market, marketplace, buying

Oct21-W1: Letting the market forces decide strike selection

My view for the week was a boring consolidation. I would say that I was not correct as market was mildly bullish. In fact, it broke above the resistance range. However, that happened on Tuesday.

I have observed that any positions taken before Tuesday don’t give that much trouble if carried till Thursday. However, this idea should not be mixed with the notion that any position taken on Tuesday or later is safe for Thursday expiry. These are 2 different things.

With the support of some money management policies, I was able to not play keep my positions safe but also able to make good money (at least by my humble standards). The trick was to keep matching option premiums on both sides. If call option premium was at 7, I would sell a put strike whose LTP was 7 and vice versa.

This worked well until Wednesday. The call options started showing a loss of more than Rs. 3000 but the intra-day charts were signaling strong possibility of mean reversion. I exited my put positions and added more to the call positions. This averaged the overall selling price and I eventually exited the call positions at breakeven. Subsequently, I sold OTM strangle for Thursday expiry.

The high ROI for the week is mainly attributed to high VIX. I wonder how much would be the ROI if VIX was somewhere around the typical 13 mark. For the time being, let me make do with what I can.

I learnt one important fact, thanks to Twitter and Zerodha. The basket order feature of Zerodha helps in enjoying margin benefit of selling options with hedge. I should really make use of this feature especially when I am selling far OTM positions. The increased utilization of margin can help in making more money. Thanks again Zerodha for being best at technology and for the reply on twitter.

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