Selling options on Expiration Day
Though it is highly risky but profitable for intraday trading on the day of Expiration.
Now, in this article we are going to see whether the selling options on Expiration Day feasible or profitable, What the precautions we need to take while selling options on expiration day?
Selling options on Expiration Day
We all know that trading Futures and Options is a Zero-Sum Game.
Trading in Futures and options are the high leveraged products of trading. When our trading decision becomes wrong we have to incur exorbitant loss in it.
Among them Futures and options, futures becomes way more risky as it is the contract of obligation to buy or sell.
So, to deal with the futures many professional traders hedge it with options.
All we know options are just an wasting asset which is used to protect from losses.
Profiting while selling options on expiration day
The main doubt we get while searching about options selling is that.
- How much can we be profitable?
- What is the winning probability?
You will get shocked by the answer.
The answer of the first question “How much can we be profitable?” that is,
The whole amount of the premium you sell. Because if the option expires out of the money on that day, you will get the whole premium you sold.
For Ex. If you sold BANKNIFTY CE 31500 at Rs. 100 and BANKNIFTY closed below 31500 then option expired worthless.
Hence at the end of the Expiration day the price becomes 0. So you are in full profit of Rs. 100 i.e. 100% profit. Isn’t it great?
The answer of the second question “What is the Winning Probability?”, that is,
80%. Statistics shows that approximately 80% of the options go worthless on expiry. So, when you do trade in the stock market you have winning chances of 80%.
Precautions to take while selling options
When you are selling options you are plying with poisonous snake.
If you have not taken right decision quickly at the right time then you will suffer huge loss. Then there is just one thing to do. “Repent”
So, there are some precautions to be taken before putting trades.
Those are listed as below.
- Have hedged positions
- Know how much loss or profit you have to take
- Know what are the maximum profit/loss this position possess
- Try to minimize loss because taking profit is not in our hands
- Trend is our friend. Take positions favorable to trend
These are many strategies you can employ while trading in options.
You can try and test those strategies by visiting following button.
You can get following benefits with this feature
- Payout Chart
- Real time Profitability
- Maximum Profit/Loss
- Break even Points
- Net Credit
- Estimated Margin/Premium
Scalping Strategy For Selling Options on Expiration Day
What is Scalping?
Scalping is a trading strategy geared towards profiting from minor price changes in a stock’s price.
Traders who implement this strategy place anywhere from 10 to a few hundred trades in a single day with the belief that small moves in stock price are easier to catch than large ones; traders who implement this strategy are known as scalpers.
Many small profits can easily compound into large gains, if a strict exit strategy is used to prevent large losses.
Scalping Strategy of Selling Options
- Firstly sense the market trend for 5 to 15 minutes
- If prices will go up then sell Put Contract and if the prices are going down then sell the Call Contract
- But Sell below the low of previous candle
- Book small – small Profits in multiple trades
- Also small losses quickly
- Do not wait for long time to get profits because we are humans we can make mistakes while sensing the market
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