Comment on Option buying: The riskiest trade out there

Debasis commented on 13 Oct 2021, 08:44 AM

I believe the best way to avoid time value of option is to trade 1 or 2 days before expiry. Buy option is preferred because it restricts your loss to the premium you paid. Even this loss you can reduce by simply putting a stop loss. Most preferred time is the day of expiry. When you will find time premium is very low and only thing that will influence your option is volatility. Once you’re in in the money you will find your option behaves like a futures. Always the option value will be less than underlying price just at the time of expiry. So if you trade on option on the expiry day make sure you liquidate your buy position when underlying price is less than the premium. During last 10 minutes all in the money options will show value less than the underlying value. If you really want to play in the market on volatility take position just 15 minutes before closing. Say nifty is at 17895 and the buy option of 17900 ce will be max. 1.5. So 1 lot will cost you 75. Buy 10 lots and your investment is 750. If the market goes up say by 10 points as late market rally, your option will now value at 3 making a 100 percent profit. If it goes down you can only lose 750 plus your brokerage 20 plus taxes around 1. But you can also liquidate at 50 percent of your loss that is at 375 but you then have to pay brokerage 20 plus stt and tax likely to be 2. This is naked option play. But there are some option strategies which allows you to reduce risk and make some profit.

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