Opções De Nifty Trading Game

Opções de Negociação de Opções NIFTY As opções são contratos negociados em diferentes bolsas ao redor do mundo como ações. As opções vêm na categoria de derivativos, ou seja, elas retiram seu valor de algum outro instrumento ou grupo de instrumentos já negociados na bolsa. Estes são conhecidos como subjacentes para as opções. A definição formal para a opção é dada como segue: Uma opção é um contrato que dá ao comprador o direito, mas não a obrigação. Para comprar ou vender um ativo subjacente a um preço específico em ou antes de uma determinada data Vamos olhar para todas as palavras-chave um por um: direito, mas não a obrigação. Significa que uma pessoa que possui uma opção pode exercê-la se quiser fazê-lo. No entanto, se ele decide não exercer a opção ninguém pode forçá-lo a fazê-lo. Se a pessoa não exercer a opção antes da data de expiração o valor da opção torna-se zero. activo subjacente . Opção em si não é um instrumento como o estoque que lhe dá algo como uma unidade de propriedade em uma empresa. É apenas um contrato que lhe dá o direito de comprar ou vender esses instrumentos que já estão sendo negociados. Esses instrumentos são conhecidos como subjacentes à opção. As opções derivam seu valor do valor de seu preço específico de ativos subjacentes. Cada Opção tem um preço de preço de ataque. Um preço de exercício é o preço pelo qual você obtém o direito de comprar ou vender a determinada data subjacente. Ao contrário dos estoques que continuam a existir, enquanto a empresa está em execução, as opções têm uma data de expiração após o qual não são negociados mais e seu valor torna-se zero Qualquer coisa que é negociado em uma troca pode ter contratos de opções correspondentes também sendo negociados, Critérios regulatórios como volume negociado mínimo diário, etc. Você pode ter uma opção em um estoque particular como Google, Microsoft como ubnderlying ou em um Índice como DIJA, NIFTY atuando como subjacente. Esses instrumentos ou uma combinação de tais instrumentos podem ser usados ​​para construir um contrato de Opção. Opções Opções de avaliação são ditas para espelhar o movimento do seu subjacente, mas há um prêmio ligado a ele. Este prémio é o valor associado à opção das opções. Valor justo As ações são avaliadas com base em vários fatores, como os lucros da empresa, ativos fixos, valor contábil. Existem alguns fatores que acrescentam prémio para o valor das ações, como os fundamentos da empresa, o monopólio do mercado no produto e serviços oferecidos pela empresa, o crescimento futuro esperado da empresa. Da mesma forma, as opções têm um valor justo e um valor premium. O cálculo do valor justo da opção é simples. Analisaremos o valor justo das opções usando o exemplo de opções NIFTY que são opções para comprar ou vender contratos NIFTY Index na NSE (Índia). Considere uma opção de compra que lhe dá o direito de comprar uma unidade do Índice NIFTY em 2700 O valor justo desta opção será 2800 - 2700 100 Por outro lado considere uma opção que dá Você o direito de comprar uma unidade do Índice NIFTY em 2900 Valor justo desta opção será 2800 - 2900 -100 Ele pode ser representado em forma tabular simples como indicado abaixo NIFTY Índice Valor Opção de Compra Preço de Greve Ambos os gráficos apontam para um mercado de baixa . O mercado espera NIFTY que está atualmente em 2785 para tender a 2500 níveis pela data de expiração da opção. O alto valor das opções de venda na região do Índice de 3300 a 2900 mostra que o mercado espera que esse nível não seja atingido pelo Índice, portanto os investidores estão vendendo o índice a este nível na esperança de cobri-lo por quadratura em níveis mais baixos. Da mesma forma, o alto valor das opções de compra na região Index de 2700 a 2500 sugere que o mercado espera que o Índice de alcançar acima deste nível inferior, portanto, os investidores estão comprando a este nível na esperança de quadrado quando o índice atinge acima deste nível. Assim, a partir do argumento acima podemos concluir que o índice NIFTY irá negociar abaixo de 3300-2900 nível e acima de 2500-2700 níveis. Observe também que um prêmio maior nas opções de compra e venda de 2700 a 2800 indica que essas opções são relativamente caras para seu valor justo, mas provavelmente são os níveis em que a maior parte da negociação está acontecendo eo mercado está mais interessado. Se o índice continuar a cair para 2500 as opções de venda ganhará mais prémio enquanto as opções de chamada tenderá mais para zero. Se o mercado gira ao redor e começa a mover-se para 3300 então as opções da chamada começarão adicionar o prêmio quando o prêmio da opção do put começará ir para baixo. Negociar em opções significaria simplesmente adivinhar corretamente a direção em que NIFTY se moverá e tomará uma posição correspondente onde você pode ganhar mais prêmio. Outra coluna interessante na tabela acima é Interesse aberto que indica quantos contratos ainda estão abertos para a opção respectiva. Interesse aberto maior indica opção mais líquida. O aumento do interesse aberto em um determinado nível também é considerado como uma indicação da expectativa do mercado de que o índice alcance esse nível até a data de vencimento do contrato. NIFTY VIX As opções são instrumentos altamente voláteis e podem variar mais de 100 em um único dia de negociação. Um dos fatores que influenciam o valor das opções é o índice de volatilidade (VIX). O valor de VIX fornece a flutuação esperada percebida pelo mercado durante os próximos 30 dias de calendário. Comprar Opções de Compra Condições de Mercado Frágeis Comprar Opções de Compra Condições de Mercado Incertas Mercado pode ir de qualquer maneira Nenhuma sugestão comercial Condições de Mercado Perigosas Mantenha-se afastado do mercado Quando o mercado está ligado à faixa ou tem um leve viés de subida, a volatilidade é globalmente observada como sendo tipicamente baixo. Em tais dias, compra de opção de compra (uma posição tomada na visão de que o mercado vai avançar) geralmente outnumbers colocar opções de compra (uma posição tomada na visão de que o mercado vai se mover para baixo). Este tipo de mercado pode indicar menor risco. Por outro lado, quando a atividade de venda aumenta significativamente, os investidores correm para comprar puts, o que, por sua vez, empurra o preço dessas opções maior. Os investidores também compram puts para proteger sua exposição a ações no mercado contra tendências de mercado geralmente negativas. Este número aumentado de investidores dispostos a pagar por opções de venda aparece em leituras mais altas sobre o índice de volatilidade. Leituras elevadas indicam um risco maior no mercado. NIFTY Futures No que diz respeito às opções de negociação vai sempre paga para ser bem alinhado com a tendência do mercado a longo prazo. No curto prazo, o mercado pode flip-flop entre o mercado de alta e baixa, fazendo com que os valores das opções flutuem amplamente. No entanto, se uma posição de investidores está bem alinhado com a tendência de longo prazo, então ele não precisa se preocupar com essas flutuações de curto prazo. Um dos indicadores da tendência de longo prazo é NIFTy valores futuros. Se o índice NIFTY está sendo negociado com um desconto no mercado de futuros, em seguida, a tendência de longo prazo em baixa. Por outro lado, se o índice NIFTY está sendo negociado em um prêmio no mercado de futuros, em seguida, a tendência de longo prazo em alta. Negociação de Opções Nós vimos na seção Avaliação de Opção como analisar opções da tabela de números dando preço de exercício, preço negociado e juros abertos para diferentes níveis de opção. Também vimos como detectar as opções mais ativas usando o prêmio de opção e o interesse aberto. Negociar em opções é tudo sobre a tomada da posição certa e squaring-lo no momento certo. As opções são instrumentos altamente voláteis e alavancados e podem variar mais de 100 em qualquer direção em um único dia, o que os torna mais arriscados em comparação com ações que têm um gráfico de preços mais estável. Também os valores do prêmio da opção tendem a zero perto da data de expiração. É importante para todos os comerciantes de opção para manter uma aba fechada em seus investimentos. Não é possível simplesmente tomar uma posição em opções e esquecê-lo porque seu valor é obrigado a ser zero e não-comercializáveis ​​após o prazo de validade. Assim, squaring off no momento certo é de extrema importância. Você pode fazer bom dinheiro em opções se você jogá-lo estatisticamente correto em vez de tentar aperfeiçoar cada compra como fazemos para as ações. Há muitos fatores que contribuem para o preço das opções como preço do subjacente, volatilidade, interesse aberto, tempo para expiração, as expectativas do mercado. O preço muda violentamente com base no fluxo de notícias no mercado, que não está no nosso controle. Um investidor precisa aprender o truque do jogo, ganhando experiência de negociação com pequenos investimentos no início. Pesquisa específica de mercado e habilidades de execução comercial é necessária para ganhar dinheiro no mercado de opções. Este artigo destina-se apenas a servir como uma introdução básica para compreender e analisar as cotações de opções. Uma combinação de opções put e call pode ser usada para trocar vários instrumentos mais complexos que podem gerar lucros dependendo das condições do mercado. Mais detalhes sobre estes podem ser pesquisados ​​usando outros artigos de wiki. Game Changer estratégia de negociação para Nifty baseado em Supertrend A estratégia abaixo mencionada pode otimizar a taxa de sucesso de Supertrend até 80. Esta é uma estratégia que combina a seguinte Supertrend como o indicador Nifty trading Delta Neutral Option Estratégia Supertrend é uma tendência seguinte indicador, que tem cerca de 40-45 hit ratio em cinco minutos. Isto significa fora de cem trocas (longo curto) tomadas na base da supertrend, aproximadamente 45 baterá o alvo e em 55 o stoploss será retirado. Mesmo com este supertrend de razão de batida é um vencedor claro por causa de usar a tendência seguinte. Nos casos em que o alvo atinge, os lucros são grandes e nos casos onde o stoploss bate, as perdas são pequenas. Então, em média, se continuar a capturar menos número de grandes lucros em comparação com mais número de pequenas perdas, no final. A carteira global seria no lucro durante um período de tempo. Agora imagine, se pudermos fazer um sistema de negociação, onde podemos capturar apenas lucros fazendo negócios e eliminar a perda fazendo comércios, o que um sistema invencível que será. Não é possível eliminar a perda fazendo comércios por 100, mas usando esta estratégia de negociação, podemos minimizar a perda fazendo fazendo estratégia pelo menos 60-70. Esta eliminação 60-70 da perda que faz comércios em uma média tomará a relação de batida da supertrend a aproximadamente 80 batida a relação. Este sistema de negociação funciona perfeitamente em nifty como há boa liquidez em preços de greve diferentes de opções e também em contratos de mês quase-longe. O sistema de negociação Todos os sinais de compra devem ser executados no contrato de mês atual de nifty Todos os sinais de venda devem ser executados no próximo contrato de mês de nifty Todas as vendas de opção deve ser feito no mês atual apenas Primeiro comércio em lote único e dominar o sistema antes de aumentar Um lote (mês atual) quando a supertrend dá um sinal de compra Vender um lote (no próximo mês) quando a supertrend dá um sinal de venda Sair (se no lucro) Quadrado a posição de fazer lucro. Saída (se na perda) Se você é longo em hits nifty e stoploss, não quadrado a posição, apenas torná-lo delta neutro usando opções nifty. Por exemplo: você está muito tempo em nifty em 8741 e stoploss hits de 8720, mantenha a posição longa e vender 3 lotes de 8800 CE em 51. Como isso funciona, o delta de um lote nifty é 1 e delta de um lote 8800 CE é nifty 0.37 (valor de hoje), assim que nós somos 1 delta longo em nifty e 1.11 delta curto na chamada. Depois de executar isso, estamos delta neutro nesta posição e como o tempo passa, esta posição neutra delta se tornará rentável e podemos quadrado off posição inteira sem tomar uma perda Se você é curto em hits nifty e stoploss. Não quadrado a posição. Apenas torná-lo delta neutro usando opções de nifty. Ex .: Você é curto no futuro nifty em 8797 e hits stoploss de 8820, mantenha a posição curta e vender 3 lotes de 8700 PE em 58. Como isso funciona, o delta de um lote nifty é 1 e delta de um lote nifty 8700 PE É 0.43 (valor de hoje), assim nós somos 1 delta short em nifty e 1.29 delta long em puts. Depois de executar isso, estamos delta neutro nesta posição e como o tempo passa, esta posição neutra delta se tornará rentável e podemos quadrado de toda a posição sem tomar uma perda. Usando esta estratégia acima, podemos ter a proporção de Hit de supertrend até 75-80. Isso foi testado e testado apenas para Nifty. Por favor, primeiro comércio em pequena quantidade para dominar o sistema antes de tomar posições enormes. O conhecimento básico das estratégias de cobertura Delta Neutral é necessário. Para qualquer dúvida sobre isso, eu posso ser alcançado em meet. sijuthomasgmail. Sobre Siju Thomas Siju Thomas, é MBA pela educação, especialização em Finanças e marketing. Por Profissão Eu estou servindo como o Diretor Designado de uma empresa de Broking pelo nome de Bhansali Value creations pvt ltd. BVCPl (Bhansali valor criações pvt ltd) é membro direto de NSE-BSE-MCXNCDEX. Por paixão Siju Thomas é um comerciante, analista técnico e técnico treinador. Minha experiência é em estratégias de opção. Comentários Eu não entendia o racional. E se obtivermos mais sinais de comércio enquanto estivermos em estratégia neutra delta Devemos ignorá-los Então não estamos aproveitando Suertrend Você pode publicar seu relatório de teste de volta (eu acredito que você tem que criar um relatório baseado em estratégias executadas). BTW, bom processo de pensamento. Processo de pensamento definitivamente um tem que apreciá-lo. No entanto, para executar esta estratégia durante as negociações de perda e continuar a continuar com outros sinais de uma necessidade de ter quantidade adequada de margem para capturar todos os movimentos na moda no mercado. Caso contrário, ignorar os sinais e à espera de que as perdas para transformar positivo pode matar muito de bons ofícios. Como você controla isso Sim. Eu pensei assim demasiado. Vamos ver se ele funciona. Começando com um lote. Thanveer sim tomamos cada sinal de supertrend O que acontece se o mercado dumps mais do que o valor total de chamadas vendidas Por exemplo, no primeiro exemplo de longo em 8740 SL 8720 e venda 3 8800CE 51 em vez de perda de reserva, se o mercado cai para