hello,
Short Strangle is Delta Neutral Strategy. where as your Strategy is hoping for bearish
You have Calculated only Reward part of both Strategies
what about risk factor??
your strategy seems more riskier than Short Strangle...
another Part of consideration is Probability
on that case Short Strangle is better.. (Now Verified Bear Spread is Better)
For me it is not worth to compare one delta neutral Strategy to Bearish Strategy
since this Strategy is bearish then if we compare this Strategy with Bearish Options Strategies then it would be interesting
:thumb:
Short Strangle is Delta Neutral Strategy. where as your Strategy is hoping for bearish
You have Calculated only Reward part of both Strategies
what about risk factor??
your strategy seems more riskier than Short Strangle...
another Part of consideration is Probability
on that case Short Strangle is better.. (Now Verified Bear Spread is Better)
For me it is not worth to compare one delta neutral Strategy to Bearish Strategy
since this Strategy is bearish then if we compare this Strategy with Bearish Options Strategies then it would be interesting
:thumb:
Saravananji,
I am giving reply to your question to view the things in correct perspective.
Your first point that short strangle is delta neutral is correct to a large extent. The delta (computed using Nifty spot level of 6268.40) for short strangle is around -0.17 whereas for my strategy, it is -0.51.
Now, we come to the probability part. The probability that by 30th Jan 2014, Nify will cross 6600 will be around 16.7%. If you take short strangle, the probability that it will cross either side is 55.3%.
Probability of Nifty crossing 6500 by 30th Jan 2014 is 24.8%.
Probability of Nifty going below 6100 by 30th Jan 2014 is 30.5%.
In the nutshell, probability of losing in my strategy is around 17% whereas probability of losing in short strangle of 6500 CE with 6000 PE is 55%. However, you can always take steps to avoid loss and make it profitable based on the market movements.
I always calculate probability before entering into any trade and keep computing it on daily basis. All my trades are based on the computation of probability.
My views are radically different from others. While, most members talk about risk reward ratio, I always see the probability. For example, in a particular trade if the risk is 25 points and reward is 75 points. Most members see it as very good trade. However, if probability of risk is 90%, I believe it is a bad trade. However, if luck is in your favour, you still earn because it falls in 10%.
These are my views and you need not agree with me. Please also note that we never argue, we just discuss for the benefits of all the members here. In the process, we also learn lot from others.:)
it is not argument here we all learning :)
I am giving reply to your question to view the things in correct perspective.
Your first point that short strangle is delta neutral is correct to a large extent. The delta (computed using Nifty spot level of 6268.40) for short strangle is around -0.17 whereas for my strategy, it is -0.51.
Now, we come to the probability part. The probability that by 30th Jan 2014, Nify will cross 6600 will be around 16.7%. If you take short strangle, the probability that it will cross either side is 55.3%.
Probability of Nifty crossing 6500 by 30th Jan 2014 is 24.8%.
Probability of Nifty going below 6100 by 30th Jan 2014 is 30.5%.
In the nutshell, probability of losing in my strategy is around 17% whereas probability of losing in short strangle of 6500 CE with 6000 PE is 55%. However, you can always take steps to avoid loss and make it profitable based on the market movements.
I always calculate probability before entering into any trade and keep computing it on daily basis. All my trades are based on the computation of probability.
My views are radically different from others. While, most members talk about risk reward ratio, I always see the probability. For example, in a particular trade if the risk is 25 points and reward is 75 points. Most members see it as very good trade. However, if probability of risk is 90%, I believe it is a bad trade. However, if luck is in your favour, you still earn because it falls in 10%.
These are my views and you need not agree with me. Please also note that we never argue, we just discuss for the benefits of all the members here. In the process, we also learn lot from others.:)
it is not argument here we all learning :)
Here is Visual Figure of Both Strategies
Short Strangle
Bear Spread
I think I have not asked my Question Clearly
My Question is for Short Strangle the Trader expects sideways movement
and aim for time Value in both legs
Where as the Bear Spread Suggested by you, the trader expects market will not go above 6600 and range bound ...
my Question is why one compare two Strategies having different goals??
I suggested to compare other bearish Strategies like sell 6100 CE and buy 6600 CE
even though there is less Probabilities nifty crossing 6600 but above 6600 it would be more than -1 Delta on that case
the risk will grow much faster than a normal short strangle
Since from Start of the thread you had given lot of Strategies I expected some other good Strategies to compare
Thank you for nice Reply :thumb:
Last edited: