Delta Neutral Strategy (Long Nifty @ Long Puts)

[nautilus]

Hi Harish and Natilus,

For a great learning, I would like both of you to do one small exercise and post it here, please. Figure out the trade position in terms of profit and loss assuming options expired today. This exercise may be difficult one, I don't know, you will find out. I encourage all the readers to do this exercise also, of their own, and they are welcome to post it here too, if they so desire.

It is very essential to do this exercise, without which no one can tell where the trade will lead you. If you know in advance where the trade will lead you, than you can take corrective steps now, while the time is still in hand.

Good Luck,

Wastej

Hi Wastej:

I will have a stab at it and stand corrected in case of errors in my assumptions and calculations:

Assuming options expire today we would have the following trade position in terms of p/l.

1) 2000 long puts(sp2340) @46 would expire worthless resulting in a loss of
92000.
2) 200 short calls(sp2480) @21.55 would settle at 60.05 (current price) resulting in a loss of 7700
3) 400 short puts(sp2350) @12.50 would result in a profit of 5000
4) 1000 short puts(sp2400)@11.50 would result in a profit of 11500
5) 200 Long futures @2455 would settle at 2527 (current price) resulting in a profit of 14400
6) Plus closed out profits so far on futures 67200
Total loss = (67200+14400+11500+5000-92000-7700) = Loss (1600)

I will hazard a guess at the corrective action:

1) Close out the short calls(sp2480) @ 21.55
2) Sell 300 puts (any strike price) @ 6 or better

Phew!!! waiting for the brick bats!

Nautilus

1) Cover short puts(sp2480) @ 21.55

 

[nautilus]

Hi Harish and Natilus,

For a great learning, I would like both of you to do one small exercise and post it here, please. Figure out the trade position in terms of profit and loss assuming options expired today. This exercise may be difficult one, I don't know, you will find out. I encourage all the readers to do this exercise also, of their own, and they are welcome to post it here too, if they so desire.

It is very essential to do this exercise, without which no one can tell where the trade will lead you. If you know in advance where the trade will lead you, than you can take corrective steps now, while the time is still in hand.

Good Luck,

Wastej

Hi Wastej:

I will have a go at the excercise.

The following will be the trade position in terms of profit and loss assuming that the options expire today.

1) 2000 long puts(sp2346)@46 willexpire worthless costing us (92000)
2) 200 short calls(sp2480)@21.55 will result in loss with the market settling at 60.05 (current price) = loss (7700)
3)400 short puts(sp2350)@12.50 will result in a profit of 5000
4)1000 short puts(sp2400)@11.50 will result in a profit of 11500
5)200 long futures@2455 will settle at 2527(current price) resulting in a profit of 14400

Plus closed out profits on long futures = 67200

Total position= (67200+14400+11500+5000-92000-7700) = Loss (1600)

I would like to hazard a guess at what I should be doing to rectify the current situation:

1) Cover the short calls (sp2480)@21.55
2) Sell 300 puts (sp any) as long as the premium received is 6 or greater.

Phew waiting for the brick bats.

Regards
Nautilus
Total position=

 

[[email protected]]

2) 200 short calls(sp2480)@21.55 will result in loss with the market settling at 60.05 (current price) = loss (7700)


5)200 long futures@2455 will settle at 2527(current price) resulting in a profit of 14400

Hi Nautilus,

Please help me understand; how you arrived at 60.05, you assumed market closed at 2527 is that correct?

Please do post the regular profit and loss of the trade while I am checking on your other calculations. I am sure that you will agree with me that such exercises are essential to learning and will give lot of ideas as how the trade be steered from here, as you came up with few suggestions of your own.

Excellent work, keep it up.

Wastej

 

[chheda]

Hi Harish and Natilus,

For a great learning, I would like both of you to do one small exercise and post it here, please. Figure out the trade position in terms of profit and loss assuming options expired today. This exercise may be difficult one, I don't know, you will find out. I encourage all the readers to do this exercise also, of their own, and they are welcome to post it here too, if they so desire.

It is very essential to do this exercise, without which no one can tell where the trade will lead you. If you know in advance where the trade will lead you, than you can take corrective steps now, while the time is still in hand.

