GOOD PROFIT: Hedged nifty positions with straddle...

[rrmhatre72]

too good summary....

 

[linkon7]

I just finished off reading the whole thread and this is what I have understood and I am outlining my action plan as below. Request Linkon Sir to kindly approve each point so that I can proceed ahead with the action plan. May be he can write 'approved' after putting each point in quotes and can provide his changes whereever necessary.

1) Have a mindset that the movement of Nifty just cannot be predicted by anymeans.

2) Get an account with RK Global with ODIN interface and an internet connection with inverter setting.

3) Wait till 17th-20th of a month and then when NF is close to some '00 value, short a straddle of that value with expiry of next month. So lets say this 17th-20th June, Nifty is at 4700, so I short a 4700 straddle.

4) I put a buy order with NF Current (NFC) + 10 pts and a short order for NFC - 10 pts. Whichever gets executed, I put a SL at NFC.

For eg. Nifty is at 4700, I put a buy order at 4710 and sell order at 4690. Suppose 4690 order gets executed, I put a SL at 4700 and buy order of 4710 also stays intact.

5) If SL gets hit, I put the order that was executed again. So if NF comes back to 4700 and hits SL, I put the 4690 sell order again.

6) If NF moves further in the direction in which the order had got executed, for every 10 point move in that direction, I bring the SL down 10 points and also the other non-executed order also by 10 points in the same direction.

So as in the above example, if NF falls from 4690 to 4680, SL is moved to 4690 and that buy order is moved to 4700 from 4710.

7) Steps 4), 5), 6) are repeated during the whole trading day.

8) At around 3:15-3:20 pm, either of the three things will happen. Either I will be long NF, or short NF or without any position in NF.

8a) long NF : Buy the nearest OTM put or sell the nearest OTM Call as a hedge for gap down next day. If buying option, buy that of far month, if selling, then buy of near month.

Short NF : Buy the nearest OTM call or sell the nearest OTM Put as a hedge for gap up next day. If buying option, buy that of far month, if selling, then buy of near month.

Without any position in NF : Take a position in NF and then go to 8a) or 8b).

"Request Linkon Sir to kindly provide some comment on this point as to what is the best manner to handle gaps. I personally feel selling options is the better way."

9) The next day, as the market opens and you get the price of Nifty, either it will be near yesterday's close or gapped up/down in your favour or against you.

Near Yesterday's close or Gapped in your favour: Quickly put the SL and the reverse order of your open position according to point 4 above. Once done, close the hedged option that you had bought yesterday during the closing hours.

So for example, yesterday you had a short position with LTP as 4784 with your SL as 4790 and buy order at 4800. So if NF opens around 4784 only, you quickly put the 4790 SL and buy order of 4800 again. If suppose NF gapped down to lets say 4756, quickly put the SL to 4766 with a buy order at 4776.

Once done, immediately close the option bought/sold during yesterday's closing hours.

"Request Linkon Sir to kindly tell that whether buy orders and SLs of previous days get carried over to next day automatically/can be entered before market opens or they have to be again entered only after market opens"

Gapped against you: First quickly put a order in the direction of the gap at - 10 points from the opening price of double the qty. Then close the Option position taken during yesterday's close.

If the order gets executed, put the SL and reverse order as detailed in point 4above. If however the gap starts filling up, for first 10 point move, reduce the qty of the reverse order to half and put the other half at the opening price. For another 10 point move, move both the orders in the direction of the gap.

For eg. I yesterday had a long NF and LTP was 4877 with an OTM Call sold of 4900. Now today, suppose market gaps down at 4853. I immediately put a Short order of double the NF qty at 4843 and then close the OTM call of 4900.
If suppose NF falls down thru 4843, I will be effectively short, so I will quickly put a SL at 4853 and a long order at 4863 in line with step 4 above.

On the other hand if NF rises from 4853 to 4863, I decrease the qty of 4843 short order to half, i.e the normal trading qty and put another short order of normal qty at 4853. If it further rises to 4873, I move both the orders further up by 10 points to 4863 and 4853 and this goes on.

If now suppose 4863 order gets hit. I would basically be out of NF. I would then put a long order at 4873 and my short order of 4853 will also be live. Thus it would again become a situation of point 4 as detailed above.

10) Take on another similar position at 20th of next month and exit from this position on/near expiry.

11) Get Linkon Sir's bank account to deposit some part of the profits made by this strategy.

"Linkon Sir, you dont have to approve this point no. 11.":thumb:

Thanks and Regards
Saurabh

Very nice and detailed plan. I like the offer of Guru dakshina... :lol:

Now i'm tempted to give out my secret recipe of making 500 points per month without much sweat... i'll try to post the details this week end....