além 8800 - 351 Ou seja 8649 e permanece lá as chamadas vão para zero ea posição de futuros continuará a perder dinheiro. Esta é uma estratégia defeituosa - você vai acabar limpando seu capital em um dia de cisne negro. Dê um exemplo onde nifty tanques de 8000 de 8740 no comércio acima. Sua perda é 740 pts - 153 (dinheiro feito de vender chamadas) ou seja, 590 pts sem nenhuma maneira de limitar a perda, mesmo depois que desde que você don8217t reservar a sua perda. No dia da cisne preta, você perderá tudo o que tem em meses8230. Nenhuma estratégia funciona como conectividade para corretores torna-se lento e dentro de poucos minutos você vê chão no balcão e você don8217t ter chance mesmo de agir em sinal. Não é possível para o mercado de tempo sem terminal de revendedor ou automação. (A minha opinião) cp você está certo. Mas temos nossa posição de dimensionamento e canais alternativos de negociação para o tipo cisne negro de dias. Gestão de dinheiro adequada e dimensionamento de posição será capaz de cuidar de dias de cisne negro. Acho otimista, talvez na tendência dia cisne preta é em nossa direção. Por que pensar apenas pessimista. Depois de tudo supertrend é suposto estar nos mantendo na direção da tendência. Chandan Delta neutro hedging é monitorado em tempo real, por isso, se alguma vez tal situação surge, e acima de tudo, temos a nossa posição de dimensionamento para cuidar de tal incerteza Então you8217ll continuar vendendo chamadas como mercado mantém falling8230.isnt perda de reserva mais fácil margem demais Será usado se você tem manter a vender mais e mais chamadas são posição vai contra. Chandan. Você está esquecendo a posição curta fresca nós tomamos no chandan da chamada da venda nós não mantemos vender chamadas. Vendemos apenas conforme necessário para manter a posição delta neutra. Nossa meta de posição neutra delta não é para ganhar, mas apenas a breakeven a posição Você pode explicar em detalhes como você vai lidar com um dia de circuito (se o preço cai de repente 5-10). Como exatamente você delta hedge a posição por exemplo, em cada cem ponto de queda em nifty o que exatamente você faria com as opções. Pls dar algumas greves específicas no exemplo para que a estratégia é mais clara. Também implied vol vai subir naquele dia .. como você conta para isso. Chandan total acabar com não é possível, você está esquecendo a nossa segunda perna de nifty vendidos em próximo sinal fresco. Por favor, leia todo o artigo com cuidado, você está recebendo errado O que acontece se o mercado é agitado e curto também fica parado Você teria vendido coloca como parar para isso. Você tem todas as posições até a expiração e manter a tomar posições frescas ou remover as chamadas, se outro comércio longo vem agora (você tem um futuro longo hedged com chamadas curtas em execução), eu pedir-lhe uma vez por favor atleast fazer o comércio de papel, . Este é um jogo de probabilidades. Estamos apenas a melhorar as nossas probabilidades de ganhar. Não estamos tentando nenhum santo graal - nenhum tipo de perda de situação. Esta estratégia é baseada em supertrend e como melhorar as probabilidades melhor em nosso favor. Esta é uma estratégia de multi-perna envolvendo preços futuros de dois contratos de mês diferente e corressponding opções de preços, por isso não é possível assumir as coisas. Você precisa trocá-lo para saber o resultado. Tente-o uma vez, Para um homem comum que querem viver a vida livre da tensão, os sinais simples da compra do amp do ampère são os melhores. Este tipo de estratégias são apenas para especialistas. Osk você está certo, essas estratégias são para os comerciantes que querem ir a milha extra para a otimização da supertrend já bem sucedida Sua estratégia parece interessante. O que acontecerá se o meu NIFTY longo voltar a seu preço de compra. Wont as perdas serão mais ou como valor da opção decaimento com o tempo que acabará por encobrir yashodhan A opção decaimento será suficiente para cobrir o drawdown nifty Qualquer sistema de tendência com uma taxa de sucesso de 40 pode ter 8-10 negócios perdidos em uma linha . Isso é simples statistics8230Não se pode escapar this8230 Se assumirmos 10 negociações perdendo em uma linha, então de acordo com sua idéia, vamos ter 10 novos futuros posição 10 conjuntos de opções que estão sendo vendidos. Mesmo se você usar um lote por comércio, estamos olhando para o nível de margem de aproximadamente 110 lotes na margem de futuros (310) 30 lotes de opções de venda que está perto de 30 lotes de futuros margin8230Total 40 lotes de margem de futuros. Em nosso exemplo, devido às estatísticas, se tivermos 10 negócios perdidos em uma linha (cada comércio, nós negociamos com 1 lote de futuros), então um deve ter pelo menos 40 lotes de margem. Alguns corretores, pode oferecer margem benefício como estamos comprando futuros e opções de venda. Ainda assim, para fins de conveniência, vamos supor que o corretor bloqueia apenas 35 lotes valor de margem (em vez de 40 lotes valor de margem) .. Então, para manter esses 10 comércios e tomar o próximo lote de comércio de futuros, precisamos pelo menos 36 (holding 35 e novo 1) futuros de margem de valor. Atualmente, a margem overnight para um lote NF 16K .. Então, 5,77 lacs é necessário para permanecer à tona nesta idéia8230thats um enorme montante de dinheiro para ter de trocar 1 lot8230so, idéia é falho por si só. E em cima disso, se você acredita que o comerciante profissional se concentra em 8216como evitar perdas8217, você está muito enganado .. Se você já teve a oportunidade de assistir a um comerciante bem sucedido, você vai ver que eles não se preocupam sobre onde o mercado está Ou se o comércio atual será a perda. Eles também estão olhando para ajustar seu indicador também. Eles estão preocupados com seu risco em cada comércio. Eles estão focados na gestão do dinheiro. Eles perguntam se o comércio está sendo executado corretamente Quanto de sua conta total está em risco São as paradas no lugar certo Rajandran - por favor, pense duas vezes antes de postar este tipo de 8216how para evitar perdas em trading8217 posts em seu blog. Respeito o seu conteúdo blog8217s e este tipo de posts parece uma maçã azedo. É sua escolha para publicar este comentário ou não. Comerciantes Profissionais se concentra 8216 como minimizar o risco 8217 Enquanto os comerciantes amadores focos 8216Como evitar perdas8217 ks saravanan se você pode ler o artigo, eu não mencionei nada sobre evitar perdas. O artigo inteiro é sobre minimizar a quantidade de perda. Qualquer bom comerciante, seja ele amador ou profissional, minimizar o risco é a primeira função ou então ele vai ser eliminado mais cedo ou mais tarde Kunal. Esta é apenas uma idéia para pensar fora da caixa. Definitivamente tais idéias são bem-vindas para fazer os comerciantes a pensar como controlar suas perdas. Embora seja difícil para os comerciantes comuns para lidar com essas posições deve-se definitivamente apreciar a forma como o autor pensou. Estamos aqui para explorar idéias de negociação não necessariamente para ser dinheiro fazendo idéias o tempo todo. Obrigado por responder ao meu comentário. Concordo que foi apenas uma idéia, mas o que desencadeou a minha resposta foi esta declaração 8212 8220Usando este acima Estratégia que pode ter a razão de Hit de supertrend até 75-80. Isso foi testado e testado para Nifty only.8221 .. o autor escreveu isso no último parágrafo. Ele tentou e testou, huh gostaria de instar o autor para testar esta idéia no mercado ao vivo para os próximos 6 meses Este tipo de declarações devem ser evitados em um blog de renome financeiro como o seu e, portanto, o post. Mais sobre, o autor não pensou completamente completamente em como uma saída dos futuros e das opções. Ele apenas deu uma declaração geral que precisamos sair quando o comércio entra em lucro. Então, onde é que as 20 negociações perdedoras vêm Obviamente, he8217s esperando mercado dará uma chance de sair e nós dois sabemos, como isso vai acabar. Bottomline - estou apenas criticando as declarações gerais e um artigo incompleto. Honesta, o título do artigo apenas atrairia mais tráfego mas de nenhum uso aos comerciantes esp. Noviços. O que eu vejo que este Delta Neutral pode ser para controlar as perdas em alguns dos comércios que é praticamente possível para a maioria dos comerciantes. Não necessariamente esta estratégia tem que ser aplicada para supertrend mas pode ser aplicada para evitar qualquer perda marginal em qualquer tipo de situação de negociação enquanto trading mercado de derivados. E se o autor diz que ele já tinha testado já, então você deve dar tempo suficiente para ele explicar as coisas ao invés de lançar brickbats para ele. Eu acho que a partir de próximos artigos em diante o autor pode controlar sua emoção e aconselhá-lo a ser mais prático de uma perspectiva de comerciantes de varejo. Eu entendo o que é estratégia Delta neutral. Como alguém mencionado anteriormente, um fosso adverso ou movimento vai comer 3 meses de profitsplus o montante obtido em 8216loss saving8217 comércios. É exatamente por isso que eu quero o autor para experimentá-lo no mercado ao vivo por 6 meses. Não tenho certeza por que as pessoas são tão desligado em evitar perdas. Bem, qualquer postagem que aparece em seu blog é uma representação da qualidade do blog. Portanto, é melhor evitar esse tipo de posts para manter a sanidade ea imagem geral do seu blog. Mas, quem sou eu para falar sobre isso É o seu blog, então sua escolha Eu resto meu caso aqui. Não há mais comentários sobre este tópico. Rajendran obrigado por colocar em uma palavra. Você tem direito. Estamos apenas tentando otimizar o resultado da supertrend. Eu compartilhei este artigo no contexto do supertrend como seu muito fácil para que os comerciantes amadores da opção compreendam. Seguimos estratégias derivativas complexas também, que vou compartilhar em futuros artigos kunal não há santo graal no mercado de ações. A taxa de acerto atual é 40-45. A aplicação desta estratégia pode levar a taxa de acertos até 80. até 80 significa que pode ser em qualquer lugar entre 40 a 80. Esta é a estratégia. E como todas as estratégias. Os resultados irão variar ao longo do mercado. Sim, eu tentei e testou este último ano antes de colocar isso no domínio público. Gostaria de pedir-lhe para experimentar isso sozinho e você pode vir acima com quaisquer problemas práticos que você enfrenta, ao invés de assumir situações hipotéticas com o tempo de negociação em tempo real. Venha, por favor, dar-lhe uma tentativa a partir de uma pequena escala. Kunal, você está adicionando hipóteticamente posições ausentes. No comércio real pode haver no máximo três pernas de adição, não mais do que isso. Seguimos uma margem de exposição duas vezes, o que significa manter uma margem de 2lakh para negociação 50 nifty. Além disso, quando fazemos delta neutro. Nós começamos o benefício da margem da troca igualmente. Tenho derivado esta estratégia com base em que supertrend pode dar 10-15 perdas em linha reta. Por favor, experimente em tempo real, em vez de assumir situações imaginárias. P. S. A citação que você mencionou sobre o comerciante bem sucedido é de Bramesh Bhandari, se eu acho certo. Como um comerciante, se ele não planeja para o pior cenário possível, então Deus abençoe, eu acredito que você tem negociado esta idéia neutra delta para o último ano. Ótimo. Continue fazendo o que você está fazendo. Se suas respostas vão ser como se nunca acontecesse no mercado ao vivo8217, não adianta falar sobre essa questão. Enquanto ele funciona para você, ótimo. Mas, quando você vir e publicar em um fórum público, por favor esteja pronto para responder perguntas com maior clareza e ao ponto. Respostas obscuras como 8216trá-lo para fora yourself8217 ou 8216it nunca acontece no live market8217 são quase como clichês no mundo comercial. Espero que você obtenha o meu ponto E sobre a citação, não é uma citação .. é baseado no que eu vi na minha década de carreira comercial. By the way, nunca ouvi falar de Bramesh bandari. Ele deve ser uma pessoa muito importante e provavelmente aparecendo em programas de TV. Como eu não vejo nenhum dos canais financeiros (ele não faz nenhum bem para a minha negociação), don8217t saber sobre ele. Boa sorte com o seu futuro 8216advanced8217 estratégias derivativas pós. P. S Eu tenho negociado em tempo integral para os últimos 8 anos (trading para viver) e eu sei uma coisa ou duas sobre 8216teachers8217 no mercado de ações. Kunal gentilmente reler meus comentários. Eu nunca disse que nunca acontece no mercado ao vivo. Esta é uma estratégia de multi-perna, então você precisa trocá-lo, ou atleast papertrade-lo se você não está disposto a arriscar. Wowww, bom saber que você é 8220trading para living8221 de 8 anos. Para um comerciante tão grande como você, negociação fora deve ser muito fácil, como eu acredito que você pode estar alocando algum capital de risco para experimentar novas estratégias. P. S. Estamos no mesmo barco, tenho negociado para viver desde 2005. aproximadamente os mesmos anos que você. Kunal Eu pedi-lhe também para compartilhar amavelmente suas estratégias de sua experiência rica de oito anos, assim que outros comerciantes do companheiro podem também beneficiar dele. Você pode por favor compartilhar qualquer estratégia maravilhosa que você está trocando com sucesso você mesmo Eu vejo o sarcasmo em seu comentário. Uma pequena busca goole diz algo assim 8212 8220Mr. Thomas é um graduado de comércio com especialização em contabilidade e possui MBA em Finanças e Marketing. Ele tem uma experiência diversificada de seis anos trabalhando em todos os níveis na área de corretagem de ações. Sua força principal é o gerenciamento de equipe excelente e marketing estratégico. Ele é especialista em Análise Técnica e vem fornecendo educação técnica nos últimos seis anos. Sua experiência diversa e conhecimento é útil para a organização na elaboração das estratégias-chave e Políticas Internas. Ele cuida das atividades de marketing e desenvolvimento de franqueados na BVCPL. Ele também supervisiona as leis de conformidade e regulamentares. 