Linkon,
Frankly, never have traded options. But, looking at your stratergy, I am sorry to say but it is overdone and misleading.
Tell you why:
A brief look at the first and the last page.
First page:
You shorted options, 2 calls and 2 puts of Nifty at stirke price of 3400.
Puts at 215
Calls at 230
Also, you went long on Nifty futures at 3402.
Money invested : 1.25 lacs
Last page:
Total profit from options = 9500
Total profit from Futures = 36900
Total = 46400
Now, tell me this, as you are making heavy profits trading on futures (36900) which comprises around 80% of your profit. I dont understand the need to write options??
Vicky,
Lets look at it differently. There are 3 scenarios that can happen :
1. nifty can rally further from here breaking the 3511 peak and go to 3800 levels.
2. Nifty can face selling pressure and go and re-test the 3300 mark and even go further down.
3. Nifty can consolidate here between the 3430-3500 mark and stay here for the next 2 weeks.
scenario 1 :
Nifty futures will generate profit. 3400 call will generate loss but the NF will gain much faster than the 3400 call's loss. 3400 put will generate profit.
Scenario 2 :
I lock my profit in nifty at one point and dont ride it down to 3400 levels. below 3400 levels, i initiate a short in nifty and the scenario becomes like scenario 1.
From current levels to 3400: from the point I exit to 3400 is my added profit. 3400 call will loose value much faster than 3400 put's gain in value due to base effect.
Scenario 3 :
NF profit remains stagnant within a small band. 3400 put & 3400 call looses time value. I dont do anything and enjoy the steady drop in straddle's value.
Wasnt the first objective to try and pocket more and more of the premium which now stands at 95 points out of 400? Plus, your profit target has been achieved, thanks to all the money pouring in from futures.
If, you are earning so much so on Futures, why write options at all? That way, wouldnt your ROI be much better?
How is this statergy a hedge in options at all?
I dont mean any disrespect or anything it is just my view on why options are required in all this.
Playing nifty is a directional call. In case you get it wrong, you loose money. incase u carried the naked position forward and the market gaps down, then its a loss. money going out of the pocket.
combining nifty with writing the straddle, made sure i didnt lose money. i lost some of the potential profit but never money from the pocket. that gives me confidence to hold on to positions knowing that time is my friend. as time goes by, profit goes into my pocket.
when i started off... i had 445 points as error margin. now i have 265 points. Writing straddle is a delta neutral strategy and unless u have scenario 3, u wont see the benefit untill the last 10 days of the series. But there is a steady erosion of value and so far in 8 day, 100 points have already been eroded (and come into my pocket..
) .
ps : i havnt started closing the losing leg of the straddle yet. i need more liquidity and that has come after the April series has expired. Now you'll see how to add more profit from the straddle. i have already raised my target to 60 thou and plan to achieve that in the first week itself.
