Low Risk Options Trading Strategy - Option Spreads

[rai07]

HI varun

Thanks for posting reply

It is nice to c ur model. Varun if possible can u send me that model [email protected]. Varun i want to know the followin thing if possible answer

I am not waiting for expiry as v dnt know where it will expire. I want to know juzt suppose ater some days nifty goes down my call will be in profit right and put will be in loss now if i want to square off my position will i be in profit i want to know such levels and want to know how u calculate bcos according to my calculation if v cut the position v will have loss in put and profit will be same or less in call plus brokerage so i will be in loss
and also i want to know how to calculate option price.i.e if niftyfalls 100 points how much will call premium fall

Nirmit

 

[rai07]

sir

Can u send me the model at my id: [email protected]

 

[DanPickUp]

Hi Nirmit,

Your call is more critical (higher return but more risk) than your put because its more nearer to being at the money compared to the put. Or simply the put is more out of the money than the call. If you look at my model , the delta for your short call is higher than delta for your short put. This implies that if the market goes down your short call will be in more profit than your loss in short put and vice-versa. So if the market goes down you should have profits (after brokerage). Also your call has higher theta. This implies that it will bring more profit from time decay than the put you have sold.

Answering your second question. From the 3D table you can see the profit values for fall in nifty by 100 points (for combined position). The BlackScholes model is a function of 5 variables including time to expiry and underlying price. The premium values can be calculated using the BS model giving it the required inputs.

Hi varun.varma

Nicely explained :thumb:

By the way : The vola smile, which I updated for a clearer understanding, can be traded with the ideas you may are interested in and you may missed in the past :

http://www.traderji.com/options/305...ng-strategy-option-spreads-98.html#post440798

http://www.traderji.com/options/305...ng-strategy-option-spreads-98.html#post440875

Take care

DanPickUp

 

[cool_kk]

Hello

Need some advice when to close these position(keeping in mind expiry is next week)

1) 5500 CE sold @ 18 now @ 50
2) 5400 CE buy @ 120 now @ 130

I can't trade in future trading as I can't sit and monitor all day
I am ready to book some loss or can hedge more by options only.

Thanks
Kaps

 

[DanPickUp]

You will reverse your losses as the market goes up. The delta of your long call is higher than the delta of your short call. Your long call will profit more than your loss in short call. Time decay will work in your favor. The (positive) theta of short call is higher than the (negative) theta of your long call. Even if the market stagnates , time decay will give you profits of around 800 rs on a single lot till expiry(from current prices: as on 19th august 8:00 pm).

The delta of your position always remains positive (from today). So the market fall will diminish your value. also below 5400 levels the theta of bought call will be high negative (at the money). So time decay below around levels of 5400 will hurt you. So delta and theta will start working against you if the market moves down.

At what Nifty level did you take this position? if the market has gone up after you took the position, how come you are in a loss? Probably the time decay has worked against you? OR probably the Implied Volatility is higher for the call sold. More comments please from other members...

Hi varun

You forgot one possibility : As we see this two positions, we automatically think about one trade and this is a credit spread and as I read your post, you expect that the positions was taken at once.

You forgot about the possibility, that the two positions could have been implemented on different days.

Maybe he sold/bought first one call, because of a falling/rising market.

Then the market may gapped in the other direction and he bought/sold a call for protection. This could be vise versa. This then would explain, why we see this values from the options. As wee see two values on both option witch do not play together in any way, we have to think about that possibility.

If the market now runs up and the options expire next week, he will best buy back his sold option now and may sell the long call to reduce his loss. Or he stays in the " I hope corner " and waits that the market moves up more and keeps only the long call. Vise versa for the whole situation.

Take care

DanPickUp

 

[cool_kk]

Thanks Dan,Varun
you are correct , position are taken at different times.

My intial trade was to sell the 5200 PE and 5500 CE in pair and 5600 CE naked
I haven't done well in maintaing stop loss so 5500 CE sold @ 18 and now is 50

I thought ok I will try future , I bought future at 5508 and sold @ 5514 as I can't sit in front of computer.
I want something to hedge to minimize the loss in case market move more up.