8221 Diz claramente que você cuida de atividades de marketing e desenvolvimento de franqueados na BVCPL. Então, é difícil acreditar que você está negociando para ganhar a vida. Boa sorte com suas atividades de marketing e desejo-lhe bem. Kunal thats um monte de hardwork, mas essa pequena pesquisa no google não era necessário, os detalhes já são mencionados no meu perfil no site onde o artigo é publicado. Em segundo lugar, se você tivesse ainda ler essa pequena pesquisa google em detalhe, você teria vindo também a saber que eu sou o diretor da empresa de corretagem. Eu troco para ganhar a vida, que é o meu risco para corretagem, você pode google e descobrir que tenho par de empreendimentos semelhantes que estão em ações de educação do mercado e atividades de pesquisa no mercado de ações. Não há sarcasmo pretendido, eu realmente gostaria de saber algumas estratégias de um comerciante em tempo integral. Acredito que todo o público de marketcalls também estaria ansioso para conhecer algumas estratégias bem sucedidas. por favor compartilhe. Considere o seguinte cenário Comprar 8767 Vendido 8850CE FEB 3 Lotes 176.70 (Uma vez que estamos muito perto de expirar Então Next Month Series) Agora Stop Loss Hit 8740 Então Vender um Lote Feb 8790 e vender 8700 PE 3 Lotes 145 Agora, na verdade, fizemos perda em Futuro para compensar que temos melhor preço em Opções Neste caso futuros são hedged eles mesmos (O que um deve fazer no termo) sobre esse caso, teoricamente, nós Short Strangle 3 Lots. Normalmente Strangles curto iria dar dinheiro no mercado a distância e qualquer movimento imediato selvagem em um lado iria dar problema. Como por a estratégia um pode sair se toda a carteira uma vez que ele obteve lucro. Ele não deu saída Estratégia para opções Posições Mais uma vez tomar hoje como exemplo qualquer movimento enganar devido ao encontro do BCE em hoje à noite daria série empate para baixo para este portfolio. Usually um não deve tomar curto estrangular apenas antes de qualquer evento importante. Mas ninguém pode prever o movimento futuro (Por exemplo, RBI recente anúncio fez muitos problema um destes tipo delta Neutral Estratégia) Eu peço ao autor para dar saída Estratégia em situações extremas .. Disco: Eu estou negociando Short Strangles para últimos 2-3 anos Com sucesso parado. Onde a chave para o sucesso é Strict Money Management ks sarvananan você tem errado, as regras são vender e comprar sinal deve ser seguido no mês atual e no próximo mês, respectivamente. Toda a venda da opção deve estar no mês atual somente enquanto nós estamos tomando a vantagem do valor do theta, valor do theta do mês atual é sempre mais elevado comparado ao mês seguinte. Mais uma coisa 8220selling 3 lots8221 não é uma regra do polegar. Pode ser um, dois, três ou quatro, dependendo do valor delta das opções. A estratégia de saída é muito bem mencionada na estratégia. Para a implementação desta estratégia você precisa de uma profunda compreensão da estratégia supertrend e delta neutra. K. S Saravanan diz Querido siju, Se possível, então por favor, compartilhe algum comércio de teste de volta com base em suas regras. Lote de argumentos comentários já feitos se você dar algumas amostras comércios nos últimos seis meses já lote de discussões foram feitas. Uma amostra de teste de volta daria muitas respostas K. S.Saravanan como esta estratégia envolve multi-perna e envolve opções de opção que são vendidos em sinais de supertrend, eu não sou capaz de preparar qualquer AFL para que este seja backtested. Sim, um monte de argumentos e comentários foram gerados. Estou muito feliz que eu poderia contribuir com um artigo tão provocador e obrigado a todos os membros por uma discussão tão grande brain storming. Negociação pode criar tal vício que às vezes viciados não percebem que o mundo está cheio de oportunidades fora da negociação. Boas estratégias de negócios correspondem aos nossos bolsos. Trocar com uma pequena conta freqüentemente não faz sentido econômico se considerarmos os custos de oportunidade. Poucas citações que tiveram o impacto o mais giratório em mim eram de PTJ ampère que foi perfurado em minha cabeça por meu mentor atual e meus próprios 3 anos da experiência Sr. Estúpido, porque arrisque tudo em um comércio Por que não fazer sua vida uma busca da felicidade rather Do que a dor Eu decidi primeiramente eu tive que aprender a disciplina ea gerência de dinheiro. Foi uma experiência catártica para mim, no sentido de que eu fui para a borda, questionado a minha própria capacidade como um comerciante, e decidiu que eu não ia parar. Eu estava determinado a voltar e lutar. I decided that I was going to become very disciplined and businesslike about my trading. Now I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out if they are going for me, I keep them. I use Super trend extensively in my trading and i have found a way to increase success ratio i. e. As far as my own private proprietary trading is concerned i have stopped taking every technical signal as a day trader to execute only those trades which exploit the underlying fundamentals technically thereby eliminating majority of technical signals Recent example -- Since Modi win, If one would have followed 8220Long8221 signals only win rate depending upon ones setting of the indicator range from 50 with 1:5 to 67 for 1:3 R-multiples. django you are on the right way and doing excellent. The old saying was 8220think out of the box8221. that can be modified for current scenario as 8220rather than thinking out of the box, just remove the box and open up the limits of thinking8221. you are doing excellent job when we enter any trade we do consider risk reward ratio and hence need of SL plays its important role8230to deviate from our original position by adding or selling other instruments will haywire our money management8230we cant effort to have diversions and diversions to come to original road8230 vijay agree with you, But in delta neutral hedging, it works differently from normal form of trading. We are not in anyway having any diversions. Our goal here is optimize the supertrend results and delta neutral is a way to achieve that goal Fine sir but still lots of apprihations. Thanks for your reply its a great effort by the siju thomas. i dont know why everybody critisizing siju thomas for his post. whats the wrong he has done. we need out of the box ideas i understand this strategy, its a great potential one. yes i agree this strategy require more capital. i welcome more posts from this author once again i am congratulating him. Sai Thanks for the good words, very appreciated after lots of bricks. You can try this out. If you find any queries, you can reach me anytime at meet. sijuthomasgmail M S Senthilkumaran says Hi Siju, Thanks for the sharing this strategy. I have not tried it yet in live market. I am just verifying it with historical data. sideway market movements are usually lose making time in super trend signal. how to use this strategy in that case fortunately current market is in sideways from jan 21 to jan 27 2015 and gap open is against position signal. can you explain based on trade signals on these days may be in your next article. Hi Siju, Should we exit only on the expiry day During the month when signals turn up we only keep buying or hedging them in the next month. Is my understanding right Thanks. Siju Thomas says jesuraj, we dont wait for exit till expiry day, we exit as soon as deltra neutral position becomes breakeven or substantially around breakeven. Good idea Mr Siju, But can we short one lot in the money call in place of n number of the money Calls, the money call decreases rapidly compared to the other one, is that the reason. Please reply. Please avoid arguments and share your good ideas. Both consumes your amp our time. Siju Thomas says hrushikesh, in the money call option sounds good. i have never tried it yet. will try out. obrigado. you seem to have a good grip over options. yes hrushikesh, i agree with you, unproductive arguments drain resources. I was trading a nice strategy and thought to share it out with other fellow traders. i am working on a better strategy that may cover the flaws of the current strategy, but with variation. Will post a second article in continuation to the current article. Thanks Mr Siju for quick reply. I am learning from you like gurus. Please release your next article ASAP. Please post Articles/simple synthetic option strategies dedicated to specific situation (like in the comments) may be helpful to most of the jobbers /traders, it may clarify most of the doubts. Thanks for your efforts towards making trading simple n effective. Thanks Siju. Eagerly waiting for your next post. Do not be discouraged by the empty vessels. Thanks Rajendran Hrushikesh If we replace the otm calls with itm call, there will be no time value in it and hence the purpose of taking advantage of the time decay will be defeated. My opinion. Siju You said that you are going to propose some improvement. Is it ready Your idea is good and i would like to congratulate you for trying to innovate. Siju Thomas says rajkumar yes, i am testing supertrend only for option selling. right now taking live trades on the same. as soon as i am ready with some live trading results. i will post the article. Shiv Kumar says Hi Siju Thanks for sharing good straight. Pls advise is there any tool available where we can get the delta info Thanks for your help. Siju Thomas says shivkumar this days option calculator are available in the trading terminal, there are couple of option calculator even in google play which you can use on your smart phone also. 70 points saved till now Siju Thomas says thanveer thats great. I am working on only option selling model for supertrend. once i am done with the testing in live markets, will post it here nice article, if you want do delta neutral strategy why not trying coverd call with bear put spread for buy signal in supertrend amp covered put with bull call spread for sell signal in supertrend Whipsaws in any trend following system is part and parcel of the trading. Whipsaws can not be avoided. Generally market trends in 30 percent times and trades in range 70 percent time. So basically win loss ratio will be 30:70 for any trend following system including supertrend. If this system is giving winning ratio of 40 percent, no doubt it is a good system. Now the question arises how to earn with less than 50 percent win ratio. Incremental risk is an answer. Suppose your capacity of trading is with 4 lots. Start with one lot. If win again start with one lot. If lose add one lot after two consecutive losses. So that till 8 consecutive. Losses you will reach to 4 lots. Now don8217t add further. The idea is when u catch a right trend you will ride the trend with more number of lots than losses. Back test this and if you want to trade bank nifty with 4 lots keep margin of 5 lacs. Please advise back test results as in manual back testing it is giving good result with roi more than 40 percent per year. After win you will start with one lot again and the same process will be repeated till you ride the trend with more number of lots, As per your strategy full position will be taken only after 8 consecutive losses, which is quite uncommon so till then we will be under utilizing the money, another thing we are considering the ninth super trend signal to be successful one (this is just based on back testing results that there can be 8 maximum consecutive failures), what if it turns out to be failure also, All pyramiding techniques in trend trading is implemented after it is confirmed that we are riding a nice trend but here we are riding just on assumptions that ninth super trend signal will be successful after 8 consecutive failure I am assuming worst case scenario of 8 consecutive losses. We can ride trend earlier too. The probability of trend catching with higher lot will be there. If any one can back test the above strategy it will be great. Required US Government Disclaimer CTFC Rule 4.41 Futures trading contains substantial risk and is not suitable for every investor. Um investidor poderia potencialmente perder todo ou mais do que o investimento inicial. Capital de risco é dinheiro que pode ser perdido sem comprometer a segurança financeira ou estilo de vida. Considere apenas o capital de risco que deve ser usado para negociação e apenas aqueles com capital de risco suficiente deve considerar a negociação. O desempenho passado não é necessariamente indicativo de resultados futuros. REGRA 4.41 DO CTFC OS RESULTADOS HIPOTÉTICOS OU SIMULADOS DO DESEMPENHO TÊM CERTAS LIMITAÇÕES. DESCONHECIDO UM REGISTO DE DESEMPENHO REAL, OS RESULTADOS SIMULADOS NÃO REPRESENTAM A NEGOCIAÇÃO REAL. TAMBÉM, SENDO QUE OS COMÉRCIOS NÃO FORAM EXECUTADOS, OS RESULTADOS PODERÃO TER OUTROS COMPENSADOS PELO IMPACTO, SE HOUVER, DE CERTOS FACTORES DE MERCADO, TAL COMO A LIQUIDEZ. OS PROGRAMAS DE NEGOCIAÇÃO SIMULADOS EM GERAL SÃO TAMBÉM SUJEITOS AO FATO QUE SÃO PROJETADOS COM O BENEFÍCIO DE HINDSIGHT. NENHUMA REPRESENTAÇÃO ESTÁ SENDO SENDO QUE QUALQUER CONTA PODERÁ OU É POSSÍVEL CONSEGUIR LUCROS OU PERDAS SEMELHANTES AOS MOSTRADOS. Todos os comércios, padrões, gráficos, sistemas, etc discutidos neste site ou publicidade são apenas para fins ilustrativos e não interpretado como recomendações específicas de consultoria. Todas as idéias e materiais aqui apresentados são apenas para fins informativos e educacionais. Nenhum sistema ou metodologia de negociação nunca foi desenvolvido que possa garantir lucros ou evitar perdas. Os depoimentos e exemplos aqui utilizados são resultados excepcionais que não se aplicam a pessoas comuns e não se destinam a representar ou garantir que qualquer pessoa vai conseguir os mesmos ou resultados semelhantes. Trades colocados na dependência de sistemas Trend Métodos são tomadas por sua conta e risco. Esta não é uma oferta para comprar ou vender interesses futuros. Copyright 2015 Marketcalls Serviços Financeiros Pvt Ltd middot Todos os Direitos Reservados middot E Nosso Sitemap middot Todos os logos e marcas comerciais pertence a seus respectivos proprietários Os dados e informações são fornecidos para fins informativos apenas e não se destinam a fins comerciais. Neither marketcalls. in website nor any of its promoters shall be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Indian Stock Market NSE, MCX Buy Sell Signal Software Phone: 91 9750060206 English Tamil 91 9750080908 Hindi Support Line 1 91 9750144494 Hindi Support Line 2 Email: email160protected Work Timings. Segunda-feira sexta-feira. 9h00 às 18h00 sábado. 