A thread on Basic Checklist while going Long Options.
Thought of writing this post for people who are doing Option Buying and losing money. It can be very basic, so Pros please may give a skip.
Just a checklist so that you don’t lose big money by Long Option strategies
Thought of writing this post for people who are doing Option Buying and losing money. It can be very basic, so Pros please may give a skip.
Just a checklist so that you don’t lose big money by Long Option strategies
2. where you play for the Ds. D for Delta & D for Direction.
The thought of writing this piece came from this message which I received couple of days back..
The thought of writing this piece came from this message which I received couple of days back..
3.
“Good Evening Asit Sir,
Required your suggestions on some Call Option I am stuck
Vedanta CE 295 @ 8 cmp: 1.7
Bhel CE 77 @ 3.5, cmp: 1.2
IOC CE 110 @ 2.2, cmp: 0.75
Sir, kindly please🙏 suggest on this as waiting for costing value as I had deployed huge amount on it.”
“Good Evening Asit Sir,
Required your suggestions on some Call Option I am stuck
Vedanta CE 295 @ 8 cmp: 1.7
Bhel CE 77 @ 3.5, cmp: 1.2
IOC CE 110 @ 2.2, cmp: 0.75
Sir, kindly please🙏 suggest on this as waiting for costing value as I had deployed huge amount on it.”
4. Basic flaws in the above are, letting it slip away from your point of control as a buyer, investing too much money in buying, not respecting adequate SLs. Have gone through these in the past, and I wish someone would hv pointed out my immature trading, have had big losses :)
5. The biggest myth people have is that Long Option is the losing cause, which is so grossly wrong. We lose money in Long Options cause of wrong assessment of Direction and momentum not cause of Theta Decay. That’s the Ultimate truth. (Am talking abt circumstances of normal IVs)
6. Have a clear understanding of trend and momentum, if you don't get either of it, you will lose. Use few Trend & Momentum indicators to find out suitable trades. Avoid choppy and sideways market. Not conducive for trading itself, let alone Long Options
7. So here goes few checklists which can be of help
Never get into scripts having below attributes:
a - lot size is huge (>2000)
b - low Beta counters, who may be one day wonders (run for a day and no action for rest of the week)
c - No decent bid-ask spreads,
Never get into scripts having below attributes:
a - lot size is huge (>2000)
b - low Beta counters, who may be one day wonders (run for a day and no action for rest of the week)
c - No decent bid-ask spreads,
8.
Illiquid scripts like MRF -Page etc
Also, Not knowing how to pick the correct option Strategy. Due to an option nonlinear rate of decay, a longer-term option will not decay as fast as a shorter-term option. Selecting the right option for the right
Illiquid scripts like MRF -Page etc
Also, Not knowing how to pick the correct option Strategy. Due to an option nonlinear rate of decay, a longer-term option will not decay as fast as a shorter-term option. Selecting the right option for the right
9.
d - Have a clear understanding of trend and momentum, if you don't get either of it, you will lose. Use few Trend & Momentum indicators to find out suitable trades. Avoid choppy and sideways market. Not conducive for trading itself, let alone Long Options
d - Have a clear understanding of trend and momentum, if you don't get either of it, you will lose. Use few Trend & Momentum indicators to find out suitable trades. Avoid choppy and sideways market. Not conducive for trading itself, let alone Long Options
10. strategy is critical. So here is another cardinal rules to be followed
a - Never go for OTMs (at least 30 Deltas), not below that.
b - Never go for ITMs or Deep ITMs (if not working close to the expiry), just doesn’t make sense (you may very well do Futures)
a - Never go for OTMs (at least 30 Deltas), not below that.
b - Never go for ITMs or Deep ITMs (if not working close to the expiry), just doesn’t make sense (you may very well do Futures)
11.
c - Never average Options of same strike prices, just DOESN’T work (if your Delta has depleted cause of wrong direction). If you are still bullish get into the new strike which has 30-40 Deltas
d- 3 - We don’t need to do PHDs in Greeks, but you ought to know (no excuses
c - Never average Options of same strike prices, just DOESN’T work (if your Delta has depleted cause of wrong direction). If you are still bullish get into the new strike which has 30-40 Deltas
d- 3 - We don’t need to do PHDs in Greeks, but you ought to know (no excuses
12.
of not knowing the basics). Understand IV – HV for sure along with Greeks
e - Options will stink if they are kept far too long (just like vegetables). If the options are not going up the way you envisaged just know you are letting it melt, just save the premium left and
of not knowing the basics). Understand IV – HV for sure along with Greeks
e - Options will stink if they are kept far too long (just like vegetables). If the options are not going up the way you envisaged just know you are letting it melt, just save the premium left and
13.
get into another script which is on the move
f - 6-If you lose 30-40% in Option value please reconsider whether to still be on the trade. Better would be too wrap up the position. Accept the loss and move on. Don't let a 1000 bucks loss to become 10grands.
get into another script which is on the move
f - 6-If you lose 30-40% in Option value please reconsider whether to still be on the trade. Better would be too wrap up the position. Accept the loss and move on. Don't let a 1000 bucks loss to become 10grands.
14.
g - Understand option is cheap or expensive is determined by the PREMIUM. Absolute cost does not dictate expensiveness or cheapness; strike price does. Don't Buy options cause its cheap, Buy cause it has the potential of exhibiting the dynamics of Delta.
g - Understand option is cheap or expensive is determined by the PREMIUM. Absolute cost does not dictate expensiveness or cheapness; strike price does. Don't Buy options cause its cheap, Buy cause it has the potential of exhibiting the dynamics of Delta.
15.
Buy it higher and sell it even higher. Am not talking abt Jackpot trades, those are aberrations, don't expect every option trade to be like those.
h) Unlike while writing Options where you are playing alongside time, In long Options please wait for Trend and Momentum to
Buy it higher and sell it even higher. Am not talking abt Jackpot trades, those are aberrations, don't expect every option trade to be like those.
h) Unlike while writing Options where you are playing alongside time, In long Options please wait for Trend and Momentum to
16.
flash before you. Don't anticipate the wave, be in the wave and ride it till its there. Duration and Quality of your stay in the market determines the outcome of your effort. Don't have to trade every day - hour.
flash before you. Don't anticipate the wave, be in the wave and ride it till its there. Duration and Quality of your stay in the market determines the outcome of your effort. Don't have to trade every day - hour.
17.
Most Importantly, just remember you can have a great month by trading 4-5 days in a month using 40-50% of your capital, without taking Unnecessary leverage and Risk. But I know that's the difficult part we have in our mind, its almost like self inflicted guilt we subject
Most Importantly, just remember you can have a great month by trading 4-5 days in a month using 40-50% of your capital, without taking Unnecessary leverage and Risk. But I know that's the difficult part we have in our mind, its almost like self inflicted guilt we subject
18.
ourselves to, how do I not trade when I have money and time. But that's the key my friend. Market really doesn't care whether you hv put ur money into the Casino or not. All taht matters whether you have an eye of the Sniper to shoot.
Hope this gives food for thought.
ourselves to, how do I not trade when I have money and time. But that's the key my friend. Market really doesn't care whether you hv put ur money into the Casino or not. All taht matters whether you have an eye of the Sniper to shoot.
Hope this gives food for thought.
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