How does this tricks work for Successful trading?
The trick works by making the Greeks work for you but not against you like Theta, Delta, Vega.
How to make a Trade on Options based on Trading day
Highest decay in Option premiums happen closer to the expiry.
For weekly options
- On Start of weekly options say Friday and Monday you can look for buy strategies with limited risk and limited reward using the Option strategies like Bull Call spread etc.. based on market outlook. Or even long iron condor if you anticipate a huge movement on any side. Long straddle and Long straddle can also be used.
- On Towards end of Week that is Wednesday and Thursdays, time decay is on your side if you are going for Selling side. That said its better to go with limited risk and limited reward trading strategies like short iron condor, short iron butterfly.
- Tuesdays in morning parts can be opted for buying strategies and towards end if needed only Sell side strategies.
Theta decay is less on Friday and Monday are good opportunities to be on buy side like Bull call spreads or Bear Put spreads with limited profit and limited loss. Here the risk is defined.
With time decay aggressive towards weekend its better for Sell side strategies like short iron condor or short iron butterfly to gain from theta decay which can even compensate for any Delta loss due to price movements.
Watch out the VIX?
VIX gives us good understanding if VIX is going on higher side or lower side. Option premiums are high priced if IV is high and on other hand cheaper if IV is low.
- in essence Option IV high and you expect it to fall, means you can benefit from quick drop in IV by selling the options.
- in essence Option IV low and you expect it to rise, means you can benefit from quick rise in IV by buying the options.
Why do you need Theta on your side?
Think of swimming in waters upstream vs downstream. with theta on your side is like going with the downstream with the flow. Theta decay is good for Sellers and bad for Buyers.
Delta, Why ATM,ITM and not deep OTM ?
ATM,ITM has the highest Delta which means – Change in underlying to change in premium is more at ATM and ITM. Good for buyers not for Sellers.
Monthly income not lottery ticket ?
The stock market rewards the people with restraint from greed of huge profits overnight and having the fear of loss of all money overnight by stop loss or limiting losses. Limited profit, Limited Loss in other words defined loss and profits are better than just go out for lottery ticket.
BankNifty or Nifty?
BankNifty has all bank stocks which move together so movements can be huge and range bound in some times. In Nifty some stocks pull index up and some may pull it down which makes it rather kind of range bound in most of the time.
Check out our option Greeks cheat sheet here https://quick-hack.com/features/option-greeks-for-weekly-options-way-to-success
Check out our all option strategies explained here https://quick-hack.com/option-strategies
Check out our all option strategies cheat sheet here https://quick-hack.com/features/options-cheatsheet-with-greeks
This analysis is purely for educational purposes only. We value you comments and also any points to include for above analysis. Any discrepancies can also be commented.