9h00 às 12h00 de domingo. Fechar DOWNLOAD MOBILE APP Copyright 2013 TERMOS DE SERVIÇO POLÍTICA DE PRIVACIDADE. Todos os direitos reservados. Disclaimer Nós não fornecemos nenhuma recomendação ou dicas para qualquer investimento específico. Os gráficos mostrados aqui é puramente para fins educacionais para estudar o comportamento do mercado com o indicador de negociação stockarcs. Se você está negociando com base nestes comprar e vender sinais, em seguida, fazê-lo por sua própria conta e risco. Nós tomamos encargos para as nossas taxas de desenvolvimento para as nossas próprias fórmulas de plug-in e encargos de carregamento e pós-vendas (incluindo taxas de servidor). Nós fornecemos demonstração gratuita do nosso software disponível para qualquer pessoa interessada. Isso permite que todos os potenciais compradores para avaliar o produto em seu lazer para garantir que o software atende às suas necessidades antes de comprar. Os investimentos em ações e commodities estão sujeitos a riscos de mercado e não há garantia ou garantia de que o objetivo dos investimentos será alcançado. Desempenho passado do consultor de investimento não indica sua performance. Futures futuro negociação contém risco substancial e não é adequado para cada capital investor. Risk é dinheiro que pode ser perdido sem comprometer a segurança financeira ou estilo de vida. Only consider risk capital that should be used for trading and only those with sufficient risk capital should consider trading. This is not an offer to buy or sell futures interests. There is no ONE best strategy. The markets are dynamic and change often so what is the best strategy for one may not be for another. Hence, it is important to understand that it depends on. The success in trading options strategies depend on: Whether your market outlook is correct. The strike prices you choose to trade. The complexity of options strategies used. The risk you take (Whether you sell far OTM options or buy ITM options) Timing just as any other instruments in trading. For retail traders, it was very difficult to get ready-made calculators until we developed Options Strategies Calculator . This tool actually helps you choose strategies based on your market outlook. Something which used to take a long time can now be done in less than 2 minutes. Let me show you how to use it: Step 1 - Choose your market outlook You can choose between Bearish, Bearish Neutral with high volatility, Bullish, Bullish Neutral with high volatility, Neutral with high volatility and Neutral with no volatility. It basically covers all possible market outlooks so you can get the right kind of tailor made strategies. Step 2 - Choose the number of legs 1 leg is basically a naked position. 2 legs are simple positions. There039s a lot of variety here. 3 legs are complicated and might need a second reading for semi pros. 4 legs are the iron butterflies, iron condors etc. They are more for neutral strategies. Step 3 - You can segregate based maximum profit (Limited/Unlimited) Limited profits are not necessarily bad. It depends on how you manage risk. They have larger premiums and the potential for profit is actually higher than hedged trades. Whereas unlimited profits are self explanatory. They also contain risk. it just depends on what strike price one is willing to buy that makes all the difference. Step 4 - Maximum Loss (Limited/Unlimited) You can also segregate based on your loss tolerance. Step 5 - Credit/Debit Lastly, you can select strategies based on whether you have a credit or debit. The wide variety of options available for traders to choose from is incredibly useful. Once you have arrived at your chosen strategy, the rest is easy. The strategy is explained and you can enter your preferred strike prices and price to get results and pay off graph. This way, you can trade even the most complex strategies using our Options Strategies tool. Just to reiterate, the best strategy depends on the circumstance, it is not universal. Hope this helps. 4.3k Views middot View Upvotes middot Not for Reproduction Ok here is a simple strategy, that i started with when i was exploring options and working out selling premium strategies. short puts and calls, combination short strangles. Option strike selectionCalls: 90 probability of success (10 ITM prob.) and above major resistance level Puts: 95 probability of success (5 ITM prob.), corresponds to about up to 12 SPX drop Usually sell more put contracts than call contracts Around 2 standard deviation Bollinger bands used for anticipating the extreme ranges Option cycle selectionStart with 56 days (8 weeks) before expiration to get wider profit zone and open with 50 positions Also may adjust with options of same cycle as the starting position for average market conditions Entry (Legged in)Sell calls when market rises Sell puts when market falls ExitUsually exit in a month Profit target is around 15 of positions Will let further OTM (1 ITM probability) options expire worthless Adjustments: Use additional capital to keep profits and TOS analyzer toolStart adjustments when ITM probability reaches a certain number, like 30. Normally, keep identical profits by rolling up/down/out and selling new contracts. Under extreme market sell-off conditions (1000 point drop in DOW JONES average or ), give up profits of a few month to roll out a couple of months and wait for market to settle down. No stop losses, No delta neutralization via call/put purchases. I worked this out for SPX futures, but this strategy works same with Nifty options too. Hope this helps 4.8k Views middot View Upvotes middot Not for ReproductionOptions Trading Strategy Guide: The World of Options Trading Options: Not a Zero-Sum Game With the possible exception of futures contracts, trading is not a zero-sum game. In other words, for every winner there doesnt have to be a loser. Therefore, because there are so many different combinations and ways options can be hedged against each other, it doesnt make sense to look at overall figures (e. g. the number of options that expire worthless) and reach conclusions about how many people made or lost money. For simplicity, lets take the case of a spread. The fact that one person made money buying a butterfly does not automatically mean that someone else lost. Instead, the person who sold the butterfly may have traded out of the position using spreads or by selling individual options. For every person who is long a butterfly, call spread, put spread, or whatever, there are not necessarily people who are short the corresponding position. As such, the profitability of their positions will necessarily differ. Know your competition In many respects, option trading is a game of strategy not unlike competitive sports or chess tournaments. The main difference is that in trading there are more players and multiple agendas. To succeed, its important to have a knowledge and appreciation of the other players. In general terms, you must gain an appreciation for the behavior and motivations of the different players. In the option markets, the players fall into four categories: The Exchanges Financial Institution Market Makers Individual (Retail) Investors What follows is a brief overview of each group along with insights into their trading objectives and strategies. The exchange is a pblace where market makers and traders gather to buy and sell stocks, options, bonds, futures, and other financial instruments. Since 1973 when the Chicago Board Options Exchange first began trading options, a number of other players have emerged. At first, the exchanges each maintained separate listings and therefore didnt trade the same contracts. In recent years this has changed. Now that BSE and NSE both these exchanges list and trade the same contracts, they compete with each other. Nevertheless, even though a stock may be listed on multiple exchanges, one exchange generally handles the bulk of the volume. This would be considered the dominant exchange for that particular option. The competition between exchanges has been particularly valuable to professional traders who have created complex computer programs to monitor price discrepancies between exchanges. These discrepancies, though small, can be extraordinarily profitable for traders with the ability and speed to take advantage. More often than not, professional traders simply use multiple exchanges to get the best prices on their trades. Deciding between the two would be simply a matter of choosing the exchange that does the most trading in this contract. The more volume the exchange does, the more liquid the contract. Greater liquidity increases the likelihood the trade will get filled at the best price. Financial institutions are pbrofessional investment management companies that typically fall into several main categories: mutual funds, hedge funds, insurance companies, stock funds. In each case, these money managers control large portfolios of stocks, options, and other financial instruments. Although individual strategies differ, institutions share the same goal-to outperform the market. In a very real sense, their livelihood depends on performance because the investors who make up any fund tend to be a fickle group. When fund dont perform, investors are often quick to move money in search of higher returns. Where individual investors might be more likely to trade equity options related to specific stocks, fund managers often use index options to better approximate their overall portfolios. For example, a fund that invests heavily in a broad range of tech stocks will use NSE Nifty Index options rather than separate options for each stock in their portfolio. Theoretically, the performance of this index would be relatively close to the performance of a subset of comparable high tech stocks the fund manager might have in his or her portfolio. Market makers are the traders on the floor of the exchanges who create liquidity by providing two-sided markets. In each counter, the competition between market makers keeps the spread between the bid and the offer relatively narrow. Nevertheless, its the spread that partially compensates market makers for the risk of willingly taking either side of a trade. For market makers, the ideal situation would be to scalp every trade. More often than not, however, market makers dont benefit from an endless flow of perfectly offsetting trades to scalp. As a result, they have to find other ways to profit. In general, there are four trading techniques that characterize how different market makers trade options. Any or all of these techniques may be employed by the same market maker depending on trading conditions. Day Traders Premium Sellers Spread Traders Theoretical Traders Day traders, on or off the trading screen, tend to use small positions to capitalize on intra-day market movement. Since their objective is not to hold a position for extended periods, day traders generally dont hedge options with the underlying stock. At the same time, they tend to be less concerned about delta, gamma, and other highly analytical aspects of option pricing. Just like the name implies, premium sellers tend to focus their efforts selling high priced options and taking advantage of the time decay factor by buying them later at a lower price. This strategy works well in the absence of large, unexpected price swings but can be extremely risky when volatility skyrockets. Like other market makers, spread traders often end up with large positions but they get there by focusing on spreads. In this way, even the largest of positions will be somewhat naturally hedged. Spread traders employ a variety of strategies buying certain options and selling others to offset the risk. Some of these strategies like reversals, conversions, and boxes are primarily used by floor traders because they take advantage of minor price discrepancies that often only exist for seconds. However, spread traders will use strategies like butterflies, condors, call spreads, and put spreads that can be used quite effectively by individual investors. By readily making two-sided markets, market makers often find themselves with substantial option positions across a variety of months and strike prices. The same thing happens to theoretical traders who use complex mathematical models to sell options that are overpriced and buy options that are relatively underpriced. Of the four groups, theoretical traders are often the most analytical in that they are constantly evaluating their position to determine the effects of changes in price, volatility, and time. As option volume increases, the role of individual investors becomes more important because they account for over 90 of the volume. Thats especially impressive when you consider that option volume in February 2000 was 56.2 million contracts-an astounding 85 increase over February 1999 The Psychology of the Individual Investor From a psychological standpoint, individual investors are in interesting group because there are probably as many strategies and objectives as there are individuals. For some, options are a means to generate additional income through relatively conservative strategies such as covered calls. For others, options in the form of protective puts provide an excellent form of insurance to lock in profits or prevent losses from new positions. More risk tolerant individuals use options for the leverage they provide. These people are willing to trade options for large percentage gains even knowing their entire investment may be on the line. In a sense, taking a position in the market automatically means that you are competing with countless investors from the categories described above. While that may be true, avoid making direct comparisons when it comes to your trading results. The only person you should compete with is yourself. As long as you are learning, improving, and having fun, it doesnt matter how the rest of the world is doing. HOW TO HEDGE RISK AND PROTECT PROFITS WITH OPTIONS Professional traders (known in the industry as market makers or market operators), often think that for the beginning investor, option trading must seem similar to putting together a puzzle without the aid of a picture. You can find the picture if you know where to look. Looking through the eyes of a professional market maker is one of the best ways to learn about trading options under real market conditions. This experience will help you understand how real-world changes in option pricing variables affect an options value and the risks associated with that option. Furthermore, because market makers are essentially responsible for what the option market looks like, you need to be familiar with their role and the strategies that they use in order to a regulate a liquid market and ensure their own profit. We will provide an overview of the practices of market makers and explore their mindset as the architects of the option business. First, we will consider the logistics of a market makers responsibilities. How do market makers respond to supply and demand to ensure a liquid market How do they assess the value of an option based on market conditions and demands In the second part of this chapter, we will consider the profit-oriented objectives of a market maker. How is market making like any other business How does a market maker profit What does it mean to hedge a position, and how does a market maker use hedging