Comment on Software Engineer up 400%
commented on
02 Aug 2013, 12:42 PM
Hello Praveen,
I can understand your concern for the days when nifty gap up or gap down by 500 points, on such days whole margin to buy futures will be used to cover loss by the exchange and we will be left with nothing. That’s the reason I play with only 25% of capital, So that I am still in the game. Because I know that 25% drawdown can be recovered in 4-6 months.
From My perspective,There are many problem to play swing and keeping options overnight:
After few days of ups and down, Nifty Future will be trading at the same level, but due to decay in premium the same option will be decreased by 20-30%, which will be a loss to me. To reduce the % decay, we have to buy “In the Money” options, which wont be liquid anyways and will lost points in slippage also. And moreover, we have to pay 40-50 points extra at the name of premium, e.g Nifty Fut is at 5840, and 5700 CE option will be trading at 180-190 rs. So we will be wasting 50 points every month to get saved by 500 point gap up/downs which happens once/twice in 5 years. To me it does not make sense. And moreover buying option worth 200 rs will anyways be worthless on 500 gap up/down days.. So basically one will save 300 points but will have to waste 50 points every month.
2) Since my SAR/TSL levels are based on futures,I will have to keep looking for the corresponding TSL for the option position, which is a big pain. Future may not make a new low, but call option will make a new low. Difficult to deal with these kind of scenarios.
3) Since I punch in the SAR order, Stop and Reverse order with double quantity, the execution happens to be very easy if I trade futures without any delay, If I have to reverse my position from long to short in options, I have to sell the calls first and buy the puts, you can always say that keep both the sell and buy trigger in the system, but then we will not be able to take advantage of the price decay while buying option. options have to be bought manually to save some points.
You may agree to disagree me. But this is why i dont play swings with options, Though I buy options on some high probable setups just for intraday.
Thanks Pawan/Shahi http://rideniftywithshahi.blogspot.com/