 

[skgarg]

Very nice and detailed plan. I like the offer of Guru dakshina... :lol:

Now i'm tempted to give out my secret recipe of making 500 points per month without much sweat... i'll try to post the details this week end....

We eagerly wait for this secret recipe. However, for this current one, can you kindly put your comments for point no. 8 regarding handling of gaps.

Thanks and Regards
Saurabh

 

[trader.trends]

3) Wait till 17th-20th of a month and then when NF is close to some '00 value, short a straddle of that value with expiry of next month. So lets say this 17th-20th June, Nifty is at 4700, so I short a 4700 straddle.

I personally don't find any sanctity for the 17-20th dates. You can do it anytime you want. Doing it just before the series becomes F1 or on the day the series opens is also fine. Again I would not wait for the round figures to be hit. There are more whipsaws around the round figure. I prefer around xx30 or xx70. This is again more or a personal choice.

 

[trader.trends]

Very nice and detailed plan. I like the offer of Guru dakshina... :lol:

Now i'm tempted to give out my secret recipe of making 500 points per month without much sweat... i'll try to post the details this week end....

AW10 says he has a method to trade with zero investment using mkt money and now you offer us 500 pts recipe. If I club these two offers, is it time for me to chuck current assignment??

 

[rrmhatre72]

Very nice and detailed plan. I like the offer of Guru dakshina... :lol:

Now i'm tempted to give out my secret recipe of making 500 points per month without much sweat... i'll try to post the details this week end....

Hi Linkon,

This is great logic.
I am reading this for the first time. But I find this very interesting.
I am sure you might have tested it for long time before releasing it.
1. Appreciate if you can let us know how many points/ expected out of it.
2. Just curious to know if we apply same logic for options(Instead of Future) will it work?
I mean to say on daily basis if one place order for OTM call or PUT with stop loss of 5points(instead of 10points in future) . Will your logic work?

Anyway I will be waiting for your 500points/month statergy eagerly

 

[soumen.bag1]

Hi Linkon
I bought 10 lots 5000 put option and make average of 85. What should i do?

 

[linkon7]

Hi Linkon
I bought 10 lots 5000 put option and make average of 85. What should i do?

I think praying to God...can help ! Apart from that nothing i can say or do will recover your losses....!

Losses on options tends to get worse if held for longer period of time...! IF you try to average your way out, then things become worse...!

 

[linkon7]

I just finished off reading the whole thread and this is what I have understood and I am outlining my action plan as below. Request Linkon Sir to kindly approve each point so that I can proceed ahead with the action plan. May be he can write 'approved' after putting each point in quotes and can provide his changes where ever necessary.

1) Have a mindset that the movement of Nifty just cannot be predicted by any means.

Murphy's Law : anything that can go wrong.... will go wrong... Only thing that you can rest assured is that market will try to eat your money. It'll dangle a carrot in front of you and show u a very rosy picture and then stab you when you least expect it.

e.g. Almost everyone believes markets are weak and will fall and started building bearish positions. As on friday it's closed near the high of the month and all the bears are on the back foot....

when building a options strategy, having a plan for every possible what-if scenario is a must. That way, you can just react without emotions getting the better of you....

2) Get an account with RK Global with ODIN interface and an internet connection with inverter setting.

Any broker account will do, but so far RKG is the cheapest and when the plan is to job these positions for a 20-25 points per day, then low cost of transaction and fast execution are the key criteria.

3) Wait till 17th-20th of a month and then when NF is close to some '00 value, short a straddle of that value with expiry of next month. So lets say this 17th-20th June, Nifty is at 4700, so I short a 4700 straddle.

never do that... !

remember price near the strike price is the weak point of this whole strategy.
criteria for strike price selection is the top or bottom of the trading range. say we are trading in the range of 4900 to 5100, then going for 4900 or 5100 is desired. We are using a directional strategy that aims at using the premium as hedge for our nifty futures positions. as long as NF is away from the strike price we can afford to be inactive.

4) I put a buy order with NF Current (NFC) + 10 pts and a short order for NFC - 10 pts. Whichever gets executed, I put a SL at NFC.

For eg. Nifty is at 4700, I put a buy order at 4710 and sell order at 4690. Suppose 4690 order gets executed, I put a SL at 4700 and buy order of 4710 also stays intact.

Remember you are trading nifty... and if i want to stay short below 4700, i would rather hold short above 4700 just after a key resistance level is broken or a trend line is broken. I wont wait for 4700 to break to initiate a short. For all i know, it can just bounce from 4690 as price remains unpredictable...

 

[linkon7]

5) If SL gets hit, I put the order that was executed again. So if NF comes back to 4700 and hits SL, I put the 4690 sell order again.