to minimize risk Who are market makers The image of an electronic trading terminal is not unfamiliar to the Indian imagination, but many people might not know who the players behind the screen are. Market makers, brokers, fund managers, retail traders and investors occupy trading terminals across India. Thousands of trading terminals across 250 cities of India are combined, they represent the marketplace for option trading. The exchange itself provides the location, regulatory body, computer technology, and staff that are necessary to support and monitor trading activity. Market makers are said to actually make the option market, whereas brokers represent the public orders. In general, market makers might make markets in up 30 or more issues and compete with one another for customer buy and sell orders in those issues. Market makers trade using either their own capital or trade for a firm that supplies them with capital. The market makers activity, which takes place increasingly through computer execution, represents the central processing unit of the option industry. If we consider the exchange itself as the backbone of the industry, the action in the Mumbais broking offices represents the industrys brain and industry, heart. As both a catalyst for trading and a profiteer in his or her own right, the market makers role in the industry is well worth closer examination. Individual trader versus market maker The evaluation of an options worth by individual traders and market makers, respectively, is the foundation of option trading. Trader and market maker alike buy and sell the products that they foresee as profitable. From this perspective, no difference exists between a market maker and the individual option trader. More formally, however, the difference between you and the market maker is responsible for creating the option industry, as we know it. Essentially, market makers are professional, large-volume option traders whose own trading serves the public by creating liquidity and depth in the marketplace. On a daily basis, market makers account for up to half of all option trading volume, and much of this activity is responsible for creating and ensuring a two-sided market made up of the best bids and offers for public customers. A market makers trading activity takes place under the conditions of a contractual relationship with an exchange. As members of the exchange, market makers must pay dues and lease or own a seat on the floor in order to trade. More importantly, a market makers relationship with the exchange requires him or her to trade all of the issues that are assigned to his or her primary pit on the option floor. In return, the market maker is able to occupy a privileged position in the option market - market makers are the merchants in the option industry they are in a position to create the market (bid and ask) and then buy on their bid and sell on their offer. The main difference between a market maker and retail traders is that the market makers position is primarily dictated by customer order flow. The market maker does not have the luxury of picking and choosing his or her position. Just like the book makers in Las Vegas casinos who set the odds and then accommodate individual betters who select which side of the bet that they want, a market makers job is to supply a market in the options, a bid and an offer, and then let the public decide whether to buy or sell at those prices, thereby taking the other side of the bet. As the official option merchants, market makers are in a position to buy option wholesale and sell them at retail. That said, the two main differences between market makers and other merchants is that market makers commonly sell before they buy, and the value of their inventory fluctuates as the price of stock fluctuates. As with all merchants, though, a familiarity with the product pays off. The market makers years of experience with market conditions and trading practices in general - including an array of trading strategies - enables him or her to establish an edge (however slight) over the market. This edge is the basis for the market makers potential wealth. Smart trading styles of market operators Throughout the trading day, market makers generally use one of two trading styles: scalping or position trading. Scalping is a simpler trading style that an ever-diminishing number of traders use. Position trading, which is divided into a number of subcategories, is used by the greatest percentage of all market makers. As we have discussed, most market makers position are dictated to them by the publics order flow. Each individual market maker will accumulate and hedge this order flow differently, generally preferring one style of trading over another. A market makers trading style might have to do with a belief that one style is more profitable then another or might be because of a traders general personality and perception of risk. The scalper generally attempts to buy an option on the bid and sell it on the offer (or sell on the offer and buy on the bid) in an effort to capture the difference without creating an option position. Scalpers profit from trading what is referred to as the bid / ask spread, the difference between the bid price and the ask price. For example, if the market on the Nifty July 1130 puts is 15 (bid) - 15.98 (ask), this trader will buy an option order that comes into the trading pit on the bid along with the rest of the crowd. This trader is now focused on selling these puts for a profit, rather than hedging the options and creating a position. Due to the lack of commission paid by market makers, this trader can sell the first 15.20 bid that enters the trading crowd and still make a profit, known in the financial industry as a scalp. The trader has just made a profit without creating a position. Sometimes holding and hedging a position is unavoidable, however. Still this style of trading is generally less risky, because the trader will maintain only small positions with little risk. The scalper is less common these days because the listing of options on more than one exchange (dual listing) has increased competition and decreased the bid/ask spread. The scalper can make money only when customers are buying and selling options in equal amounts. Because customer order-flow is generally one-sided (either customers are just buying or just selling) the ability to scalp options is rare. Scalpers, therefore, are generally found in trading pits trading stocks that have large option order flow. The scalper is a rare breed on the trading floor, and the advent of dual listing and competing exchanges has made scalpers an endangered species. The position trader generally has an option position that is created while accommodating public order flow and hedging the resulting risk. This type of trading is more risky because the market maker might be assuming directional risk, volatility risk, or interest rate risk, to name a few. Correspondingly, market makers can assume a number of positions relative to these variables. Generally the two common types of position traders are either backspreaders or frontspreaders. Essentially, backspreaders are traders who accumulate (buy) more options than they sell and, therefore, have theoretically large or unlimited profit potential. For example, a long straddle would be considered a backspread. In this situation, we purchase the 50 level call and put (an ATM strike would be delta neutral). As the underlying asset declines in value, the call will increases in value. In order for the position to profit, the value of the rising option must increase more than the value of the declining option, or the trader must actively trade stock against the position, scalping stock as the deltas change. The position could also profit from an increase in volatility, which would increase the value of both the call and put. As volatility increases, the trader might sell out the position for a profit or sell options (at the higher volatility) against the ones she owns. The position has large or unlimited profit potential and limited risk. As we know from previous chapters, there is a multitude of risks associated with having an inventory of options. Generally, the greatest risk associated with a backspread is time decay. Vega is also an important factor. If volatility decreases dramatically, a backspreader might be forced to close out his position at less than favorable prices and may sustain a large loss. The backspreader is relying on movement in the underlying asset or an increase in volatility. The opposite of a backspreader, the frontspreader generally sells more options then he or she owns and, therefore, has limited profit potential and unlimited risk. Using the previous example, the frontspreader would be the seller of the 150 level call and put, short the 150 level straddle. In this situation, the market maker would profit from the position if the underlying asset failed to move outside the premium received for the sale prior to expiration. Generally, the frontspreader is looking for a decrease in volatility and/or little to no movement in the underlying asset. The position also could profit from a decrease in volatility, which would decrease the value of both the call and put. As volatility decreases, the trader might buy in the position for a profit or buy options (at the lower volatility) against the ones he or she is short. The position has limited profit potential and unlimited risk. When considering these styles of trading, it is important to recognize that a trader can trade the underlying stock to either create profit or manage risk. The backspreader will purchase stock as the stock decreases in value and sell the stock as the stock increase, thereby scalping the stock for a profit. Scalping the underlying stock, even when the stock is trading within a range less than the premium paid for the position, cannot only pay for the position but can create a profit above the initial investment. Backspreaders are able to do this with minimal risk because their position has positive gamma (curvature). This means that as the underlying asset declines in price, the positions will accumulate negative deltas, and the trader might purchase stock against those deltas. As the underlying asset increases in price, the position will accumulate positive deltas, and the trader might sell stock. Generally, a backspreader will buy and sell stock against his or her delta position to create a positive scalp. Similarly, a frontspreader can use the same technique to manage risk and maintain the profit potential of the position. A frontspread position will have negative gamma (negative curvature). Staying delta neutral can help a frontspreader avoid losses. A diligent frontspreader can descalp (scalping for a loss) the underlying asset and reduce her profits by only a small margin. Barring any gap in the underlying asset, disciplined buying and selling of the underlying asset can keep any loss to a minimum. To complicate matters further, a backspreader or frontspreader might initiate a position that has speculative features. Two examples follow. These traders put on a position that favors one directional move in the underlying asset over another. This trader is speculating that the stock will move either up or down. This type of trading can be extremely risky because the trader favors one direction to the exclusion of protecting the risk that is associated with movement to the other side. For example, a trader who believes that the underlying asset has sold off considerably might buy calls and sell puts. Both of these transactions will profit from a rise in the underlying asset however, if the underlying asset were to continue downward, the position might lose a great deal of money. Volatility traders will generally make an assumption about the direction of the option volatility. For these traders, whether or not to buy or sell a call or put is based on an assessment of option volatility. Forecasting changes in volatility is typically an option traders biggest challenge. As discussed previously, volatility is important because it is one of the principal factors used to estimate an options price. A volatility trader will buy options that are priced below his or her volatility assumption and sell options that are trading above the assumption. If the portfolio is balanced as to the number of options bought and sold (options with similar characteristics such as expiration date and strike), the position will have little vega risk. However, if the trader sells more volatility than he or she buys, or vice versa, the position could lose a great deal of money on a volatility move. HOW MARKET OPERATORS WILL TRAP THE PUBLIC In general, the market maker begins his or her assessment by using a pricing formula to generate a theoretical value for an option and then creating a market around that value. This process entails creating a bid beneath the market makers fair value and an offer above the market makers fair value of the option. Remember that the market maker has a legal responsibility to ensure a liquid marketplace through supplying a bid/risk spread. The trading public then can either purchase or sell the options based on market-maker listings, or it can negotiate with the market maker for a price that is between the posted bid/risk prices (based on his or her respective calculations of the options theoretical value). In most cases, the difference between market maker and individual investor bids and offers are a matter of pennies (what we might consider fractional profits). For the market maker, however, the key is volume. Like a casino, the market maker will manage risk so that she can stay in the game time after time and make a Rs.1 here and a Rs.5 there. These profits add up. Like the casino, a market maker will experience loss occasionally however, through risk management, he or she attempts to stay in the business long enough to win more than he or she loses. Another analogy can be found in the relationship between a buyer and used car dealer. A car dealer might make a bid on a used car for an amount that is less than what he is able to resell the car for in the marketplace. He or she can make a profit by buying the car for one price and selling it for a greater price. When determining the amount that he or she is willing to pay, the dealer must make an assumption of the future value of the car. If he is incorrect about how much someone will purchase the car for, then the dealer will take a loss on the transaction. If correct, however, the dealer stands to make a profit. On the other hand, the owner of the car might reject the