Adjustments in Option Strategies

Lots of option strategies are available with each option strategy having its own pros and cons. What kind of strategy is useful for something like Banknifty , which is an active index, which is a sectoral index and is a volatile index.

Any strategy which we want to apply, must ensure that we can travel with the market and it can take care of both the possibilities i.e. huge movements or no movements. In an unstable scenario when with a small news, markets / index start making wild moves, it is very important that we know advance skills of adjustments in our option strategies. All non-directional option strategies (where we are not predicting the direction of market ) require us to be very clear in our adjustment plans. When should the adjustment be made , at what point of Banknifty , what should be the action – all these points should be hundred percent clear, objectively, before entering the trade using non-directional strategy.

Since there are relatively huge premiums available in Banknifty options , if we are clear about our adjustment process in overall scheme of things, the daily decay in Banknifty options will surly result in very good results. Yes, this will happen even with volatile movements in the Banknifty index because higher implied volatility in option contracts of Banknifty, ensure very good theta i.e. time decay.

So most important part of Banknifty trading is the adjustment part. Once a good adjustment plan is in place, there is no looking back. And returns are fairly consistent also.

One day workshops in option strategies and adjustments by www.theoptionschool.in

Understanding Implied Volatility

When we are trading in options, specially with option strategies , correct understanding of implied volatility is must. A non-directional option trader is trying to earn profits through decay in option premiums and it is extremely important that trade is initiated when premiums are high.

When will the option premiums be high ? Option premiums of all the options will increase whenever there is more uncertainty in the scrip or in the market as a whole. Due to this uncertainty (which may be because of various reasons) , there will be a good increase in the premiums  for both the options across different strikes. This is very clearly reflected by increase in Implied Volatility values as these values are directly proportional to the value of premium in the option. And hence provide a great opportunity for option writers to write options.

Once the event because of which there was increase in Implied Volatility is over, there will be a sharp decrease in values of implied volatility and in the premiums of options. This is what option writer wants. He would write options at a much higher value and square off his trades at a much lower value, thereby booking profits in his trade.

So golden rule is sell high implied volatilities and buy low implied volatilities.

Now a good option trader must develop capabilities to identify what value of Implied Volatility is high and what value is low. This requires experience and a plan to trade for events so that right kind of trade is executed.

Author is conducting workshops in options trading across India. For details visits :-

www.theoptionschool.in

Understanding Implied Volatility

When we are trading in options, specially with option strategies , correct understanding of implied volatility is must. A non-directional option trader is trying to earn profits through decay in option premiums and it is extremely important that trade is initiated when premiums are high.

When will the option premiums be high ? Option premiums of all the options will increase whenever there is more uncertainty in the scrip or in the market as a whole. Due to this uncertainty (which may be because of various reasons) , there will be a good increase in the premiums  for both the options across different strikes. This is very clearly reflected by increase in Implied Volatility values as these values are directly proportional to the value of premium in the option. And hence provide a great opportunity for option writers to write options.

Once the event because of which there was increase in Implied Volatility is over, there will be a sharp decrease in values of implied volatility and in the premiums of options. This is what option writer wants. He would write options at a much higher value and square off his trades at a much lower value, thereby booking profits in his trade.

So golden rule is sell high implied volatilities and buy low implied volatilities.

Now a good option trader must develop capabilities to identify what value of Implied Volatility is high and what value is low. This requires experience and a plan to trade for events so that right kind of trade is executed.

Author is conducting workshops in options trading across India. For details visits :-

www.theoptionschool.in