If Nifty Index 50 does not move much (which happens more often than not as expected), it can leave trend following traders frustrated and option buyers miserable. But there is nothing better than a boring market for option strangle seller.
A boring market means that the options’ LTPs do not rise. It simply decays consistently with time. All you have to do is sit and witness the accrual of unrealized profits. But after booking profit, I think that my brain does not assess risk management properly.
Suppose that the premium of a position which I sold on Friday was 7. Now, if I close that position on Monday, I would think that I should not take a new position whose premium is more than 7. It is because Monday’s premium should relatively be lower than last Friday’s premium.
But this is not true. Option pricing is very dynamic and while we cannot measure the biasness of institutional option sellers, we can always measure VIX. A rising VIX can allow Monday premium to be more than Friday premium even if all other factors are same.
There is no rule of thumb and whenever I should take trade, I should remain mindful of the ‘now’ than the ‘past’ or ‘future’. And this is what books on meditation also preach. But practice is always more different than theory.
Intra-day option selling is another area which I wish to master. Though the opportunities might be few, each opportunity holds potential of good profit. I need to take the risk of taking closer to money strikes. I missed one such opportunity on July 10. I hope for more chances in future. The market will not remain boring forever.