dealers original bid for the car and ask for a greater amount of money, thereby coming in between the dealers bid/risk market. If the dealer assesses that the price that the owner is requesting for the car still enables a profit, he or she might buy the car regardless of the higher price. Similarly, when a market maker determines whether he or she will pay (or sell) one price over another, he or she determines not only the theoretical value of the option buy also whether or not the option is a specific fir for risk-management purposes. There might be times when a market maker will forego the theoretical edge or trade for a negative theoretical edge for the sole purpose of risk management. Before proceeding with our discussion of the market makers trading activity in detail, let us again refer to the casino analogy. The house at a casino benefits largely from its familiarity with the business of gambling and the behavior of betters. As an institution, it also benefits from keeping a level head and certainly from being well (if not better) informed than its patrons about the logistics of its games and strategies for winning. Similarly, a market maker must be able to assess at a moments notice how to respond to diverse market conditions that can be as tangible as a change in interest rates or as intangible as an emotional trading frenzy based on a news report. Discipline, education, and experience are a market makers best insurance. We mention this here because, as an individual investor, you can use these guidelines to help you compete wisely with a market maker and to become a successful options trader. Market making as a business In the previous section, we addressed rather conceptually, how a market maker works in relation to the market (and, in particular, in relation to you, the individual trader). A market makers actual practices are dictated by a number of bottom-line business concerns, however, which require constant attention throughout the trading day. Like any business owner, a market maker has to follow business logic, and he or she must consider the wisest uses of his or her capital. There are number of factors that you should consider when assessing whether an option trade is a good or bad business decision. At base, the steps that a market maker takes are as follows: 1. Determining the current theoretical fair value of an option. (As we have discussed, the market maker can perform this task with the use of a mathematical pricing model.) 2. Attempting to determine the future value of an option. Buying the option if you think that it will increase in value or selling the option if you think that it will decreases in value. This is done through the assessment of market factors that may affect the value of an option. These factors include. Interest rates Volatility Dividends Price of the underlying stock 3. Determining whether the capital can be spent better elsewhere. For example, if the interest saved through the purchase of a call (instead of the outright purchase of the stock) exceeds the dividend that would have been received through owning the stock, then it is better to purchase the call. 4. Calculating the long stock interest that is paid for borrowing funds in order to purchase the stocks and considering whether the money used to purchase the underlying stock would be better invested in an interest-bearing account. If so, would buying call options instead of the stock be a better trade 5. Calculating whether the interest received from the sale of short stock is more favorable than purchasing puts on the underlying stock. Is the combination of owning calls and selling the underlying stock a better trade than the outright purchase of puts 6. Checking for arbitrage possibilities. Like the preceding step, this task entails determining whether one trade is better than another. In the section on synthetics, we explored the possibility of creating a position with the same profit/loss characteristics as another by using different components. At times, it will be more cost effective to put on a position synthetically. Arbitrage traders take advantage of price differentials between the same product on different markets or equivalent products on the same market. For example, a differential between an option and the actual underlying stock can be exploited for profit. The three factors to base this decision on are as follows: The level of the underlying asset. The interest rate. For example, if you buy a call option, you save the interest on the money that you would have had to pay for the underlying stock. Conversely, if you purchase a put, you lose the short stock interest that you could be receiving from the sale of the underlying stock. The dividend rate. If you buy a call option, you lose the dividends that you would have earned by actually holding the stock. 7. Finally, determining the risk associated with the option trade. As previously discussed, all of the factors that contribute to the price of the option are potential risk factors to an existing position. As we know, if the factors that determine the price of an option change, then the value of an option will change. This risk associated with these changes can be alleviated through the direct purchase or sale of an offsetting option or the underlying stock. This process is referred to as hedging. A market makers complex positioning As we mentioned earlier, the bulk of a market makers trading is not based on market speculation but on the small edge that can be captured within each trade. Because the market maker must trade in such large volumes in order to capitalize on fractional profits, it is imperative that he or she manage the existing risks of a position. For example, in order to retain the edge associated with the trade, he or she might need to add to the position when necessary by buying or selling shares of an underlying asset or by trading additional options. In fact, it is not uncommon that once the trade has been executed, the trader an opposite market position in the underlying security or in any other available options. Over time, a large position consisting of a multitude of option contracts and a position in the underlying stock is established. The market makers job at this point is to continue to trade for theoretical edge while maintaining a hedged position to alleviate risk. In the following section, we will review the basics of risk management in the form of hedging. Although market makers are the masters of hedging, hedged positions are essential for the risk management for all option traders. It will be equally important for you to understand how to use these strategies. THE TRUMP CARD OF MARKET OPERATORS: HEDGING Thus far, we have overviewed the logistics of the market makers business model and have seen how it functions to both serve the trading public and the market maker simultaneously. Now we will consider how market makers work to secure their edge against the ongoing risks presented to their many positions. An investor who chooses to invest in a particular market is exposed to the risks that are inherent in that market. The specific risk is high if the investor concentrates on one security only. The more a portfolio is diversified, the lesser the specific risk. Hedging is the most basic strategy that an investor can use in order to guard against loss. A hedge position is taken with the specific intent of lowering risk. As we have learned, option positions are susceptible to more than just simple directional price risks, and therefore, a trader must be concerned with more than simple delta neutral trading. There is risk associated with each of the variables that determine an options value (from interest rates to time until expiration). In order to minimize the effect of these risks to an options value, a trader will establish a position with offsetting characteristics. Just as you hedge a bet by betting against your original bet too a lesser degree, market makers try to take on complementary positions (in stock or options) with characteristics that can potentially buffer against exposure to loss. A hedge, then, is a position that is established for the sole purpose of protecting an existing position. Determining what risks an option position might be exposed to is one of the first steps towards determining how best to hedge risk. We have learned that six risks are associated with an option position: Directional risk (delta risk) is the risk that an options value will change as the underlying asset changes in value. All other factors aside, as the price of an underlying asset decreases, the value of a call will decrease while the price of the put will increase. Conversely, as the underlying asset increases in value, a call will increases in value as the put decreases in value. Delta risk can easily be offset through the purchase or sale of an option or stock with opposing directional characteristics. Directional hedges are illustrated in Tables 1 and 2. Table 1: Delta Effects When the Underlying Security . Increase in Value Interest rate risk (rho risk) is negligible to most traders. Its impact can be substantial if a position contains a large amount of long or short stock or long-term options. Decreasing the stock position, replacing stock with options is the most efficient way to reduce rho risk. Remember, longer-term options are more interest rate sensitive. Dividend risk can be offset through the purchase or sale of options or the underlying stock. An increase in the dividend will make the call decrease in value because the holder of the call does not receive the dividend. In this situation, it is more advantageous to own the underlying asset over owning the call. Conversely, the put will increase in value when the dividend is increased because the short stock seller must pay the dividend to the lender of the stock, which makes owning the put more desirable than shorting the underlying asset. Table 4 illustrates the effects of changing input variables on an options theoretical value. Varying market conditions As market conditions change the values of. Rise in price of the underlying. Knowing the risks involved with options trading is the first step to successful trading while hedging these risks to create a profitable position is the second step. We have learned that there are different ways to hedge each trade, providing a market maker with the important task of determining the best hedge possible for each trade he or she executes. Determining which hedge is the best is based on knowing not only the risks of the original trade but also the corresponding risk of the hedge. Observing actual positions under a multitude of conditions is by far the best way to learn the complex nuances of options. The next two chapters will guide the reader through the fundamentals of the marketplace and setting up a trading station, giving the investor the ability to begin trading on his or her own. HOW TO SELECT AN OPTIONS BROKER Once youve made the decision to trade online, its important to identify a brokerage firm that will meet, and preferably exceed, your expectations. This is especially true in the options trading arena because there are potentially many more factors involved than in a straightforward stock transaction. With stocks, once you have determined what stock to trade, it really becomes a question of how much to buy or sell and when. With options, the decision is much more complicated because the following factors must be considered: Will you buy (or sell) calls or puts What strike price(s) What month(s) What is your strategy Given this level of complexity, there are a few important issues to consider before you choose an on-line broker: Real Time Option Quotes Whether an online broker provides real time option quotes is, perhaps, the most important consideration for even semi-serious option traders. On-line brokerage firms, especially those that specialize in stocks, are sometimes lacking in this critical area. While they might be able to provide real time quotes on individual options, the option chains (the charts showing the bid-ask, volume, and other critical information for all strike prices and expirations) are often not accurate. With the efficiency of the exchanges and the standardization of the contracts, there is no longer a reason for option traders to pay higher commissions on option trades vs. stock trades its no more difficult to execute an options trade than it is to execute a stock trade. Access to Analytics Advanced analytical tools like implied volatilities and deltas are important to serious option traders. However, most traditional brokers do not provide customers access to this nformation. Instead, their customers are forced to trade in the dark. Choosing an exchange (i. e. BSE or NSE) When options are traded on multiple exchanges, its often possible to get a slightly better price on one of the exchanges. While these discrepancies dont last very long, 0.50 or 0.25 can make a significant difference on a large block of trade. However, brokerage firms that make it difficult to execute basic spread orders are even less likely to offer customers a choice as to where their trades are executed. In fact, many customers probably arent even aware of potential price discrepancies across exchanges. For investors who make larger trades, this can be a significant issue. Before establishing any position its important to establish a few guidelines for yourself: Are you trading with money you can afford to lose Is the position you intend to put on sufficiently small that it wont have a major impact on your portfolio What is your specific objective for this position What is your exit strategy What is your downside risk Are you trading with money you can afford to lose The importance of this cannot be overstressed. If you have already earmarked the money for another use, it is not advisable to invest it in a risky position--even for a short term trade. Every day the market extracts money from people who cant afford to lose it. Dont be one of them. Is the position you intend to put on sufficiently small that it wont have a major impact on your portfolio This is a guideline novice traders routinely violate. Experienced traders caution people against putting on positions that will have devastating results if the market moves the wrong way. Some traders go so far as to say that positions should be so small that putting them on seems almost meaningless. Typically, the percentage of your portfolio associated with this would be 1/2 to 1. Keep in mind though that this applies to traders more than long-term investors. This is not to say that investors wouldnt benefit from the same advice. They