Comment on Basics on Options Shorting/Writing

Nithin Kamath commented on 27 Oct 2014, 11:12 AM

You intend to hold this till end of December or until end of Nov? Because if it is till end of Dec, your payoff diagram is not right. Nifty could close Nov at 8150, loose you 100 points and then drop below 8000 in Dec to loose you the 160 on long calls, potentially losing you 260 points.

If you are holding till NOV expiry, there is no way to increase your risk to reward using this strategy. What you haven’t considered in the payoff is that volatility for Nov calls might go up and since December typically is a low volatility month, it could drop for Dec. So Nov calls might go up, whereas Dec calls may not go up as much. This again will hurt your strategy.

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