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Raghunath

@Raghunath_TL

25 Jun 20

Some new options traders see the options pay-off at expiry & take a trade & then get frustrated to see negative MTM despite being in profit zone as per the pay-off chart.

This thread is to clear such misconceptions and talk about t+0 line and what is its significance

In most options software, including opstra, when you place an options strategy, for example, a short straddle, you get a pay-off chart comprising of two parts

The pay-off at Expiry (Green& red chart) and t+0 line (blue dotted line).

See the short straddle example chart here.

The green & red chart showing the profit area and loss area is the absolute pay-off that will happen if the option trade is held till expiry. This is expiry pay-off

The blue-dotted t+0 line is the potential pay-off that is possible as of that day (today). This is t+0 pay-off.

Read 9 tweets

Raghunath

@Raghunath_TL

5 Jun 20

https://twitter.com/Raghunath_TL/status/1268426941540990976

Got few queries as to when to do Debit Spreads vs Credit Spreads for directional plays.

https://twitter.com/Raghunath_TL/status/1268426941540990976

A 'Debit Spread' involves buying a near-the-money (NTM) option and selling an out-of-the-money (OTM) option, in effect paying more for buying the long option than you get the credit for selling a short option, hence the name Debit Spread.

Debit Spread should be done when you need strong directional exposure. Ideally, it should be done under low IV environments (IVP<60) so that your spread doesn't suffer from a loss if the IV drops. It will also make money when IV rises.

Read 6 tweets

Raghunath

@Raghunath_TL

25 May 20

https://twitter.com/Raghunath_TL/status/1259729103240015873?s=20

In the last tweet thread, we talked about Options Greek Gamma. In this tweet thread, we will talk about an important Options Greek 'Theta' denoted by (Θ)

https://twitter.com/Raghunath_TL/status/1259729103240015873?s=20

An option's value is comprised of two components – intrinsic value &extrinsic value (also called time value). As time passes, the time value portion of the option gradually depreciates until expiry and at expiration the option value worth is exactly equal to the intrinsic value.

Assuming other conditions are constant, the more time left in the life of an option, the more valuable it is as there is more time for the underlying to make a move. As the life of the option decreases, so does the time value of the option.

Read 16 tweets

Raghunath

@Raghunath_TL

15 May 20

@Singhvi7Hitesh

@Singhvi7Hitesh @nitinmurarkasmc @Nigel__DSouza Made your life easy :)

opstra.definedge.com/fiidii/derivat…

FIIs added more shorts and Retail went more long

18th May 2019

FIIs & PROs covered their shorts today.

#fiiopeninterest

19-May-2020

Read 26 tweets

Raghunath

@Raghunath_TL

11 May 20

In the last tweet thread, we talked about Option Greek Delta. In this thread, we will talk about Option Greek Gamma which is closely related to Delta (∆).

When underlying price moves with respect to a particular option strike, that particular option strike becomes either in-the-money or out-of-the-money and thus changing the Delta of the option. This change in Delta can be explained by Option Greek ‘Gamma’.

Gamma (denoted as γ) is the options Greek that tells us the rate of change of the options delta in response to the change in the underlying price. More specifically, gamma tells us about the options expected delta change relative to a one-point change in the underlying.

Read 22 tweets

Raghunath

@Raghunath_TL

3 May 20

Delta (denoted as ∆) is the Options Greek that tells us the sensitivity of options price in response to the rate of change in the underlying. More specifically, delta tells us about the options expected price change relative to a one-point change in the underlying.

#delta

For example, a delta of 50% means, for every one-point change in the underlying, the options price changes by 0.5 points and similarly, a delta of 25% means a 0.25-point change in options price for every 1-point move in the underlying.

But Delta (∆) is not constant for any given strike price, it is dynamic and keeps on changing depending on the moneyness of the option strike with respect to the underlying.

Read 20 tweets

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