Many times far out of money strike options have a much higher IV,normally the put side has higher IV’s than the call side but sometimes the inverse also happens.
IV’s are derived from option prices and may vary from the historical volatility which can be used to calculate the theoretical value of an option.
The July month expiry is less than 60 days away and unless you are expecting the market to collapse soon you may not see much in the form of return buying options that far OTM,every day your option will lose time value.
Instead of paying 109 for the 9000PE,maybe you can buy the 9500PE(~Rs213) and sell the 9000PE(Rs 111) for a similar debit(213-111=102) which may become profitable if the Nifty level drops below (9500-102=9398),So your cost will be similar but there are more chances of Nifty dropping up to 9k than significantly below,but it will also limit your protection.
Maybe you can do a similar spread on the NIFTY DEC contract,for example:
buy 1 10000 PE and sell 1 9000 PE or
buy 1 10000 PE and sell 2 8000 PE and buy 1 7000 PE
There are unlimited options when it comes to options,it will depend on your level of experience and how you see things playing out so you can formulate different types of strategies depending on your portfolio size,how you see the correlation with the underlying etc.
Please note that options are leveraged instruments and are extremely risky especially if you are doing naked selling,the above example is only to get you thinking rather than advice on what you should be doing,my only advice is always be hedged.
If I am buying puts how is my risk unlimited. These will become zero at the end of July so the cost that I am paying now is my maximum downside. Is it not
I have shares and only want to protect extreme losses for next 2 months until July end.
So I thought I will buy July puts at 7500 or 8000 and if nifty goes into extreme downside due to second covid wave my investments will have some protection
Most investments that I have go up and down with nifty
You are correct,the maximum you lose is the premium paid.
Please read my above reply again,nowhere have I stated that buying options has unlimited risk.
I was only cautioning against naked selling without hedging.
Hi
If you see todays put prices
For strike of 7000, someone has ask price of 3.7 for 450 quantity. This implis implied volatility of 65.31% whereas for strike price of 8000 the ask price is 7.45 which works to implied volatilty of 48%
Thats a big difference and might correct at some point
My conclusion was if hedging 8000 strike price offers a better value
From what I know its difficult to buy December
I was recommended buy July and at end of July sell July and buy August
I put 5% of whatever profit I make during the rally to buy options specially during these uncertain times however I think the crash will not come when everyone expects it.
Also the central banks world over are pouring free money which only results in asset price bubbles
This one will be a very big bubble as on the other side production has reduced. So more money is chasing less produce.
Its difficult to say whether a crash will come or not. But that’s the point of hedging. If a crash comes, you are protected. If it doesn’t you earn a little less return. I was thinking of buying december because it will cover for 6 months at a cheaper rate
The liquidity is very low as period gets larger and the cost is higher from my limited experience @krishna1 or @Billu would know better.
It will help me as well if they can confirm
I was trying to emulate the strategy suggested by @Billu but ICICIDirect only shows PE & CE contracts expiring Aug as ‘enabled’. All longer options are ‘disabled’ - despite NSE Option Chain data showing OI and trading for DEC 2020 expiry which I wanted to buy. Is there a way I can ‘enable’ LEAP options?
From my experience it’s difficult and expensive to buy contacts expiring 3-6 months in the future
The nearest ones are cheaper even if you have to incur the cost 3 times instead of 1 time
So if you’re buying July instead of December when you are in July
If someone has actually bought and sold and has experience I’d like to hear but based on theory, there is a saying if you think that a theory is the only way to solve or describe a problem then you haven’t understood the theory