6) If NF moves further in the direction in which the order had got executed, for every 10 point move in that direction, I bring the SL down 10 points and also the other non-executed order also by 10 points in the same direction.

So as in the above example, if NF falls from 4690 to 4680, SL is moved to 4690 and that buy order is moved to 4700 from 4710.

7) Steps 4), 5), 6) are repeated during the whole trading day.

How you plan to trade nifty is totally upto you. Different players have different comfort levels and as long as u manage to a short below the strike price and a long above the strike price.

however dont wait for the perfect entry below the strike price to go short. prices have a tendency to run very fast as soon as you plan to take an entry.

8) At around 3:15-3:20 pm, either of the three things will happen. Either I will be long NF, or short NF or without any position in NF.

8a) long NF : Buy the nearest OTM put or sell the nearest OTM Call as a hedge for gap down next day. If buying option, buy that of far month, if selling, then buy of near month.

Short NF : Buy the nearest OTM call or sell the nearest OTM Put as a hedge for gap up next day. If buying option, buy that of far month, if selling, then buy of near month.

Without any position in NF : Take a position in NF and then go to 8a) or 8b).

"Request Linkon Sir to kindly provide some comment on this point as to what is the best manner to handle gaps. I personally feel selling options is the better way."

9) The next day, as the market opens and you get the price of Nifty, either it will be near yesterday's close or gapped up/down in your favour or against you.

Near Yesterday's close or Gapped in your favour: Quickly put the SL and the reverse order of your open position according to point 4 above. Once done, close the hedged option that you had bought yesterday during the closing hours.

So for example, yesterday you had a short position with LTP as 4784 with your SL as 4790 and buy order at 4800. So if NF opens around 4784 only, you quickly put the 4790 SL and buy order of 4800 again. If suppose NF gapped down to lets say 4756, quickly put the SL to 4766 with a buy order at 4776.

Once done, immediately close the option bought/sold during yesterday's closing hours.

"Request Linkon Sir to kindly tell that whether buy orders and SLs of previous days get carried over to next day automatically/can be entered before market opens or they have to be again entered only after market opens"

Gapped against you: First quickly put a order in the direction of the gap at - 10 points from the opening price of double the qty. Then close the Option position taken during yesterday's close.

If the order gets executed, put the SL and reverse order as detailed in point 4above. If however the gap starts filling up, for first 10 point move, reduce the qty of the reverse order to half and put the other half at the opening price. For another 10 point move, move both the orders in the direction of the gap.

For eg. I yesterday had a long NF and LTP was 4877 with an OTM Call sold of 4900. Now today, suppose market gaps down at 4853. I immediately put a Short order of double the NF qty at 4843 and then close the OTM call of 4900.
If suppose NF falls down thru 4843, I will be effectively short, so I will quickly put a SL at 4853 and a long order at 4863 in line with step 4 above.

On the other hand if NF rises from 4853 to 4863, I decrease the qty of 4843 short order to half, i.e the normal trading qty and put another short order of normal qty at 4853. If it further rises to 4873, I move both the orders further up by 10 points to 4863 and 4853 and this goes on.

If now suppose 4863 order gets hit. I would basically be out of NF. I would then put a long order at 4873 and my short order of 4853 will also be live. Thus it would again become a situation of point 4 as detailed above.

The big question of how to handle gaps...

This is the most tricky situation there is. Gaps occur when there is some news that has changed the valuation perspective of the buyers/sellers and price is trying to find a new value area. If this new value area is accepted in the first 30 min, then we can expect a trend continuation in the direction of the gap.

How to trade this...?
lets take today's example. Dow gave a spectacular bounce from the bottom and asian markets were supportive. We had a late rally the day before, so a good amount of global cues got factored in.

we gapped up to make a high of 5129 which was also the high. It then made a low of 5110 and then traded in this range for the first 30 min. it just means that value at these levels are accepted and market is in balance. we can expect trend continuation....

normally, when price gaps up / down by a huge margin, long time frame traders normally tend to book profit/loss. The day traders wait for market to stabilise before their indicators give them entry. This normally results in price retracing 1/3rd its gap before resuming the trend.... if the retracement is more than 50% then, there is a high chance that we will fill the gap...

10) Take on another similar position at 20th of next month and exit from this position on/near expiry.

11) Get Linkon Sir's bank account to deposit some part of the profits made by this strategy.

"Linkon Sir, you dont have to approve this point no. 11.":thumb:

Thanks and Regards
Saurabh

normally, when there is a big news event that can affect the market...avoid taking big exposure in the market. always remember, market is a pick pocket. If you take too high an exposure, it'll promise you the moon and empty your wallet...

normally,I dont wait for the series to expire to cut my positions. I have a fixed target of 500-600 points per month and once that is achieved, i tend to square off all positions and day trade for the rest of the series...