knowing the real underlined undercurrent trend are:

- moving average

- rsi

- options premium data analyses

but curiously, but not so surprisingly (after you read the game plan of the operators putlined below), all three parameters above are not awake at the same time at any time. i guess this is deliberate, to confuse and trap the prey.

while there are many other ways to know the trend, these are among the best. for these tools are effcient in knowing a hidden, camouflaged or subtle trend as well.

and the good thing is that all three of these are technically and genetically different and hence independent and without influence from each other. 

in my blog www.niftyshots.blogspot.com, i will henceforth, try and share regularly trend for the current nifty series based on my study of the above parameters. since trend changes max 2-3 times a month, don't be surprised if the updation about it in the blog is not daily. so, when i share the trend direction, it indicates the trend on that day / during those days of that series. it may change after a few days as and if market decides for the same.

also, note that i call the trend - underlying trend, because many a times, a trend is either not obvious or not visible. for major portion of the time, operators will not like to let the trend be known. after all, operators are against the majority. and they want the minority to be as small as possible. they will try every trick of the trade to not let you know what the trend is going to be before the explosive breakout or breakdown. or, they will not like you to know that they are accumulating or distributing. accumulation and distribution phases happen before the trend is actually visible. 

what this means is that a trend is there even before it appears on the screen. also, a trend may be there even when there is no movement on the graph. just like a snake which is alive and waiting with held breath, even when it is motionless. not only that, a trend may be up even when the market may move 50-100 points down in one or few days.....vice verse is also true. 

operators do whatever is possible to keep everyone confused. they want you to take wrong sides. and once having done that they tend to move the market so fast that everyone is left stranded behind high and dry.

having said that, i want to end by saying that while operators do a lot of things to confuse and trick retail traders, they leave a few clear, inevitable and shameless clues that reveal the trend for the keen silent emotionless motionless eye.

happy "trading"

how and from where i learnt options

( in answer to a question)

see, i just studied options in a simple way. 

i learnt the basics from various websites thrown up by googl e.  first i learnt the basics from there and then i tried to learn strangle, straddle etc. but soon i realized that those advanced combinations are for deep pocket fii/dii/hni's....besides being complicated and risky.......and foolhardy. 

then i realized that even plain options are very powerful if only one's fundamental method is strong and well developed. so, i just focused on and learnt the basics of options thoroughly. i learnt their behaviour by continuously monitoring them in different situations. 

i realized that learning a tool very very thoroughly revealed powers of it which are much potent than the complicated combinations of the same. 

complicated strategies are only an alibi for lack of a sound basic method.

....and all this i learnt using my own head....with a lot of trial and error and hell lot of practice using just the fundamentals of the idea/concept behind "options".

and while i was on this grand exciting journey or reinventing the wheel of options, i came up with some original and powerful new ideas, tactics, strategies and insights.

fundamentals of anything has the seed of all advanced greenshoots. 

i tried many websites and a few ebooks on options but all seemed to confuse me beyond the basics. just like you can catch the truth behind a person from his body language, you can see thru a book from its word-language.......and these books were definitely lacking "self-confidence" and conviction about what they were preaching. and all were the same as far as the basics were concerned.

best wishes

option screw drivers to suite the need

when market was @ 5445spot today, 5400pe was @ 19
when the market slipped t0 5395 (50points), 5400pe rose from 19 to 33 (14points)

when the market was @ 5405spot, 5300ce was @ 121
when the market was @ 5415spot, 5300ce was @ 135
(14points)

14points in both
but total movement in the first was 50points
and in the later 15points.

same result, different effort.

in the first case, i was less sure of the move,
so i bought cheaper slow moving option.

in the second case, i was more sure of the move,
so i bought costlier fast moving "overdrive gear" option.

that's the beauty of options!

flexibility......
different screw drivers as per the need!!!

how many lots?

Dear all,

This is to emphasize that when I buy cheaper at-the-money or out-of-money options I don't buy more lots than I would have bought had I bought costlier in-the-money options.

I buy cheaper options when I expect comparative uncertainty or volatility, or when the situation is less clear.

By buying cheaper options I put lesser money at risk.

I buy a lot of cheap option lots only when I want to gamble big time with controlled risk, like I did when I bought 5100 pe lots for less than 9rs on expiry day on 26 July which rose to 61rs.

just because i was ready to deploy larger amount in costlier options doesn't mean that i buy more lots of cheaper options just to deploy all that amount.

Best wishes

why i prefer to trade in options instead of futures

* safety (especially large unforeseen sudden moves)...and hence peace of mind. you thereafter never trade with "scared money".

* more leverage of capital

* adverse movement is lesser than the pro-movement for the same movement of spot.

*  more effective stop loss.

* lot of flexibility viz. a viz. which option to buy 

* deeper in-the-money options have much less premium and move as much as futures.


* options have inbuilt stoploss.

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all i have to guard against is the time decay.