Zero position is also a strategy.
A positional option seller can't avoid unknown risks.
Traders can save capital & mental peace by avoiding overnight positions on few occasions.
When to avoid carrying overnight positions for Option Sellers? π§΅
Collaborated with @AdityaTodmal
A positional option seller can't avoid unknown risks.
Traders can save capital & mental peace by avoiding overnight positions on few occasions.
When to avoid carrying overnight positions for Option Sellers? π§΅
Collaborated with @AdityaTodmal
1. US Inflation Data:
Lately, US inflation data has started hurting a lot. As it creates a huge move in DOW. Indian markets can only react to it the next day.
Usually, because of such favorable or unfavorable data, there are usually big gaps.
Lately, US inflation data has started hurting a lot. As it creates a huge move in DOW. Indian markets can only react to it the next day.
Usually, because of such favorable or unfavorable data, there are usually big gaps.
Example 1: Check the charts on 10th June.
These are surprise gaps that may or may not open in your favor.
The following day, there was a 760-point gap down.
Stranglers would have been killed and sitting with 2-3% losses for sure.
These are surprise gaps that may or may not open in your favor.
The following day, there was a 760-point gap down.
Stranglers would have been killed and sitting with 2-3% losses for sure.
2. FOMC or FED Policy:
A FED rate hike these days also triggers a huge move in Dow and most of the time the policies are on Wednesday night Indian time.
On Thursday mornings, i.e. expiry day, usually Option Sellers have to start the day with firefighting.
A FED rate hike these days also triggers a huge move in Dow and most of the time the policies are on Wednesday night Indian time.
On Thursday mornings, i.e. expiry day, usually Option Sellers have to start the day with firefighting.
Example 2:
This was June 16, 2022.
There was a gap up opening of 350 points on expiry day, stranglers or only call sellers would have been trapped in the morning.
If they tried to firefight by selling puts, they would be double trapped, thereby losing a big sum.
This was June 16, 2022.
There was a gap up opening of 350 points on expiry day, stranglers or only call sellers would have been trapped in the morning.
If they tried to firefight by selling puts, they would be double trapped, thereby losing a big sum.
3. Low Vix environment counter gaps:
Currently, we are trading in an environment where the volatility of the markets is higher than what the VIX indicates.
So on a particular day, we may see a sharp selloff and the market closes at day low thereby forming a bearish candle.
Currently, we are trading in an environment where the volatility of the markets is higher than what the VIX indicates.
So on a particular day, we may see a sharp selloff and the market closes at day low thereby forming a bearish candle.
However the very next day, market may open with a massive gap up and will move up sharply post a gap up opening.
This forces trend followers to close their trades in loss.
In a low vix environment if a price is stuck in a range, it is better to avoid taking a directional bet.
This forces trend followers to close their trades in loss.
In a low vix environment if a price is stuck in a range, it is better to avoid taking a directional bet.
Example 3:
Date: May 8th, 2023.
The previous day was a clear downside trending day, and the daily candle was also a massive bearish candle.
However, the market had not broken any major supports or resistance.
During such times, it is better to avoid taking directional bets.
Date: May 8th, 2023.
The previous day was a clear downside trending day, and the daily candle was also a massive bearish candle.
However, the market had not broken any major supports or resistance.
During such times, it is better to avoid taking directional bets.
4. News like Russia Putin
When Russia declared war on Ukraine on 24th of February 2022, two to three weeks prior to that date, there were already news floating that there are possibilities that unrest was already in place and Vix had started shooting up the past 2-3 weeks.
When Russia declared war on Ukraine on 24th of February 2022, two to three weeks prior to that date, there were already news floating that there are possibilities that unrest was already in place and Vix had started shooting up the past 2-3 weeks.
It is better to lose opportunities than lose capital.
We had made the same mistake by taking overnight strangles with huge leverage and got badly trapped the next day.
We had made the same mistake by taking overnight strangles with huge leverage and got badly trapped the next day.
Example 4:
Self Explanatory.
Self Explanatory.
5. Rising Vix period:
Usually before any significant known event like budget/general elections, vix usually shoots up prior to the event.
So while the vix is steadily rising, it is better to avoid taking huge positions overnight, as the IV spike overshadows the theta gain.
Usually before any significant known event like budget/general elections, vix usually shoots up prior to the event.
So while the vix is steadily rising, it is better to avoid taking huge positions overnight, as the IV spike overshadows the theta gain.
Example 5:
6. Index Heavyweights Results:
Results that are released on weekends are potentially dangerous to us if we carry positions on Fridays.
Why?
Markets make a big gap up/gap down on Monday by reacting to those results.
Results that are released on weekends are potentially dangerous to us if we carry positions on Fridays.
Why?
Markets make a big gap up/gap down on Monday by reacting to those results.
Again Monday starts with strong firefighting which is a real headache at the beginning of the week when still so much time is left to expiry.
The entire week goes in recovering the same loss, in case you book loss on Monday.
The entire week goes in recovering the same loss, in case you book loss on Monday.
Example 6:
HDFC Bank Result
ICICI Bank result
Kotak Bank Result
all are released on a Saturday.
HDFC Bank Result
ICICI Bank result
Kotak Bank Result
all are released on a Saturday.
7. Thursday Overnight:
Greedy traders think I will sell a strangle of the upcoming week on Thursday 3 pm to get "extra theta decay".
Most of the times, the expiry moves don't continue the following day.
Greedy traders think I will sell a strangle of the upcoming week on Thursday 3 pm to get "extra theta decay".
Most of the times, the expiry moves don't continue the following day.
So it is very usual to see sharp sell offs on Thursday however on Friday market opens with a big gap up thereby trapping call writers or strangle sellers.
Example 7i:
Example 7ii:
8. When premiums are not rewarding:
It's better to 25% or 50% positions if you don't have any profit cushion made in intraday.
This is an indication that the market is not rewarding your view the entire day which means there are less chances of you being right overnight.
It's better to 25% or 50% positions if you don't have any profit cushion made in intraday.
This is an indication that the market is not rewarding your view the entire day which means there are less chances of you being right overnight.
That's a wrap!
If you enjoyed this thread:
1. Follow us @Adityatodmal & @niki_poojary for more threads on Price action, Option Selling & Trading growth.
We've got you covered.
2. RT the first Tweet to share it with your audience.
I appreciate it!
If you enjoyed this thread:
1. Follow us @Adityatodmal & @niki_poojary for more threads on Price action, Option Selling & Trading growth.
We've got you covered.
2. RT the first Tweet to share it with your audience.
I appreciate it!
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