There are 4 days left to April contracts expiry.
Generally, there are good moves in individual stocks in the days before expiry. At this point of time Option Buying ( as well as Selling ) becomes a big gamble. Option Sellers try to cash in the Time Decay which is fast decaying. Option Buyer can make money equally quickly if the direction of the trade is right. Let us not forget that the money would be lost as quickly if the direction goes wrong.
Benefit to the Option Buyer at this point of time are:
Premiums have come down as time to expiry is nearer.
Delta becomes higher as the time value is low now compared to few days earlier.
These two factors can help in earning some very good profits and the loss is already capped to the premium paid.
Let us look at some possible trades ( We are looking at it theoretically for academic exercise only and it is not a trading advice or suggestion ) for these last 4 days:
(1) RELCAPITAL :
This stock closed at 425.05 on Friday.
By nature it is a very volatile stock.
PUT 400 is trading at around Rs. 2.00 and Lot Size is 750.
Risk in this trade is Rs. 1500.
(2) BHARTI AIRTEL :
On Friday it closed at 402. Only a few days ago it had gone below 375 also. Annual results will be on April 24 which are expected to be poor. Well, the market might have already anticipated that and ignored causing the move from 375 to 402. But I expect the price to move down nicely.
PUT 390 is Rs. 3.20 and the Lot Size is 1700.
Risk in this trade is Rs. 5440.
(3) TATA MOTORS :
On Friday, it closed at Rs. 336.10. Where does it go from here?
I wish I knew.
PUT 330 trades at around Rs. 2.00. Lot Size 1500.
This trade has a risk of Rs. 3000.
Friday close was Rs. 309. Metals have been shining in the markets over last few weeks. Is it now time that some of the shine is taken away?
Nothing risked is nothing gained.
PUT 300 was traded at Rs. 1.75 on Friday. Lot Size 1750.
If we get it for 1.80 also, the risk would be Rs. 3150.
Let us stop with that for today and see what the market does.
If it aligns with our thought process we may see decent gains otherwise we stand to lose Rs. 13090 ( 1500+5440+3000+3150) plus expenses for the trades.
The risk is not very large but is very real.
But the risk to reward ration can be really very handsome.
I have stuck my neck out. Not a great thing to do.
But people are known to lose more than Rs. 13090 by trading safely also.
Expiry trades are akin to living by the sword and dying by the same. Good fighters live by the sword.
Let us see the results at the end of day.
Disclaimer: This post and examples are for teaching purpose only and are not meant as advice/suggestion to trade in these stocks. Trading in Futures and Options can lead to big losses and should be done with appropriate knowledge and advice only. Mentioning the stocks here does not imply that I have a trading position or likely to take a trade in these stocks.
Md Azhar April 24, 2018 at 6:26 pm
Vedl 300 PE opened @ 12. Sir did you exit this position? The technique you explained is simple and works most of the time. Thanks for sharing your valuable knowledge. I am looking forward for Hyderabad Session, when will you conduct a session in hyderabad ?Reply
Danica Peary March 30, 2019 at 9:25 pm
You are a very persuasive writer. I can see this in your article. You have a way of writing compelling information that sparks much interest.Reply