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What is ATM (AT The Money) Options?

ATM are those options having Strike near to Spot Price. Current Price and Underlying is near. Example : NIfty is trading at 16970 Put Option : 17100                    ITM 17000                    ATM 16900                    OTM ATM Option has Delta Value 0.50 why ??? Because Probability of Nifty going up or down from Current Price is 1/2 i.e. 50% Call Option : 17100                     OTM 17000                     ATM 16900                     ITM  For Option video : https://youtu.be/XbwnxRLp7L8 Exercise : Reliance : CMP 2200 Rs PUT Option : 1800 2100 2200 2500 Call Option : 2000 2100 2200 2400 You can Comment here for more updates and Query on any option related Topics.

Lesson 1: Are You Making These 10 Common Options Strategy Mistakes?


If you trade options daily and still struggling to make consistence profit or finding difficulties in risk reward ratio, might you lacking few knowingly or unknowingly some important lesson of option market which make us to safe, protect portfolio or creating such system of selling option.
Today, will discuss few common options strategy mistake which help us quickly to understand trading system correctly and it ultimately reach us to final success.

Key Points from Today's Learning:



1.  Position Size

  • Position Size is one of the biggest mistake traders make, as larger the position larger will be risk.
  •  Avoid making large position
  • Averaging is good for trader, but over a period of time it should give trader frustration
      Example: I sold SBIN CE Strike 320 @ 5.5 Rs. SBIN moves up and call reach at 6 Rs. I made an average at that level again it goes up so each time average makes position to large, Better to safeguard through other outcome of option, like selling near Strike PUT option which makes my cost of option less. Will learn lot many strategy in coming time. Only thing is avoid position size huge, i.e. never exceed 5% of your overall trading account.

2. Low Trade Number
  • Trader make the assumption that winning trade always more than losing one
  •  It is game of probabilities but technical level and some theory help us to trade more accurately which ultimately reflects the expected outcome.
  •  over a period of time win rate will prove trader confident and consistence
3. Portfolio Balance
  • You cannot be a one-sided trader; it's just too risky. 
  • if you trade in options, you  need to make portfolio neutral like selling a put and selling call of low volatile stock make portfolio much stable.
  • Big fund trader or Institutions do such trading only daily basis.
Many times one sided move make trader beggar, better to balance portfolio and diversify position accordingly.

4. Option Buying Versus Selling
  • Option buying just does not work as a long-term income strategy.
  • As option Buyers, simply pay full premium i.e. Time Value as insurance.
  • 95% money earn from option trading is done by option seller only so focus more of option selling rather than buying. In reality risk for option Buyer is limited to premium paid but it is the biggest risk in case of adverse movement or low volatility entire premium depreciate in particular expiry period.
5. Diversity of Stocks
  • Having a diversity of Stocks that you are trading is key. 
  • The risk in trading one stock have tons of risk if stock becomes unstable or volatile in nature. Example: Selling Put option of PC Jewel or DHFL during time of 50% move trader faces huge difficulties.
  • Keep 10-15 stock in watch list so diversification can be easy in various sector. Example: Any trader trade in 10 stock of auto which ultimately full of risk better to study sector also. 
  • Diversity in Stocks gives you the flexibility to have a losing trade without blowing up your whole portfolio.
6. Using the Stop-Loss Order
  • Stop-loss orders create more losing trades, Back- tested strategies prove the using this stop loss create more lose trade.
  • Using stop-losses as a core strategy is not good for your portfolio.
  • The better alternative is to position-size better. Example: Create adverse position during such period like Mr. A sold PE of X stock and stock goes down start selling call, Buy PE option of far strike so At one point loss can be neutral.
7. No Hurry to Book Positions Early
  • Try to stand more on position during favorable time frame, don't start book position early
  • Many times trader use to say if i hold position I will get much more than what i book profit, Example: During Result period of any stock when trader sold option of particular stock lets say SBIN Result was on 2nd Aug. and I sold 320 CE and 300 PE both at 7 Rs. each, while rate of SBIN is 310. On 5th Aug. Monday Morning stock open near same rate and premium reduce both to 6 Rs. each. I made 6000 Profit by trading 1 lot each But is it right time to book profit or should I wait more? there is no Unique answer for all trader but one should take individual decision based on various parameter like Banking policy on 8th Aug. more over FPI issue might discuss by government body seriously. So, better to book 6000 profit is good. But during some period where not such event is pending one should wait for further depreciation in options.
8. Total Account Allocation is Too High
  • No one Stock should represent more than 5% of your total account. 
  • Many times trading weekly Option on expiry day gives massive return on the same day better to have 70% cash in account on daily basis. Like on 1st Aug. Bank nifty was down almost 700 point down at one period, On that day 28100 PE was available at 10 Rs. And made High of 300+ Rs. But someone who sold such PUT around 250 or 200, why? As market was already gone much down, Open Interest was shifting very fast due to stop loss and risky Zone. The same Bounce back in the Indian market of almost 250 point in Bank nifty make PUT worthless expire. So, earn massive return but not to put entire cash.
  • Options trading is highly leveraged, so when you win, you win massive returns on an options strategy on a small portion of your account.
9.  Reducing Commissions
  • Negotiate with your broker for lower commissions or brokerage.
  • Many time few broker provide Option trading at cost to cost of company.
  • Make fixed per lot Brokerage with broker or go in fixed package of fees.
  • Most brokers are moving towards a commission-fee platform.
10. Adjusting to Reduced Risk
  • Try to reduce risk by applying various option position.
  • Need to try and curb the loss that you have in the position. 
  • A lot of traders give up at expiration, which is probably the worst thing.
  • Try to limit Loss as much as trader can do.
  • Take the losing trades and adjust them down in risk by rolling, adjusting, moving sides closer, and adding positions, etc.  Example: I did short Straddle in Aug. 2019 when nifty is trading at 11000, Sold Premium of 450 Rs. Both call and Put and nifty Moved to 11500 In few days so I can book my Put and sell near strike Put to reduce My cost of loss, Another I can rollover to next Month same strike call and put or I can adjust my position 200 Point far from current level like reaching nifty at 11200 i shift my call position to 11400 and Put Position from 10800 to 11000.




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