Low Risk Low Returns- Target 50 NF per month per NF Lot
- Thread starter jamit_05
- Start date
with the end of this expiry, will take up the monthly expiry... for the following reason:
We are buying wings to protect us from huge unlimited profit, should there be a strong 400+ point move in a week. So, I bought wings, but Instead of buying current week wings, I bought forward week wings because the decay is less. Logically, if I went further forward, then the decay is even lesser and at the same time offering protection from spikes.
To demonstrate:
25July 11800Ce + 11600Pe = 190 + 124 = 314
4July 11800Ce + 11600Pe = 94 + 51 = 145
So, 4July 145+ 11July 145 + 18July145 + 25July 145 = 580
Whereas, directly buying 25July wings costs 314. This would give our current week sold ATMs the protecting it needs, while still giving good profits.
However, this is not the end of the story, but only the beginning. There is the flip side to it as well. The risk is: In case, there is a spike one will have to manage the situation, because for every 100 point move the current week ATMs will gain 85 points, whereas the wings will gain only 70. So, there will be a loss, which will have to be managed.
There is more to the story
We are buying wings to protect us from huge unlimited profit, should there be a strong 400+ point move in a week. So, I bought wings, but Instead of buying current week wings, I bought forward week wings because the decay is less. Logically, if I went further forward, then the decay is even lesser and at the same time offering protection from spikes.
To demonstrate:
25July 11800Ce + 11600Pe = 190 + 124 = 314
4July 11800Ce + 11600Pe = 94 + 51 = 145
So, 4July 145+ 11July 145 + 18July145 + 25July 145 = 580
Whereas, directly buying 25July wings costs 314. This would give our current week sold ATMs the protecting it needs, while still giving good profits.
However, this is not the end of the story, but only the beginning. There is the flip side to it as well. The risk is: In case, there is a spike one will have to manage the situation, because for every 100 point move the current week ATMs will gain 85 points, whereas the wings will gain only 70. So, there will be a loss, which will have to be managed.
There is more to the story
Lets clearly see what is the scope of profit for the current spread of
27June 11700 CE+PE 98+90 = 188
Collected: 188
4July 11800 Ce +11600 Pe 68+90 = 158
Paid: 158
Best case Scenario:
Expiry is at 11700, in which case 188 becomes zero
And wings decay to 98.
Then, the net profit is:
188-0 = 188 points
98-158= -60 points
-8 expense
----------------
Net profit 188-60-8= 120 points (Bravo!)
If expiry is at 11750,
188-50=+138
98-158=-60
-8 expense
----------------
Net Profit 138-60-8=70 still very good
If expiry is at 11800,
188-100 = +88
Net Profit: 88-60-8 = 20 points.
It starts getting a little dry. But, beyond this, I think there may be losses, but how much it depends on the value of wings.
If expiry is at 11850,
188-150 = +38
the CE wing will have gained to 40 + 90 = 130
the PE wing would be paltry, around 15
therefore, 145-158 = -15
Net Profit: 38-15-8 = 15 points.
If expiry is at 11900,
188-200 = -15
the CE wing will have gained to 80 + 80 = 160
the PE wing would be paltry, around 5
therefore, 165-158 = +15
Net Profit: -15+15-8 = -8 points.
From the above, one could arrive at the following conclusions:
a. If expiry is near the starting point, which is 11700 in this case, we are happiest.
b. We have good solid protection from capital loss till 200 points.
c. It makes sense to buy a bull call spread beyond a 100 point move.
Reasoning:
If expiry is at 11800,
Net Profit: 88-60-8 = 20 points.
Now if I buy a 100-point bull call spread like the following:
Buy 27Jun11800 CE
Sell 27Jun11900CE
It will cost 30
Then:
Case 1: If price moves in its direction the the bull call makes a net 70 points. So, the trade off is such that the bull call spread earns, but the iron butterfly ends up not performing, expiry happens at 11800 and Butterfly gives a Net Profit of 20 points.
Case 2: Else if price reverses and the Bull Call does not perform, then I square it off for a 10 point loss. But, the Butterfly does end up earning: Expiry happens at 11750 or 11700 which earns 70 to 120 points.
