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Kill the time in Options, trade direction with OTM Butterfly: Shubham Agarwal

On the positive side with options trade, considering the directional outlook and net long or neutral option there would be no risk of loss due to the directional adversities.

December 05, 2020 / 11:19 AM IST
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Shubham Agarwal

Time value has always been a big pain for option traders who wish to trade them for benefiting from a directional move. By the virtue of the risk assignment to the buyer and the seller of the option, one more or less needs to be net buyer or net neutral of the options position to have a risk profile which entails lower risk than expected gains out of a directional trade.

So, for anyone who wants to be directional trader, there is definitely a cost assigned. On the positive side with options trade, considering the directional outlook and net long or neutral option there would be no risk of loss due to the directional adversities.

The cost of option, in other words the cost of privilege to benefit from the positive directional move and not lose from the negative directional move is the premium. Considering the at the money (around the underlying price), the premium would constitute only time value.