Good Luck,

Wastej

Hi WasteJ ,

The calculation of profit/loss ( i.e. if fut and options expired today )
As Nifty Fut Closed 2541.70

Trade 2380 :

Long Nifty Fut
Closed out profit of 32000.00
Plus open profit 400 * (2541.10 - 2347) = 77640.00
Total Profit (closed) 32000.00 + (open) 77640.00 = 109640.00
minus
Long Nifty Put 2000 SP 2340 at 46 = loss (92000.00)
plus
Short Nifty put 200 SP 2350 at 6.50 = 1300.00
plus
Short Nifty put 200 SP 2360 at 26.00 = 5200.00
plus
Short Nifty put 300 SP 2380 at 21.00 = 6300.00
Minus
Short Nifty call 200 sp 2380 at 104.00 = 200 * (2380+104-2541.10) = loss (11420.00)
Minus
Short Nifty call 200 sp 2460 at 29.00 = 200 * (2460+29-2541.10) = loss (10420.00)

Total Profit = 109640 - 92000 + 1300 + 5200 + 6300 - 11420 - 10420 = 8600.00


Trade 2480 :

Long Nifty Fut
Closed out profit of 32000.00
Plus open profit 400 * (2541.10 - 2347) = 77640.00
Total Profit (closed) 32000.00 + (open) 77640.00 = 109640.00
minus
Long Nifty Put 2000 SP 2340 at 46 = loss (92000.00)
plus
Short Nifty put 200 SP 2350 at 6.50 = 1300.00
plus
Short Nifty put 200 SP 2360 at 26.00 = 5200.00
plus
Short Nifty put 300 SP 2380 at 21.00 = 6300.00
Minus
Short Nifty call 200 sp 2480 at 33.85 = 200 * (2480+33.85-2541.10) = loss (5450.00)
Minus
Short Nifty call 200 sp 2460 at 29.00 = 200 * (2460+29-2541.10) = loss (10420.00)

Total Profit = 109640 - 92000 + 1300 + 5200 + 6300 - 5450 - 10420 = 14570.00

WasteJ if u find any mistake Plz poin it out .

Thanks
Harish Chheda

 

[chheda]

Hi WAsteJ ,

Trade 2380 (i.e Trade where we Sold Nifty call option SP 2380 on 12th Sep. )

No Trade Today :


To Day's prices (Name : open - high - low - LTP )
Nifty Fut : 2518.00 - 2544.50 - 2508.15 - 2541.10
Nifty Put SP 2340 : No Trade (prev. close 4.50)
Nifty Put SP 2350 : 4.00 - 4.45 - 3.50 - 3.75
Nifty Put SP 2360 : 5.00 - 5.00 - 5.00 - 5.00
Nifty Put SP 2380 : 5.00 - 5.50 - 4.00 - 4.00
Nifty Call SP 2380 : No Trade (prev. close 136.90)
Nifty Call SP 2460: 70.00 - 85.00 - 70.00 - 83.00

Profit / Loss calc.

Long Nifty Fut
Closed out profit of 32000.00
Plus open profit 400 * (2541.10 - 2347) = 77640.00
Total Profit (closed) 32000.00 + (open) 77640.00 = 109640.00

Long Nifty Put SP 2340
2000 * (4.50 - 46.00) = (Loss) 83000.00

Short Nifty Put SP 2350
200 * (6.50 - 3.75) = 550.00

Short Nifty Put SP 2360
200 * (26 - 5) = 4200.00

Short Nifty Put SP 2380
300 * (21 - 4) = 5100.00

Short Nifty call SP 2380
200 * (104 - 136.90) = (Loss) 6580.00

Short Nifty call SP 2460
200 * (29 - 83) = (Loss) 10800.00

Total Profit = 109640.00 - 83000.00 + 550.00 + 4200.00 + 5100.00 - 6580.00 - 10800.00 = 19110.00

Open Positions :
Long Nifty Future : 400
Long Put SP 2340 : 2000
Short Put SP 2350 : 200
Short Put SP 2360 : 200
Short Put SP 2380 : 300
Short Call SP 2380: 200
Short Call sp 2460: 200

Paid / Collected Primium in options

Long Put SP 2340 : 2000@ 46 : - 92000
Short Put SP 2350 : 200 @ 6.50: + 1300
Short Put SP 2360 : 200 @ 26 : + 5200
Short Put SP 2380 : 300 @ 21 : + 6300
Short Call SP 2380 : 200 @104 : + 20800
Short Call sp 2460 : 200 @29 : + 5800
Total : - 52600

Thanks & Regards

Harish Chheda
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[chheda]

Hi WasteJ ,

Trade 2480 (i.e Trade where we Sold Nifty call option SP 2480 on 12th Sep. )

No Trade Today.


