30% returns with Delta hedging options

[myamit]

As delta of the position is under comfortable limit, no changes today.

Premium earned : 34200
Spread today : 30780
Margin reqd : 149,000

Notional profit : 3420

So 2% earnings on day 1. Not bad

BTW.... any comments... is this unusual ?


Regards,

 

[Taurus1]

can't find the link...can you please repost it.

thanks.

http://www.traderji.com/general-trading-investing-chat/66552-nifty-trading-lounge-325.html

@ Taurus1 : Timeframe is clearly defined as Dec-14 series. I may start existing slowly from Oct-14 onwards.

Could you please share link to your thread & video. Thanks.

comm4300 has rightly pointed out a possible volat spike near elections.

 

[SaravananKS]

As delta of the position is under comfortable limit, no changes today.

Premium earned : 34200
Spread today : 30780
Margin reqd : 149,000

Notional profit : 3420

So 2% earnings on day 1. Not bad

BTW.... any comments... is this unusual ?


Regards,

myamit,
In Market there is always Risk adjusted returns would be.... this time you sold 7500CE and 5000PE @ higher rates only because vega not for theta(time Value)

OK The Reason for high vega is Election ... if any Stable govt Plus Good Policy announcement would make nifty cross 7500

You said that every 200 Points Raise you would sell additional Lower Strike Puts to hedge delta.this works well before elections since Premium is very high


Say for example nifty crosses 6500 Before April as Pre Election rally as per your rule you need to sell more 5000 PE or 5500 PE to hedge the delta

after election results suppose Market Cracks to 6000 ( on that time I Assume there would be very less Premium on 7500 CE) so you would get only small amount of Premium (you can sell 7000 CE also) to hedge

Just Imagine the above said situation( in market it is very hard Predict any scenerias) on that time you have added either (5500 PE and 7000 CE if you are aggressive) or (7500CE or 5000 PE for passive) With additional risk Capital of 1.5 lakhs

Then any fast Rally toward(from 6000) either 5000 or 7000 Would create Problem for this Portfolio

in short, as of now the logic seems very profitable due to election but it seems quite risky...( I Personally sold 8500 CE+4500 PE much earlier for 170 and would happy to see nifty either 8500 or 4500) that is the reason it give good reward...

I have tested these delta Neutral Strategies(Using LEAP ) some time back
since we are having active LEAP's only on recent days I tested based on nifty and Sensex Prices it gave Profit in almost 80% Times

if one knows how to handle to situation in remaining 20% then one can expect a good annual Return based on this Strategy :thumb:

 

[jamit_05]

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if one knows how to handle to situation in remaining 20% then one can expect a good annual Return based on this Strategy :thumb:

Nice point. This is the crux in any option shorting strategy. If it weren't for this challenge, every Tom, Dick and Harry would be selling only far away strangles.

 

[myamit]

myamit,
In Market there is always Risk adjusted returns would be.... this time you sold 7500CE and 5000PE @ higher rates only because vega not for theta(time Value)

OK The Reason for high vega is Election ... if any Stable govt Plus Good Policy announcement would make nifty cross 7500

You said that every 200 Points Raise you would sell additional Lower Strike Puts to hedge delta.this works well before elections since Premium is very high


Say for example nifty crosses 6500 Before April as Pre Election rally as per your rule you need to sell more 5000 PE or 5500 PE to hedge the delta

after election results suppose Market Cracks to 6000 ( on that time I Assume there would be very less Premium on 7500 CE) so you would get only small amount of Premium (you can sell 7000 CE also) to hedge

Just Imagine the above said situation( in market it is very hard Predict any scenerias) on that time you have added either (5500 PE and 7000 CE if you are aggressive) or (7500CE or 5000 PE for passive) With additional risk Capital of 1.5 lakhs

Then any fast Rally toward(from 6000) either 5000 or 7000 Would create Problem for this Portfolio

if one knows how to handle to situation in remaining 20% then one can expect a good annual Return based on this Strategy :thumb:

SaravananKS,

I agree with whatever you're saying in general. However what I've understood is to keep things simple and focused.
You have missed this very important aspect in your interpretation of situation.

First I will continue hedging delta not only by selling options but even by buying them and hence my capital deployed is always in control. Considering election volatility, I'm consider half of my capital unutilized.

Also I agree for your point about fast rally. But I'm not anticipating 250+ one way move on any of the day except 1-2 pre and after counting. For any move less than this, I'm hedged.

Hope this is clear.

Regards,

 

[myamit]

As delta of the position is under comfortable limit, no changes today.

Premium earned : 34200
Spread today : 30780
Margin reqd : 149,000

Notional profit : 3420

So 2% earnings on day 1. Not bad

BTW.... any comments... is this unusual ?


Regards,

6th March 2014...

Sold one more lot of
PE 5000 @ 73.8

Now position is

250 x Short PE 5000 (Dec-14) @ 83.5 (Avg price)
100 x Short CE 7500 (Dec-14) @ 170

Premium earned : 37875
Current premium : 35950
Notional profit : 1925


Regards,

 

[comm4300]

what software are you using to get delta values.
when do you adjust positions - towards market closing/once a week
how much delta variance is ok with you...

 

[SaravananKS]

6th March 2014...

Sold one more lot of
PE 5000 @ 73.8

Now position is

250 x Short PE 5000 (Dec-14) @ 83.5 (Avg price)
100 x Short CE 7500 (Dec-14) @ 170

Premium earned : 37875
Current premium : 35950
Notional profit : 1925


Regards,

myamit,

What is your trading capital?? and how much of your trading capital Blocked as margin as of now ??

 

[myamit]

what software are you using to get delta values.
when do you adjust positions - towards market closing/once a week
how much delta variance is ok with you...

I use Options Oracle and other Greeks software to find delta value.

For delta variance, I'm okay as long as position delta differential is less than two (2). I may need to change this once more lots are added.

Currently, I try and reset my position after big move (100 points plus) or every week-end.

Regards,

 

[myamit]

myamit,

What is your trading capital?? and how much of your trading capital Blocked as margin as of now ??

As of now, I'm paper trading this.

However I have kept a mental note for trading capital as 10L. Currently blocked capital is 1.75L

Regards,