Assembly elections from a Traders’ perspective – Kitty of ‘opportunities’ or a ‘lose-lose’ game? No ratings yet.

Assembly elections was one of the awaited events as always and with all the election news brimming around, it seems that market too geared up for the event. The assembly elections have created a ripple in the markets which is quite evident in rising India VIX.

VIX, which is the measure of the amount by which an underlying index is expected to fluctuate in near term, clearly indicates that the expected volatility over next 30 days is surging as is witnessed in high VIX and high IVs ( Implied Volatility) of option premiums.

What does it actually mean to a trader? With VIX  gaining more than 20% in this week  and IVs of all Put and call options at their highs its time for option buyers to be really wary of and option writers has once again a chance  to rejoice.

Straying a bit away, I would like to add that options buyers throughout the global stock markets are never the ones who win consistently in the markets. To put forth statistically, 80 % of options which are bought expire worthless. Options writers are generally professionals who plays with the ‘Theta’ /time decay, making the innocent option buyer wondering almost all the time that why is he/she losing almost most of the bets.

Now, if you are an option buyer at this time, and have bought a call/put option chances are most likely the position is soon going to be in red irrespective of the direction of the underlying Index/Stock, because as the murmuring of the event will end on weekend after the results, there will be a face off and VIX is expected to squeeze back ;subsequently leading to fall in IVs and the fall in premiums of both Call and put options of the Index/ stocks.

But writers/shorters are again the ones that would be rewarded as most of the them are collecting very rich premiums from the buyers. So, if you are buyer intending to go long on a certain underlying, I would suggest its not an appropriate time. Let go past the election and see how much cheaper you can buy your asset. Till then, let the shorters employ their strategies.

Hope this article helped you. If you wish to learn the ‘Art of trading Options’ and get consistent results , please write to us at traderschowk@gmail.com or give us a buzz at 91- 96541 79837
We would be happy to connect with you.

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Author: Traders' Chowk

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