So I purchased 5400 call yesterday so in case market move further my loss in 5500 sell will be offset by 5400 call.

I will wait to see if market come down so I can close 5500 position OR will close 5500 position and let 5400 call run with stoploss.

I will be no profit zone if I sell 5500. as 5200 and 5600 premimum will take care of it.. Unless 5600 touches this expiry.

Thanks.. I will post what I do..

Kaps

 

[ksesha]

Kaps,

I wonder what exactly was your thought process while entering this trade. I could not see any possibility of making money from your position. See below

5700 -100
5650 -100
5600 -100
5550 -100
5500 -100
5450 -2600
5400 -5100
5350 -5100
5300 -5100
5250 -5100
5200 -5100
5150 -5100

Regards
Sesha

Hello

Need some advice when to close these position(keeping in mind expiry is next week)

1) 5500 CE sold @ 18 now @ 50
2) 5400 CE buy @ 120 now @ 130

I can't trade in future trading as I can't sit and monitor all day
I am ready to book some loss or can hedge more by options only.

Thanks
Kaps

 

[cool_kk]

Kaps,

I wonder what exactly was your thought process while entering this trade. I could not see any possibility of making money from your position. See below

5700 -100
5650 -100
5600 -100
5550 -100
5500 -100
5450 -2600
5400 -5100
5350 -5100
5300 -5100
5250 -5100
5200 -5100
5150 -5100

Regards
Sesha

hey one question guys,

If SGX open big gap down,Can I short Nifty as soon as market open on market price.

Since I have 5400 CE buy , I will not be in loss if market goes up.
5400 will act as a hedge.

Also, I will be closing 5500 CE sell tomorrow. i am keeping this as a separate trade
with 5600 CE sold as well as 5200 PE sold. So it will be no profit no loss.

My question, is it good to short as soon as market opens if you know market will open gap down.. OR.. you may be in loss as everyone try to short at that time and your order may be executed last.

Please advice
Thanks
Kaps

 

[ksesha]

Kaps,

You intended to have a plan by starting with a strangle, but seems to be getting worried on daily fluctuations. Yesterday you were worried about the big jump above 5500. Today started worrying about the new threat of the market going down.

Just take a pause and think about your original strangle 5200PE & 5500CE.
You were safe between 5150 - 5550. It was a good plan and you should also consider that fact that losses are part of the business and hasty decisions will do more damage than good. Since you also wrote 5200PE and 5600CE, you should not worry too much for this expiry.

AW10 always emphasises to have an exit plan right at the beginning of the trade. How much loss you can bear and how much profit you want to make. J

Just like to remind you that the biggest enemies of traders are greed and fear.

Regards,
Sesha

hey one question guys,

If SGX open big gap down,Can I short Nifty as soon as market open on market price.

Since I have 5400 CE buy , I will not be in loss if market goes up.
5400 will act as a hedge.

Also, I will be closing 5500 CE sell tomorrow. i am keeping this as a separate trade
with 5600 CE sold as well as 5200 PE sold. So it will be no profit no loss.

My question, is it good to short as soon as market opens if you know market will open gap down.. OR.. you may be in loss as everyone try to short at that time and your order may be executed last.

Please advice
Thanks
Kaps

 

[cool_kk]

Kaps,

You intended to have a plan by starting with a strangle, but seems to be getting worried on daily fluctuations. Yesterday you were worried about the big jump above 5500. Today started worrying about the new threat of the market going down.

Just take a pause and think about your original strangle 5200PE & 5500CE.
You were safe between 5150 - 5550. It was a good plan and you should also consider that fact that losses are part of the business and hasty decisions will do more damage than good. Since you also wrote 5200PE and 5600CE, you should not worry too much for this expiry.

AW10 always emphasises to have an exit plan right at the beginning of the trade. How much loss you can bear and how much profit you want to make. J

Just like to remind you that the biggest enemies of traders are greed and fear.

Regards,
Sesha

Yeah... I was thinking of taking some profit from this trade..
I guess. I am safe with overall positions as my loss will be offset by other call and put sold..
I am closing my 5500 position today

Thanks..