probably would. Its just that a disciplined approach is particularly beneficial to option traders who could easily lose their entire investment. What is your specific objective for this position What is your exit strategy These issues are inter-related so we will examine them together. First, whenever you put on a position, its important to set a price target along with a strategy for what happens when you get there. For example, if you are convinced a particular Internet stock is hugely overvalued (imagine that) and due for a correction, you might decide to buy a long put either at-the-money or slightly out-of-the-money. If the market behaves as you predict and the price drops, you have to decide how far to let your profits run and at what point to take profits. If the stock drops 50 and your put is now deep in-the-money, this might be a good time to take profits. On the other hand, if you think the stock is still overvalued, you could buy a slightly out of the money call and let the put ride. For example, if the stock dropped from 250 to 150 and you own the 240 put, you could lock in your profit by buying a 150 call. This way, if the stock goes back up, what you lose in the put will be made up by the call. If the stock continues to drop as you hope, the put will increase in value and the call will expire worthless. Whatever you decide, its good to have your strategy thought out in advance. This helps to take the emotion out of it. What is your downside risk With option spreads and other advanced strategies, your maximum loss may be more than your initial investment. Before entering into any trade, its important to know your maximum profit, maximum loss, and break-even. Trading surprises are seldom pleasant. Modifying and Managing a Position Depending on market conditions, option investors may need to modify their positions either to lock in profits or protect themselves from adverse moves. Protecting your profits and limiting your losses Taking the easiest example, lets imagine you bought a long call and watched with interest as the stock rallied. How can you protect what is now a paper profit Considering the additional stock commissions involved in exercising the option, well disregard this as a strategy and focus on other alternatives. The dilemma whenever a position makes money is when to take profits and when to let profits ride. By selling the call, you lock in profits, but you may miss additional upside. On the other hand, if you sit tight, the stock could pull back below the strike price. In this case, you would lose your additional investment as well as your paper profit. Fortunately, there are other alternatives. The important point to note is that the riskiest course of action is to do nothing because your initial investment remains at risk along with any paper profits you have generated. SEVEN MYTHS ABOUT STOCK OPTIONS For years, the options market was shrouded in mystery as transactions took place with obscure options dealers who set the prices and terms of options contracts known as Jhota Phatak. The BSE and NSE created listed options that became the standard, and option prices were set in an auction market nearly identical to the stock exchanges. For the first time, this allowed the option holder to choose to sell his contract on the open market before it expired. Trading volume in listed options has exploded in the United States and option trading on more than 1,900 different equities and indices now accounts for the equivalent of 70 million shares of stock trading each day. But many of the myths associated with options have lingered. Unfortunately, these myths have caused many investors to remain on the sidelines while they could be utilizing options profitably or for reducing risk. Myth 1: 90 of Options Expire Worthless This statistic is often bandied about by those who have no experience trading options. According to the CBOE, about 30 of all options expired worthless -- a far cry from 90. Myth 2: Options are Much Riskier Than Stocks or Mutual Funds This assumes that the investor is trading options with the same amount of capital that he would devote to stocks or mutual funds. On a rupee for rupee basis, options are riskier. Here at STOCKWHIZO Research, we never recommend trading options in this manner. Instead we show our subscribers that options are a cheap way to reduce their overall risk. How First, by limiting their total rupee exposure to a fraction of what they would invest in stocks or mutual funds. Second, by diversifying their options portfolio among different underlying equities. And third, by purchasing both call and put options, since put options are profitable when the underlying stock declines in prices. Myth 3: Option Sellers Make Profits at the Expense of Option Buyers Unlike the gambling casino (or the lottery or the race track) which has built-in percentage advantages for the house, option trading is a zero sum game in which option sellers and buyers are always at a standoff in total. Option buying and selling differ only in the distribution of their outcomes, not in their relative profitability. Although option buyers can have more losing than winning trades, they never lose more than their original investment and their profit potential is unlimited. Option sellers profit most of the time but their potential losses are unlimited. STOCKWHIZO has always been dedicated to maximizing profit potential through option buying -- by taking full advantage of the unlimited profit potential and limited risk of this strategy. Myth 4: Options are Too Complicated Nonsense Anyone who is familiar with stocks can easily learn how to trade options. The approach to option trading that we use at STOCKWHIZO is very simple. If we are bullish on a stock, we advise you to buy a call option on that stock. For a fraction of the underlying stock price, you rent any appreciation in the stock above a particular price for a specified time. If we are bearish on a stock, we advise you to buy a put option. Here you rent any decline in the underlying stock below a particular price for a specified time. Its that simple Myth 5: Stockbrokers Dont Understand Options and are not interested in Options Business. While this may have been a problem in the beginning, the brokerage landscape will significantly changed for the better. A number of brokerage firms now specialize exclusively in options. Many large brokers will become option trader friendly. As time passes by with experience. Some traditional full-service firms will developed expertise in options and the desire for options business. While we do not recommend any specific firm, STOCKWHIZO subscribers receive a list of firms that are interested in options business and have the expertise to meet the needs of option traders. Myth 6: You cant Beat the Option Pricing Model. Since options are a zero-sum game, and option prices are based upon a mathematical option pricing model, some say it is impossible to profit from buying options in the long run. WE STRONGLY DISAGREE. First, prices for exchange-listed options are set in the marketplace by buyers and sellers, although the computerized pricing models do exert a strong influence. But more importantly, these models are based upon the mistaken assumption that all stock price movement is random. Clearly, there are always certain stocks that are moving in well-defined price trends, as opposed to moving randomly. If you can identify those stocks whose price trends are likely to continue, you can beat the option pricing model Much of our research has been devoted to developing indicators to determine stocks that will continue moving in such price trends, so our subscribers can profit from buying undervalued options on these stocks. Myth 7: Options Trading Requires Too Much Time Amateurs are rarely successful trading options because they dont have the time, information, expertise or the discipline to compete in this fast-moving market. But STOCKWHIZO subscribers have a big edge over these amateurs. First, our staff of professionals here at STOCKWHIZO Research have the information and expertise to make you a successful options trader. And second, we give you the disciplined trading rules that help you make big money and also minimize your time commitment to your options trading We tell you how much to pay, when, and at what price to sell. And you can often leave these instructions with your broker, so your options portfolio can appreciate on automatic pilot Anyone seriously interested in trading would do well to buy a copy of Jack Schwagers books Market Wizards The New Market Wizards. Through interviews and conversations with Americas top traders, Jack extracts the wisdom that separates successful traders from those who, through their trading, simply add to the wealth of successful traders. Keeping Your Trades Small One of the key factors mentioned by almost every good trader is discipline. Discipline, as you might imagine, takes a variety of forms. For beginning traders, one of the toughest challenges is to keep trades small. Believe it or not, more than a few top traders dont allow any one position to account for more than 1 of their total portfolio. Professionals attribute much of their success to managing risk in this way. Limiting Your Losses Another aspect of trading that involves discipline is limiting your losses. Here, there isnt a magic formula that works for everyone. Instead, you have to determine your own threshold for pain. Whatever you decide, stick to it. One of the biggest mistakes people make is to take a position with the intention that it be a short-term trade. Then, when the position goes against them, they make a seamless and unprofitable transition from trader to long-term investor. More than a few people have gone broke waiting for the trend to reverse so they could get out at break-even. If you are going to trade, you have to be willing to accept losses--and keep them limited Letting Your Profits Run Another mistake novice traders make is getting out of profitable positions too quickly. If the position is going well, it isnt healthy to worry about giving it all back. If thats a concern, you might want to liquidate part of the position or use options to lock in your profit. Then, let the rest of it ride. It isnt uncommon for people to view trading as a fast-paced, exciting endeavor. Fast-paced Absolutely. Exciting Now thats a matter of opinion. The Importance of Remaining Cool-Tempered More than a few traders interviewed in The New Market Wizards emphasize the importance of remaining unemotional and cool-tempered. To these people, trading is a game of strategy that has nothing to do with emotion. Emotion, for these traders, would only cloud their judgment. In the book Jack talks about one trader who was extremely emotional. Although Jack was able to show him how to be less emotional and more detached, it became quickly apparent didnt enjoy being emotionally unattached. He found it boring. Unfortunately, emotion involvement in trading comes at a high price. Before too long, that trader went broke. The morale of the story is simple: If you insist on being emotionally attached to your trading, be prepared to be physically detached from your money. Acceptance and Responsibility One of the biggest mistakes traders can make is to agonize over mistakes. To beat yourself up for something you wish you hadnt done is truly counterproductive in the long run. Accept what happens, learn from it and move on. For the same reason, its absolutely crucial to take responsibility for your trades and your mistakes. If you listen to someone elses advice, remember that you, and you alone, are responsible if you act on the advice. Another Way to View Losses Perhaps the most striking example of emotional distance in trading is a reaction to positions that go against thinking to yourself, Hmmm, look at that. If only we could all be that calm Of all the emotions we could possibly experience, fear and greed are possibly the two most damaging. Of all the emotions that can negatively impact your trading, fear may be the worst. According to many of the traders interviewed in The New Market Wizards, trading with scared money is an absolute recipe for disaster. If you live with the constant fear that the position will go against you, you are committing a cardinal sin of trading. Before long, fear will paralyze your every move. Trading opportunities will be lost and losses will mount. To help deal with your fear, keep in mind what fear is False Evidence Appearing Real The flip side of fear is confidence. This is a quality that all great traders have in abundance. Great traders dont worry about their positions or dwell on short-term losses because they know they will win over the long term. Eles não basta pensar theyll ganhar. And they dont just believe theyll win. They KNOW theyll win. It should never bother to lose, because one should always believe that one would make it right back. Thats what it takes. To Talk or Not to Talk For many traders, sharing opinions and taking a particular stance only magnifies the stress. As a result, they begin to fear being wrong as much as they fear losing money. Although it may be one of the hardest lessons to learn, the ability to change your opinion without changing your opinion of yourself is an especially valuable skill to acquire. If thats too hard to do, the alternative may prove much easier: Dont talk about your trades. Greed is a particularly ugly word in trading because it is the root cause of more than a few problems. Its greed that often leads traders to take on positions that are too large or too risky. Its greed that causes people to watch once profitable positions get wiped out because they never locked in profits and instead watched the market take it all back. Part of the remedy for greed is to have, and stick to, a trading plan. If you faithfully set and adjust stop points, you can automate your trading to take the emotion out of the game. For example, lets say you are long the 150 calls in a stock that rises more rapidly than you ever expected. With the stock at 240, the dilemma is fairly obvious. If you sell the calls, you lock in the profit but you eliminate any additional upside potential. Rather than sell the calls, you might buy an equal number of 230 puts. The Rs.90 profit per call that you just locked in will more than offset the cost of the puts. At the same time, youve left yourself open to additional upside profit. Gradual Entry and Exit Another strategy successful traders use is to gradually get in and out of positions. In other words, rather than putting on a large trade all at once, buy a few contracts and see how the position