Understanding HIGH & LOW VIX

VIX at 16: If you check today's IV behaviour, they were not spiking much even with decent delta move in BNF. The movement was subtle, giving some time to adjust. So someone having good adjustment mechanism can stay in the game longer.

1/

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)

FINDING EDGE IN OPTIONS

24/08/15: Nifty gap down 250 points & another 250 after that. Previous few months return gone, but since I'm quick to take my losses, was saved from ruin. Before that my only edge in option selling was adjustments & my forever edge of following PA. (1/n)

I soon realised that theta decay with sound adjustments is not an edge, which i earlier thought was & which gave me good returns over the years. After that i went deeper in understanding volatility behaviour, how/where it manifests & all the discrepancies in option chain. (2/n)

With finding edge in logistics i mean how to keep the greeks in check, SL in place & optimum ways of adjustments with minimum slippages. So the main aim here is to write theta without following vol behaviour & having any actual knowledge of what's going on in the markets. (3/n)

A dedicated trader can learn all this in few years & it is something which is 'obvious' to become successful. But majority can't reach this level, as this also requires consistent hustle in live markets. All the seminar/webinar business teaches you till this level only.(4/n)

If you get passed this level though, the real work starts, when you have to find your real edge. This can't be taught in a webinar. It needs serious introspection of your trading skills, psychology & strategies in use, which ultimately allow you to book excellent profits. (5/n)

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

1. Staying neutral all the time. Majority of the years i have been a neutral option seller. I now realise that having a little sense of direction would have given me an added advantage with better utilisation of capital & also leverage (till the time it was available).

2. Too much importance on adjustments. Initially like most of the new option sellers, i had this notion that i can perfect my adjustment skills for any market conditions. Ofcourse i was wrong. Market is supreme & we need to respect it at times.

3. Not giving importance to greeks. For initial 6 years i didn't even know the existence of greeks. Since i started using them, option selling has become rather less complicated on the contrary of what most people believe.

4. Having too much confidence on the certainty of theta decay. Enough is said about it already. Theta decay is not an edge.

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)

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 🙏

Repeat msg ::
Keep booking profit and deleveraging as mkt moves in your direction, few examples of money/position management
1) Book future and add In the money option
2) Book In the money option & buy Out of money
that way u can ride it while wont mind if sudden reversal comes

To those who thought FMCG goes only one way, investing is super easy. buy quality FMCG at any valuations, do check history, though, its one of best sectors, it does test lot of patience

Impact of crude oil on various sectors…