[itsmb]

Originally Posted by SmartCat

You don't need to use futures here at all. You get the same payoff chart when you buy a call option or buy a put option. By bringing futures into the picture, you are unnecessarily adding one more trade.

OP inquired about hedging by buying options, intention was to inform regarding hedging in speculative trading (also mentioned in post). I have seen many people venturing in to Futures trading without knowledge and burning their hard earned cash in a matter of days.
Long options are not everyone's cup of tea and then the fight against Theta and Vega is never ending.
Happy Trading

[100BHP]

Please start from the Chapter 1 , for people like us who dabbles in spot equity only .

[SmartCat]

Originally Posted by 100BHP

Please start from the Chapter 1 , for people like us who dabbles in spot equity only .

Open link in Youtube and watch videos in this playlist:

https://www.youtube.com/watch?v=HCcF...mL8bK2R-OyXzCu

[yogesh.8984]

Originally Posted by SmartCat

That's how I got started with options - cash secured put and covered calls. These are the safest options strategies and can be incorporated into a long term stock investment strategy, and is not considered to be speculation. Warren Buffett rakes in billions by selling cash secured puts.

Exactly how I started options trading (and option selling in particular).

During the crash of Covid (in March of last year), I decided to get into stock market for long term wealth generation. This was to compliment other retirement corpus building avenues like PPF, NPS etc. Since then, buying stocks on each dip (have a watchlist of only selected blue-chip stocks and never go outside of the watchlist). This helps in two ways –

• Easy to follow and keep track of what is happening in the selected companies
• Since its a collection of only blue-chip sector leaders, relatively less riskier compared to general stock market investing

Along the way, started reading and learning about options as parallel activity in stock market and adopted above mentioned cash secured put and covered call strategies to make some regular side income. Felt this side income as a great benefit considering below two points in the journey of long term investing.

• Apart from dividends, you get some real gains month after month and
• Though your long term portfolio shows good returns, you don't really sell shares to encash it. It is all virtual till you actually sell it.

On a closing note, subscribing to this thread to get to hear the stalwarts in the game.

Thank you for starting this thread.

[srishiva]

Originally Posted by airbus

Today I took a trade by buying both call and put. Here is the result:

Attachment 2122454

I was a pure investor until Covid hit us. I realized that if I want to do trading full time at some point of time, I need to learn to make some money even if market goes down. I tried scalping for few months and result was encouraging. Then started learning options and it was buying only call or put. The idea of buying both call and put was taken from a friend who does option selling of both call and put.

What does this mean ? could anyone explain ? Who creates the options ?

[SilentEngine]

Originally Posted by yogesh.8984

Along the way, started reading and learning about options as parallel activity in stock market and adopted above mentioned cash secured put and covered call strategies to make some regular side income. Felt this side income as a great benefit considering below two points in the journey of long term investing.

• Apart from dividends, you get some real gains month after month and
• Though your long term portfolio shows good returns, you don't really sell shares to encash it. It is all virtual till you actually sell it.

Nice to see more followers of this approach. I like the low maintenance aspect of this. Not everyone will have the kind of time required to follow the markets on a daily basis to keep track for various option positions, so these two really help to keep it simple without requiring too much time commitment on a daily basis.

In the past, i have tried long option strategies and used it to good effect during Covid crash (which helped to offset some of the losses from equity/mf long positions), but also lost out badly in eventual pull back when i ended up on the wrong side of the bets. My learning is that it's very important to get right both the direction as well as the magnitude of change to make consistent gains with just long option strategies.

My personal experience with secured puts and covered calls (limited to last 18 months):

• Premiums collected through these has been more than the dividend returns from the same set of stocks (may be i am stating the obvious here).
• Puts you in a contrarian position overall (you will be forced to buy the stocks when markets/stocks fall significantly, and forced to sell when markets/stocks rise significantly), which in theory, is good for long term investing.

[ankit.livedrive]

Originally Posted by airbus

I know someone who does hedging by selling CE and PE, but since selling requires much larger margin than buying, I am wondering if I can try buying both CE and PE together, say Nifty 15400 CE and 15000 PE for the same expiry date.

THETA is the option buyer's worst enemy and option seller's best friend. Even if you want to hedge by going long-only on options, you need to check at least the implied volatility, India VIX, pick the strike prices and expiry carefully. You need to have a payoff chart in mind, and know your breakeven. Most of the options expire worthless.

You can try out a combination of buying and selling CE, for example, sell 15400 CE, and buy 15500 CE. This will bring down the margin requirements significantly. Also, hedge you against a black swan event. You can use the Zerodha Margin Calculator to check the reduced margins.

Also, if you are holding stocks/Bharat bond/ETF, you can pledge them with your broker, and you can pay 50% of the margin requirements as collateral.

Always, hedge your derivative positions. Good Luck.

[kiranknair]

Wow, a lot of technical details by the experts. I have had a few bad experiences with the F and O segment, but have made decent returns with long term equity investments. Hence, I have a couple of questions :

1) I know that derivatives are a riskier segment comparing to the delivery market. However, are currency or commodity derivatives safer in comparison to equity derivatives? (Or all are just the same from a risk perspective).

2) Do people consistently make money from Derivatives. What I mean is that can someone come out of a regular job and focus only on this segment and get decent monthly returns (provided they have enough cash and knowledge about all those technical indicators and stuff that we see on youtube videos)?

[SmartCat]

Originally Posted by kiranknair

1) I know that derivatives are a riskier segment comparing to the delivery market. However, are currency or commodity derivatives safer in comparison to equity derivatives? (Or all are just the same from a risk perspective).