Bottom line is, this kind of Calendar-Spread Iron Butterfly just might be workable.
27June 11700 CE+PE 98+90 = 188
Collected: 188
4July 11800 Ce +11600 Pe 68+90 = 158
Paid: 158
Best case Scenario:
Expiry is at 11700, in which case 188 becomes zero
And wings decay to 98.
Then, the net profit is:
188-0 = 188 points
98-158= -60 points
-8 expense
----------------
Net profit 188-60-8= 120 points (Bravo!)
If expiry is at 11750,
188-50=+138
98-158=-60
-8 expense
----------------
Net Profit 138-60-8=70 still very good
If expiry is at 11800,
188-100 = +88
Net Profit: 88-60-8 = 20 points.
It starts getting a little dry. But, beyond this, I think there may be losses, but how much it depends on the value of wings.
If expiry is at 11850,
188-150 = +38
the CE wing will have gained to 40 + 90 = 130
the PE wing would be paltry, around 15
therefore, 145-158 = -15
Net Profit: 38-15-8 = 15 points.
If expiry is at 11900,
188-200 = -15
the CE wing will have gained to 80 + 80 = 160
the PE wing would be paltry, around 5
therefore, 165-158 = +15
Net Profit: -15+15-8 = -8 points.
From the above, one could arrive at the following conclusions:
a. If expiry is near the starting point, which is 11700 in this case, we are happiest.
b. We have good solid protection from capital loss till 200 points.
c. It makes sense to buy a bull call spread beyond a 100 point move.
Reasoning:
If expiry is at 11800,
Net Profit: 88-60-8 = 20 points.
Now if I buy a 100-point bull call spread like the following:
Buy 27Jun11800 CE
Sell 27Jun11900CE
It will cost 30
Then:
Case 1: If price moves in its direction the the bull call makes a net 70 points. So, the trade off is such that the bull call spread earns, but the iron butterfly ends up not performing, expiry happens at 11800 and Butterfly gives a Net Profit of 20 points.
Case 2: Else if price reverses and the Bull Call does not perform, then I square it off for a 10 point loss. But, the Butterfly does end up earning: Expiry happens at 11750 or 11700 which earns 70 to 120 points.
Bottom line is, this kind of Calendar-Spread Iron Butterfly just might be workable.
Last edited:
NIFTY19JUN11900CE RL S 75.00 19.75
NIFTY19JUN11800CE RL B 75.00 67.60
Net Paid: 48
Opens an opportunity to get 100 points at expiry. Or at 15 point loss during squaring off the position. Therefore, I will do it such that I do not have to buyback NIFTY19JUN11900CE and pocket the entire 19.75
NIFTY19JUN11800CE RL B 75.00 67.60
Net Paid: 48
Opens an opportunity to get 100 points at expiry. Or at 15 point loss during squaring off the position. Therefore, I will do it such that I do not have to buyback NIFTY19JUN11900CE and pocket the entire 19.75
Last edited:
Sold 27June 11700 CE+PE 98+90 = 188 CMP ITM by 148 points. So 188-148=40 points gain.
Bought 4July 11800 Ce +11600 Pe 68+90 = 158 CMP 134+15= 149 Loss: 9
------------
Bought 27June11800 CE 68 CMP: ITM by 47 points.
Sold 27June11900CE 20 CMP: ITM by 0 points.
------------
Paid: 48; Therefore, its breakeven for now.
Net Gain is: 40-9-0 = 31 points.
So essentially by buying the 100 OTM wing, we have locked-in our profit of 31 points (less 3 points expense), which is mediocre. But, we also enjoyed a risk free environment!
Bought 4July 11800 Ce +11600 Pe 68+90 = 158 CMP 134+15= 149 Loss: 9
------------
Bought 27June11800 CE 68 CMP: ITM by 47 points.
Sold 27June11900CE 20 CMP: ITM by 0 points.
------------
Paid: 48; Therefore, its breakeven for now.
Net Gain is: 40-9-0 = 31 points.
So essentially by buying the 100 OTM wing, we have locked-in our profit of 31 points (less 3 points expense), which is mediocre. But, we also enjoyed a risk free environment!
Last edited:
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