January 23, 2017

Advantage of using option chart over futures chart

Options decay and they lose their value over time... this is irrespective of the movement of the underlying.

Using option charts for exits provide a faster way to close a trade - this is specially useful when markets are rangebound and you have a position in any OTM option.

Look at this 15 min chart of nifty futuers (I use 15 min charts for positional trades)




Yesterday we just got an exit for a long positional trade in nifty futures.

But if we had waited this long to exit a positional trade in call options, we would have surrendered substantial part of our profits,

Here is the 8400 call chart.... see what I mean? the price yesterday is same as it was 10 days ago. But a trailing SL (horizontal line) would have provided a graceful exit much before.


Option writers are obviously not affected by this... the time decay ALWAYS works in their favour.




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