Commodity and currency derviatives are leveraged products too, so risk will be the same. However, commodity & currencies are tough to manipulate by large parties - unlike stocks or equity index. So you will probably not see too many surprises while trading currencies or commodities. However, options are illiquid in commodities. In currencies, only USDINR options are tradeable.

One big advantage of USDINR futures & options is smaller lot size. While 1 lot NIFTY is worth Rs.10L+, 1 lot USDINR is worth just Rs. 70,000. So USDINR options is better for beginners with small capital. Also, USDINR is less volatile than NIFTY.

2) Do people consistently make money from Derivatives. What I mean is that can someone come out of a regular job and focus only on this segment and get decent monthly returns (provided they have enough cash and knowledge about all those technical indicators and stuff that we see on Youtube videos)?

Derivatives income is 'butter' for large investment banks, hedge funds, commercial banks, brokerages and so on. If large financial institutions can generate income from derivatives trading, so can individuals.

Options spreads (and not futures/ naked short options) is a better tool for this purpose, because you can control risk and reward. You are more likely to succeed setting up a small chaat shop on the road-side than a gourmet restaurant on high street. If your beachside chaat business didn't work out, just shut shop and try again near a residential area. Ditto with options spreads trading

[SilentEngine]

Recently i was taken by surprise when option strike prices of a particular stock was adjusted when the stock went ex-dividend.

Example: Market price of a stock is Rs 100 when Rs 9 dividend is declared. If you had a position in 80 PE of this stock, the option will change to 71 PE on ex-dividend.

In general, when stock goes ex-dividend, PUT options go up in value and CALL options go down, but there's no mention of adjusting strike prices.

https://www.investopedia.com/article...ion-prices.asp

But, NSE has a set of rules which will result in adjusting the strike price if dividend is more than 5% of the market price of stock (considered as extra-ordinary dividend).

https://www.nseindia.com/products-se...ns-adjustments

Looks like this is in place for 2-3 years:
https://economictimes.indiatimes.com...w/64874474.cms

[sunilch]

Originally Posted by SilentEngine

Recently i was taken by surprise when option strike prices of a particular stock was adjusted when the stock went ex-dividend.

Example: Market price of a stock is Rs 100 when Rs 9 dividend is declared. If you had a position in 80 PE of this stock, the option will change to 71 PE on ex-dividend.

In general, when stock goes ex-dividend, PUT options go up in value and CALL options go down, but there's no mention of adjusting strike prices.

https://www.investopedia.com/article...ion-prices.asp

But, NSE has a set of rules which will result in adjusting the strike price if dividend is more than 5% of the market price of stock (considered as extra-ordinary dividend).

https://www.nseindia.com/products-se...ns-adjustments

Looks like this is in place for 2-3 years:
https://economictimes.indiatimes.com...w/64874474.cms

Yes such rules exist to avoid wild swings in Option Prices/Valuations. Each exchange/regulator will have a different criteria but it is better to have such limits/rules in place than to not have any. Imagine the situation of an Option holder when a company suddenly declares a special large dividend.

Similar rules exist for Splits too but I guess those cases are easier to accept or understand than large dividends

[ScarySkulls]

Very interesting thread!
Is anyone using stock options, specifically, selling of options as a way of generating long term regular income?

[WanderinNomad]

Originally Posted by ScarySkulls

Very interesting thread!
Is anyone using stock options, specifically, selling of options as a way of generating long term regular income?

Yes, doing so since the past 2 months.

[WanderinNomad]

Originally Posted by WanderinNomad

Yes, doing so since the past 2 months.

I have been trading in FnO for the past two to three months. Here are some of my thoughts in no particular order:

1 It is more like a side business for me since I think, if done properly, it can give about 5% interest ( based on my current skill ) on your capital per month. i.e an income of 50,000/- per month on a 10 lac capital.
2 Additionally, you earn interest equivalent to a bank FD on you capital since you have parked your capital in safe liquid funds.
3 I mostly sell cash covered puts and prefer to get out of much before expiry.
4 I have joined membership of one/two youtubers who are experts in this field. This is really important since it gave me the confidence to start out. I am learning a lot from them as well as earning profits by imitating their trades
5 FnO is much more risky than equity and can wipe off your capital if not done with properly. Apart from knowledge, there should be a good emotional control on greed as well as fear. Risk management is of paramount importance.
To give you an exaple: I made a profit of about 1.6 lacs in April, which was my second month of FnO trading and lost about 1.5 lacs in the last 2 days since I had entered into risky Nifty index trades.
6 Currently I prefer selling cash covered puts. Although I have experimented with the following:
a- naked calls
b- buying puts/calls
c- Strangles and straddles on Nifty/Bank Nifty
d- hedging options with futures

[SmartCat]

Originally Posted by WanderinNomad

d- hedging options with futures

Not a good idea, because payoff is linear in futures. If you want to hedge options positions, a few ideas -

- Buy OTM option (and convert position into spread)
- If trading multiple options, use a ratio. For 3 short options, you can buy 2 OTM long options. Or for 3 short options, you can buy 4 lots OTM options.
- Hedge using next week options (same strike or OTM strike), and convert position into a calendar spread. You can again use a ratio here (like above example)
- Hedge using current month/next month options.
- Hedge using BANKNIFTY, when you are trading NIFTY (and vice versa)
- If trading STOCK options, hedge using NIFTY options (since they are correlated)