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While writing this email I can see that INDIA VIX is at 12.94. You can check the current India VIX here.
India-VIX 3-Apr-23
Lower than 15 is an indication that there is no panic in the markets as of now – everything is normal.
So the expected move on any side is less.
Option premiums will also be reduced attracting option buyers. During these times volume increases. Since most options buyers are mostly immature or new entrants to the markets – they bring a lot of liquidity. In a few days when they will see losses – they will start selling the options they hold – which will again be bought by novice traders.
Low India VIX may be attractive for option buyers – but it is dangerous too because there will not be many moves making the options worthless in 2-3 days.
Tip for option buyers:
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- Buy not too far nor too near options. They are cheap and appreciate fast if the stock moves in their direction.
- Do not overtrade, which means do not buy more than 2-3 lots
- Do keep a stop loss of a max 20% of the amount used to buy options
- Keep a target of 25% of appreciation. For example, you bought an option at 100 sell it at 125.
- Do not stay in the strategy for more than 3 days, if you bought naked unhedged options. Profit or loss – just exit the trade.
- Always hedge your option trades to stay longer in the game.
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