A friend called me yesterday to ask should he Short Sell a Call Option of one of the leading auto company?
My advice to him was simple. Stay away from Selling Options. At least till the elections are out of the way.
And that is what I’ll advice you too.
See, we’re at 18 VIX (Volatility index). Usually, during elections, the VIX rises above 30. This thereby increases option premiums. And if you sold options at low premiums & had to buy at high premiums, you’re bound to make losses.
It’s simple & logical.
Whenever there’s a high volatile event, you should stay away from options selling. Because the profits are limited & losses are virtually unlimited in options selling.
Ask those who shorted 10% out of the money Calls the day corporate taxes were cut in 2019 & bank nifty locked in 10% Upper Circuit.
Ask those who shorted 10-20% out the money Puts when Nifty was already 20% down in 1 month from ~12k to 10,000 (VIX ~25-30) in early March 2020 & it went down further 25% in just 1 week to 7511 (VIX >60). The options premiums were through the roofs. And so the losses of options sellers.
A single (1) lot loss at that time was ~₹1.5 lakh. And there were people who shorted 500-1000 lots assuming this is the max Nifty can move in a month.
Long story short, if I were a smart & wise person, I’d never sell options to ‘eat’ few points of premium when the losses may turn out to be huge. Especially, during elections season.