behaves. When its time to get out, you can use the same strategy. Psychologically, the problem people have implementing this strategy is that it takes away the right and wrong of the decision making process. Its impossible to be completely right or completely wrong using this strategy because, by definition, some of the trades will be put on at a better price than others. Awareness and Instincts For professional traders especially, instincts often play a crucial role in trading. To truly appreciate this, just close your eyes and imagine making trades in a fast market with dozens if not hundreds of people screaming around you. In this environment, it becomes absolutely essential to maintain a high level of awareness about everything going on around you. Then, to have the confidence to pull the trigger when necessary, you have to trust your instincts. Its absolutely amazing to see how some professional traders, even in a busy market, know exactly who is making what trades. For these traders, expanded awareness is often a necessary prerequisite to fully developing and trusting their instincts. The same is true for professional traders as well. Watching how markets behave and developing a feel for the price fluctuations is truly time well spent. Unfortunately, in this era of technology, people have become so removed from their natural instincts that many are no longer in touch with their intuition. This is unfortunate because intuition functions as a wonderful inner guidance system for those who know how to use it. One trader interviewed by Jack Schwager in The New Market Wizards relies so heavily on his intuition that he didnt want his name in the book for fear his clients would be uncomfortable with his strategy and move their money elsewhere. Speaking anonymously, he described in detail how he establishes a rhythm and gets in sync with the markets. In this way, he has learned to distinguish between what he wants to happen and what he knows will happen. In his opinion, the intuition knows what will happen. With this knowing, the ideal trade is effortless. If it doesnt feel right, he doesnt do it. When he doesnt feel in sync with the markets, this trader will paper trade until he feels back in rhythm. But even here, he keeps his ego and emotion out of it. His definition of out of sync is completely quantifiable. Being wrong three times in a row is out of sync. Three mistakes and its back to the paper trading. Now theres a strategy almost everyone can benefit from. Trading is a performance-oriented discipline and every great athlete, trader, or Performer will occasionally hit performance blocks. Every Olympic contender trained hard physically, but the difference between the ones who made the Olympic team and those who did not was the emphasis put on mental coaching by the winners. Much of a traders early education is concentrated on strategies and market analysis. But what are the necessary ingredients for peak performance What are the tools for both mastering the mental side of the game and busting out of the inevitable slumps that can occur along the way First - what is the mindset necessary for peak performance How does one ultimately get in the groove There is no better feeling than being in the flow - especially with trading. That is what many of us live for and what keeps us in the game, because trading can be a very tough business with long hours. There are several key common ingredients when you are performing your best, no matter what the field. EXPECT success. It begins initially with your self-talk. Do you get down on yourself when you make a mistake - or do you say to yourself - next time I will do better because I have great trade management and am a superior trader Be your own best motivator and believer in yourself. Positive Self Talk leads to positive BELIEFS. If you believe you can do something, you WILL eventually find a way. When you have a positive belief system that the eventual outcome will be OK, then you are more mentally and physically relaxed. You then have better concentration, which leads to smoother execution, which of course leads to peak performance. Now, on the flip side of the coin, negative self-talk sows seeds of doubt. This lowers self-confidence, which leads to a negative belief system. This then creates anxiety, which leads to disrupted concentration. Now the trader becomes tense and tentative which in turn leads to poor performance. Talk about a vicious cycle SECRETS OF TOP TRADING PERFORMANCE KEY INGREDIENTS TO PERFORMING YOUR BEST You must be passionate about what you are doing and having fun. Passion first, then performance. Top performance comes from having a high degree of confidence. You must have the confidence that you can take control and face adversity. You must also be confident that you will have a favorable outcome over time. Peak performance comes from exceptional CONCENTRATION. You must concentrate on the process, though, not the outcome. A sprinter who is in the lead is thinking about the wind on their face, how relaxed their arms are, feeling the perfect stridethey are totally in the moment. The person who does NOT have the edge is thinking, Oh, that runner is pulling ahead of meI dont know if I have enough wind to catch the leader They are tense and tight because they are thinking about the outcome, not the process. Great performances come from being able to rebound quickly and forget about mistakes. Great performance comes from pushing yourself and trying to overcome limitations. Staying in the safe zone becomes a monkey on your back. Challenge yourself to take that hard trade. Manage it. If it does not work out, so whatyour risk was limited and you can pat yourself on the back for taking the hard trade in the first place. SEE AND DO. DONT THINK Great performance comes from turning off the brain and becoming automatic. This is being in the Zone in the groove. You cant overanalyze the markets during the trading day. When you are relaxed, your reflexes and timing are superior because you are loose. POSITIVE SELF TALK There are some concrete tools to break the cycle and bust out of the slump The number one tool for starters is POSITIVE SELF TALK. We all talk to ourselves in our own head. Be aware of the things you are saying to yourself. The written word is also a powerful tool. Read affirmations and books on positive thinking. Norman Vincent Peale, Napoleon Hill. Arnold Schwarzenaggers autobiography are a few. Richard Marcinko wrote a book called the Rogue Warrior. He talked about the Will to WIN and the belief that ANY circumstances could be overcome. This is a great inspirational book for traders. Next - act like you are already where you want to be. Assume the mannerisms, posture and talk of a top trader. In addition to self-talk and reading written words, develop mental pictures. Visualize what you are going to do with your wealth or how it is that you want to live. Think of the power that money would give you to start any organization you want or to make other peoples lives better. Visualize your dream house. Program your subconscious as though you are already there. Dare to dream. OK - talk, words and pictureswhat is next Look at your environment that you have surrounded yourself with. Your success in trading will also be a product of your environment and I am not just talking about office space. Look at the people you surround yourself with. Do they support your activities Surround yourself with people who believe in you, who smile, and who are enthusiastic in anything they try or do. The top Olympic athletes had friends and family cheering them on every step of the way. BE PREPARED FOR A SURPRISE EVERYDAY All of the above factors deal with external factors and internal belief systems. Now lets get down to the DOING part Every trader should be prepared before the markets open because they already did their homework - right. One of the most impressive points in the Rogue Warrior book was this veteran navy seals obsession for being totally prepared for Mr. Murphy There was always a backup plan for everything and this is what kept him alive. Prepare your daily game plan by looking for both new setups and preparing strategies for managing existing positions. So, assuming that you have done your daily homework as a trader, the next step is to learn how to get into the groove. There is no better tool for this than having routines and rituals. Pre-market rituals help calm the nerves, get you into a rhythm, and also help to turn off the logical part of your brain - the part that wants to overanalyze everything. If you have a chattering monkey sitting behind your ear, routines and rituals are one of the best things to shut that monkey up. Maybe there is an opening sequence of tasks you do before the market opens. Perhaps in the middle of the day you draw swing charts or take periodic readings of the markets action. Maybe you keep a journal and make notes to yourself. At the end of the day, what type of record keeping do you do for your trading activity What do you do to unwind Salesmen are taught to do small rituals before cold calling clients. It controls the anxieties and fears of rejection. Cricket opening Batsmen have a pre-warm up ritual. It calms their minds and puts their body on the autopilot mode. It keeps them involved in the PROCESS and not thinking about the outcome. One of the more common rituals on the trading floors was to wear the same disgusting lucky tie every day. If the mind BELIEVED that the tie was lucky, this was all the traders needed to keep the long term odds in their favor. Here is another helpful factor: A healthy body keeps a healthy mind. EXERCISE This gets oxygen to the brain and keeps the blood flowing. How can you expect to be a peak performer when you are eating junk food and going through insulin swings Or perhaps you drank too much wine the night before or are jittery from drinking too much coffee. How can you concentrate well if you are not getting a full decent nights sleep Sure, most of these are minor factors but they can all add up to major bumps in your performance. One moment of sloppiness can lead to forgetting to place stops or letting a bad trade go too long. Then when damage is done, your confidence gets chipped away. You must treat your confidence level as something to be protected. Good habits will keep your confidence level high. Once you have good habits, it will allow you to increase your trading size. If you want to push yourself to the next level in your trading and are wondering how to increase your size, you MUST have a foundation of good habits. If you are running into a mental block in this area, it is your subconsciouss way of telling you that either you have not done adequate preparation or you are not satisfied with your money management habits. There is one more extremely important thing that contributes to your success and that is GOAL SETTING. When you set your goals, they must be concrete and measurable. You must also break them down into bite size pieces. Perhaps your larger goal is to make 8 digits over the next three years, but how do you get there Put together a more detailed business plan that is NOT Rupee oriented but will help you eventually reach your Rupee-oriented goal. Maybe it includes how many trades you should make per week, how much time you should devote each evening to preparation and studying charts, and plans for controlling risk. Both short term and long term goals help achieve peak performance. You must also have concrete ways to measure those goals. Top cricketers know the splits that they run. They know if they are ON or OFF according to how practice goes. They know their unforced error percentage, their personal best, and their competitions stats. The same should apply to you in your trading. Know your weekly win/loss ratios, your trade frequency, and the average amount of profit or loss each month. Only by having something to measure can you tell if you are improving or not and moving closer to your goal The battleground isnt the markets but whats within you. The more you talk with other traders, the more you realize that everyone goes through various common experiences. Everyone makes many of the same classic mistakes. But what distinguishes the ones who can ultimately overcome them Remember that ATTITUDE is everything. How you frame out an individual experience or event will affect your success in the long run. Do you see a trading loss or bad drawdown period as a major setback, or do you see it as a learning experience from which you can figure out how to be on the RIGHT side of a trade instead of the wrong side the next time around. Many great traders use periods after drawdowns to go back to the drawing board. Some of the best systems and trading ideas have come after periods of adversity. What incentive is there to learn and improve ourselves when everything is smooth sailing and we are fat and happy But when times are tough, that is when we can rise to the occasion and prove that we can overcome any obstacle set down in our path. So many great athletes have been able to come from behind when they are down because they have learned how to seize that one opening or opportunity and CONVERT. They latch on to the tiniest shift in momentum and milk it for all it is worth. Latch on to that next winning trade and convert. The first small moral victory is the first step towards reaching the top of Mt. Everest. And if you keep making small steady steps, you will eventually reach the top. Sometimes for a trader, the greatest feeling in the world can be making back those losses, no matter how long it takes, because once you have done that, you realize you can do anything. The most successful players are the ones who have a burning desire to win Dont check out of the game. Never give up Improve your consistency. Stay active, stay involved, and keep your feet moving. Be patient. Do not force a trade that isnt there. Wait for the play to set up. When you get a good trade, go for it. Manage it. Trail a stop. Dont be too eager to get out. Be flexible - if what you are doing isnt working, change what you are doing When down, get a little rhythm and confidence going. Dont worry about being too ambitious. Stay with your game. Dont let outside distractions bother you. They take energy and break your concentration. Match your particular strengths to the type of market conditions. Hate making stupid mistakes and unforced errors. This includes not getting out of a bad trade when you know you are wrong. Many players will play their best game when they are coming from behind. Copyright 2001 by Hiten Jhaveri, StockWhizo Investments. All rights reserved worldwide.