To Day's prices (Name : open - high - low - LTP )
Nifty Fut : 2518.00 - 2544.50 - 2508.15 - 2541.10
Nifty Put SP 2340 : No Trade (prev. close 4.50)
Nifty Put SP 2350 : 4.00 - 4.45 - 3.50 - 3.75
Nifty Put SP 2360 : 5.00 - 5.00 - 5.00 - 5.00
Nifty Put SP 2380 : 5.00 - 5.50 - 4.00 - 4.00
Nifty Call SP 2480 : 57.95 - 73.70 - 50.00 - 72.70
Nifty Call SP 2460: 70.00 - 85.00 - 70.00 - 83.00

Profit / Loss calc.

Long Nifty Fut
Closed out profit of 32000.00
Plus open profit 400 * (2541.10 - 2347) = 77640.00
Total Profit (closed) 32000.00 + (open) 77640.00 = 109640.00

Long Nifty Put SP 2340
2000 * (4.50 - 46.00) = (Loss) 83000.00

Short Nifty Put SP 2350
200 * (6.50 - 3.75) = 550.00

Short Nifty Put SP 2360
200 * (26 - 5) = 4200.00

Short Nifty Put SP 2380
300 * (21 - 4) = 5100.00

Short Nifty call SP 2480
200 * (33.85 - 72.70) = (Loss) 7770.00

Short Nifty call SP 2460
200 * (29 - 83) = (Loss) 10800.00

Total Profit = 109640.00 - 83000.00 + 550.00 + 4200.00 + 5100.00 - 7770.00 - 10800.00 = 17920.00

Open Positions :
Long Nifty Future : 400
Long Put SP 2340 : 2000
Short Put SP 2350 : 200
Short Put SP 2360 : 200
Short Put SP 2380 : 300
Short Call SP 2480: 200
Short Call sp 2460: 200

Paid / Collected Primium in options

Long Put SP 2340 : 2000 @ 46 : - 92000
Short Put SP 2350 : 200 @ 6.50 : + 1300
Short Put SP 2360 : 200 @ 26 : + 5200
Short Put SP 2380 : 300 @ 21 : + 6300
Short Call SP 2480: 200 @ 33.85 : + 6770
Short Call sp 2460: 200 @ 29 : + 5800
Total : - 66630


Thanks & Regards

Harish Chheda
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[[email protected]]

Hi Harish,

You have done excellent job, I couldnt have done any better.

Please think it through and let me know what we should be doing with this trade if we want to almost double our profits, from yesterday's profits.

If we don't take any action between now and the expiry date, our profit will reduce by Rs.8000.00 (approximately), as all the options will expire worthless.

You have to come up with a plan that will give us extra profit, with least amount of risk.

Regards,

Wastej

 

[nautilus]

Hi Nautilus,

Please help me understand; how you arrived at 60.05, you assumed market closed at 2527 is that correct?

Please do post the regular profit and loss of the trade while I am checking on your other calculations. I am sure that you will agree with me that such exercises are essential to learning and will give lot of ideas as how the trade be steered from here, as you came up with few suggestions of your own.

Excellent work, keep it up.

Wastej

Hi Wastej:

I had calculated these while the markets were still active and I just took the last traded prices (at that time current price) as the prices for settlement. So your assumption is correct.

Nautilus

 

[nautilus]

Hi Wastej:

Here is the update for today.

Action taken today (as per your recommendation yesterday):

Sold 300 puts(sp2480) @21.50

Profit loss calculations:

Closed out profits from futures = 67200

Open position valuations:

1) 2000 Long puts(sp2340)@46 = (4.5-46)x2000 = loss 83000
2) 200 short calls (sp2480)@21.55 = (72.70-21.55)x200 = loss 10230
3) 400 short puts (sp2350)@12.50 = (12.5-3.75)x400 = profit 3500
4) 1000 short puts(sp2400)@11.50 =(11.50-4.85)x1000 = profit 6650
5) 300 short puts (sp2480)@21.50 =(21.50-14.00)x300 = profit 2250
6) 200 Long futures@2455 = (2541-2455)x200 = profit 17200

Total p/l = (67200+17200+2250+6650+3500-10230-83000) = profit 3570

Open positions:

1) 2000 Long puts(sp2340)@46
2) 200 short calls (sp2480)@21.55
3) 400 short puts (sp2350)@12.50
4) 1000 short puts(sp2400)@11.50
5) 300 short puts (sp2480)@21.50
6) 200 Long futures@2455

Regards

Nautilus

 

[[email protected]]

Hi Nautilus,

If my assumption was correct then you have not calculate your profit and loss correctly. The mistake is in Item No.2.

Please read the post by Harish and recalculate the profit and loss.

Regards,

Wastej