Given that there is ample time to expiry, a small dip in stock price will lead to a decent appreciation in premium. I considered this trade structured and well designed. The combined premium was 75 per Varsity case study, and he made a 20 point profit per lot.
The thought process with a long straddle is straight forward — after the announcement the market is bound to move, based on the direction of the market movement either Call or Put options will make money.
He find this applicable to stocks as well — ex: The CE was trading at and the PE was trading at Since the trade is a play on volatility, its best to place SL based on Volatility and not really on the option premiums.
Note — the QnA is reproduced in my own words, the idea here is to produce the gist and not the exact word to word conversation. Volatility usually drops as we approach the announcement time.
However such trades are to be executed couple of days before the event and not 1 day before. The trade was executed by another Delhiite. Since there was ample time to expiry and increased volatility, I believe that the options are expensive, and premiums are higher than usual.
From empirical observation I believe that the best time to square of these Varsity case study of trade would be minutes before the announcement.
Anyway, I guess this is not bad for a first time, overnight options trade. Now here is the best part, these trades are executed by Zerodha Varsity readers over the last 2 months.
The trade was executed by a Varsity reader from Delhi. If I were to execute this trade I would probably do something very similar. For this reasons I believe selling options before an event to be more meaningful.
So I will certainly not look at holding this to expiry. He planned to hold the trade till the strike transforms to ITM. While this may seem like a perfectly logical and intuitive trade, what people usually miss out is the impact of volatility.
This was exactly what was going on in Infosys. Nifty was somewhere aroundhence the strike was the ATM option. Given this belief I would prefer selling call options instead of buying them. So with these thoughts, he initiated the trade.
Why would I do this? I hope you found this material useful and I really hope this makes a positive impact on your options trading techniques.
He has now started experimenting with options with the intention of identifying option trading opportunities backed by his fundamental analysis skills. Upon further research, he realize that the stock was down because Infosys cut down their revenue guidance.
He decided to go long on a call option with an expectation that the market will eventually wake up and react to the Q2 results. I repeated the same set of question asked during the earlier RBI trade and the answers received were very similar. The combined premium received was 95 per lot.
More often than not, the stock would enter a side way movement making it attractive to option sellers I would select strikes based on the normal distribution calculation as explained earlier in this module needless to say, one had to keep liquidity in perspective as well I would have executed the trade selling calls in the 2nd half of the series to benefit from time decay Personally I do not prefer naked directional trades as they do not give me a visibility on risk and reward.
For this reason I will skip posting the question and answer extract here. After executing the trade, the stock did bounce back and he got an opportunity to close the trade on 21st Oct.
Do note, all the snapshots presented here are taken by the traders themselves, I just specified the format in which I need these snapshots. I believe these are trades inspired by reading through the contents of Zerodha Varsity, or at least this is what I was told.
Apparently this was his first options trade ever. He was prepared to risk Rs. The announcement came in around 9: Shorting futures would be risky, especially in this case as reversals could be sharp and MTM in case of sharp reversals would be painful When there is so much time to expiry, why did I choose to trade a slightly OTM option and not really far OTM option?
Here are few empirical market observations this trader has noted in the backdrop market events — The market does not really move in any particular direction, especially 2 — 3 days prior to the announcement. The plan is to square off the trade if CEAT makes a new high.Army Crew Case Study Words | 10 Pages.
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Now here is the best part, these trades are executed by Zerodha Varsity readers over the last 2 months. I believe these are trades inspired by reading through the contents of Zerodha Varsity, or at least this is what I was told.
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