10 mistakes in my 14 years of trading as an option seller 🧵

AN ESSENTIAL THREAD ON OPTION ADJUSTMENTS

Adjustments can be done in variety of ways & depends totally at the discretion of the trader. To get a clear mind we need to know the following:

1) What to follow,
2) How to make the adjustment,
3) When to make the adjustment. (1/5)

1) We need a way to measure the imbalance created by a delta move in an option strategy. We can measure through premiums, distance from index or delta of greeks (i personally use delta). So basically whatever way of measure we use, both sides should be equal in it. (2/5)

2) Adjustment can either be done by selling extra quantity of profitable side, buying the quantity of losing side or shifting both the sides. I personally shift the sides because with extra quantities our Gamma gets imbalanced & the risk increases if market reverses. (3/5)

3) While the first 2pts are objective, when to make an adjustment is totally subjective. It can be fine tuned through experience. It also depends upon what strategy u are using. For a short strangle the adjustment required is faster than a ratio spread or an IC. (4/5)

Straddle/strangle require faster adjustments because they are more vulnerable to delta or IV spike. Any other strategies like ratio spreads, ironfly, butterfly have some bought option, which can negate the spikes for a while. So we need a defined system as to WHEN to adjust.(5/n)

THREAD ON DELTA (The most important GREEK)

Many traders don't indulge in understanding GREEKS because they think they are very complicated.

There are 4 primary greeks:

Delta
Gamma
Theta
Vega

In my experience, understanding DELTA is enough to take benefit of greeks.(1/n)

Delta measures the rate of change of options price based on the directional movement of the underlying.

So this means we can know in advance (theoretically) how much an option will move with the underlying & so we can prepare our strategies accordingly. (2/n)

Value of delta varies between 0 & 1 for calls and -1 & 0 for puts. This figure tells how much an option price will change, when the underlying moves 1 point. So example a delta of .2 of call indicates that for every 1 point change in the underlying, the price will move .2 (3/n)

For option writers who want to trade in neutral strategies like straddle, strangle, ratios, calendar etc, delta can be very helpful. So be it any complex strategy, knowing the NET DELTA can give you an idea of how your strategy will perform in different scenarios. (4/n)

Net delta is just the sum of the deltas of all the bull options (call+ & put-) minus the bear options (call- & put+).

So if we can track this, we will always be in the know of how much exposed our position is. It makes it easier then to adjust our position. (5/n)

@javia_savan You answered it yourself 🙂
Adjustment cost is way too high for bnf. Sometimes bnf does exceed nifty in vol crush, but nifty overall is more consistent.

My previous b'day which fell on expiry day was in 2010. On that day Nifty straddle opened at 45. Day range of nifty was around 30pts :)

(High 5415, Low 5380)

At that time:

•Didn't know the word Straddle though i used to trade them regularly
•Greeks existence wasn't known

•Adjustments felt like a superpower
•Everyday theta decay was a birth right
•Any strategy thought off felt like a personal invention
•Listening to people warning about unlimited loss in option selling was normal
•Making unlimited gain in long straddle seemed a possibility

•Volumes & Oi were closely tracked
•Overnight positions without hedge was a normal routine

All the above points have been changed over the years. But the underlying market psychology & following the price action still remains the same.

Thank you all for the warm wishes 🙏

A THREAD

Topic: Why triple straddle has no real benefit.

A triple straddle is essentially an ATM Straddle & one or two step away straddle on either side. The position is almost neutral strategy just like any other neutral straddle or strangle.

1/

We can also view the position as an ATM straddle, a strangle & inverted strangle.

For example

Nifty: 14700

Triple straddle: 14600,14700,14800

Another view:

14700 straddle
14800-14600: strangle
14600-14800: Inverted strangle

2/

So the real question is what is the advantage of an inverted strangle over it's otm counterpart?

The answer is none.

They both have same premiums/theta. Only that slippages will be high in inverted strangle when we do the required adjustments plus liquidity issue.

3/

So isn't it better that instead of a triple straddle, we can just do ATM Straddle & 2* OTM strangle.

So in the above eg. the position will be

14700 ATM straddle
2* 14800-14600 otm strangle.

Same premium received, similar range just that there's no nuisance of ITM options.

4/

The question arises:

Why trade in an ATM straddle & 2* OTM Strangles? Why over-complicate?

Options are in itself a complicated instrument. Wouldn't it be better to stick to one straddle or a strangle & adjust accordingly?

Lesser the strikes, more there will be clarity.

5/

A THREAD

Topic: HOW TO TRADE IN RISING PREMIUMS SCENARIO

Option sellers specially Straddle sellers feel that rising premiums give them excellent opportunity to make easy money. So what they are seeing is the theta aspect of options & ignoring the delta/gamma/vega forces.

1/

With rising premiums come high delta moves. There is a reason why premiums are all increasing up in the first place. High uncertainty & fear is what's controlling the markets during such times. So a volatile 200 point move in nifty is always on the cards.

2/

Adjusting during such delta moves involves high slippages. Such costs go in our system & are irrecoverable. So if the ATM straddle is around 400 & after 200 point downmove, the next straddle is at 450 & the loss is not just 50points but compounded much more.

3/

Also there are chances that there is no decay throughout the day. So a straddle seller has to take that heavy risk of carrying it forward & chances of gap openings are high during such times. If converted into Ironfly, then the cost of the wings is too expensive.

4/

Thus cutting down the initial credit significantly.

There will also be very few instances when premiums don't fall till expiry day. So with each delta move the cost of holding a straddle gets accumulated & pressure keeps mounting for the stubborn option sellers.

5/

Technical Analysis and 3 Strategies to deploy for Aggressive, Moderate, and Conservative Traders.

🧵Weekly Bank Nifty Analysis for 7th July Expiry:

You'll learn multi-timeframe technical analysis for the current week from this thread.

Also, there are 3 strategies one may deploy according to their risk appetite:

1. Aggressive Traders (1.6%)
2. Moderate Risk Traders (0.93%)
3. Low-Risk Traders (0.6%)

1. Technicals

Let's start with the technicals. We'll look at:

• Weekly charts
• Daily charts
• Hourly/60 min charts
• 15 min charts

1. Weekly-

• The past 2 weeks indicate buyers have entered and are trying to lift the market up.

• These buyers would be under stress if the last week's low of 33080 breaks on the downside.

• Till that low doesn't break, those buyers are going to be in control.

2. Daily:

• If we get a daily close above the 34150 level, a higher high (HH) will be formed, and I would be very bullish on the markets.

• Friday's candle is a big green candle, and if it's low breaks then I would be bearish.

• There is no clear and obvious pattern yet.

It’s May be help u ,Created by a friend in our group.