Low Risk Options Trading Strategy - Option Spreads

[jain.er]

"Strategy Looks good on Paper" very well said may be we could add the word "only" also somewhere in the sentence

 

[TheDreamer]

Well said. And the effort was well demonstrated by linkon. Another point which is normally forgot (and is easily missed while using option oracle) is, the Future will be trading at a premium of ~40 points during the month start. We should consider this also as a cost.

I trade options by taking the value of futures as underlying... so that 40 points cost is not effective for me... :rofl:

 

[DanPickUp]

"Strategy Looks good on Paper" very well said may be we could add the word "only" also somewhere in the sentence

No,no. Strategy can be traded BUT with an other plan. Just to give an idea:

Entry:

Spot at 5350: Sell 5400 call.
Market falls to 5150: Sell 5100 put.

Now you have your short strangle and you collected already more premium then given in your example.

Depending now what the future does, you have different choices. Lets take just one idea:

If market moves up from spot 5150 you go long the future. Here you have to have a clear idea about what the future is going to do. Understanding of TA is surely a help to that.

Now, the premium collected from the sold put stays in your pocket as market now moves up and simply spoken, the premium from the sold call stays with you, as you now have the future to take the up move.

DanPickUp

 

[jain.er]

what if the market moves to 5450 instead of 5150 ?

 

[DanPickUp]

what if the market moves to 5450 instead of 5150 ?

What would you do? What about your entry plan. What doe's an entry plan include?

 

[jain.er]

What would you do? What about your entry plan. What doe's an entry plan include?

may be the trend is up now so buy back sold call and sell a put ?

 

[DanPickUp]

may be the trend is up now so buy back sold call and sell a put ?

Dear Jain.er

That is one way and if you realize such an uptrend at that moment, it is surely a very good way to chance the coin to the other side.

An other way is your stop loss, which you any way should have a clear idea about it AT THE MOMENT when entering the trade.

DanPickUp

 

[TheDreamer]

No,no. Strategy can be traded BUT with an other plan. Just to give an idea:

Entry:

Spot at 5350: Sell 5400 call.
Market falls to 5150: Sell 5100 put.

Now you have your short strangle and you collected already more premium then given in your example.

Depending now what the future does, you have different choices. Lets take just one idea:

If market moves up from spot 5150 you go long the future. Here you have to have a clear idea about what the future is going to do. Understanding of TA is surely a help to that.

Now, the premium collected from the sold put stays in your pocket as market now moves up and simply spoken, the premium from the sold call stays with you, as you now have the future to take the up move.

DanPickUp

Dan,

The idea of this strategy is not to comprehend the direction of the market... If someone can understand that the market has reached the top and sell 5400 CE at 5350 spot/futures, he wouldn't wait till 5150 to take the put leg and do nothing in the mean time... vice versa with 5150...

This strategy is good in my opinion when sold simultaneously and adjusting it with proper futures positions.

 

[DanPickUp]

Dan,

The idea of this strategy is not to comprehend the direction of the market... If someone can understand that the market has reached the top and sell 5400 CE at 5350 spot/futures, he wouldn't wait till 5150 to take the put leg and do nothing in the mean time... vice versa with 5150...

This strategy is good in my opinion when sold simultaneously and adjusting it with proper futures positions.

Dear TheDreamer

As you wrote by your self: My opinion.

That really depends on each personals opinion how to use a strategy, how to think about it and finally how to trade it. I am clear that one idea behind the strategy is to use it with the definition of a market neutral outlook. Now I ask you where it is written in stone that we traders not can make our adjustments also to that definition. I further ask you: Why should any body not wait until market reaches his target?

I think you are not clear about the fact that this what is posted still can be improved by going in to smaller ranges. As smaller as you get in your ranges as more in details you have to work out your trading plan.

DanPickUp

 

[TheDreamer]

Dear TheDreamer

As you wrote by your self: My opinion.

That really depends on each personals opinion how to use a strategy, how to think about it and finally how to trade it. I am clear that one idea behind the strategy is to use it with the definition of a market neutral outlook. Now I ask you where it is written in stone that we traders not can make our adjustments also to that definition. I further ask you: Why should any body not wait until market reaches his target?

I think you are not clear about the fact that this what is posted still can be improved by going in to smaller ranges. As smaller as you get in your ranges as more in details you have to work out your trading plan.

DanPickUp

I believe in the adage 'Plan the Trade and Trade the Plan'... The strategy is to make a direction neutral one and not market neutral. So it is difficult to imagine one part of the legs remain deferred till the target is reached... In my short trading career, I have found that the more we try to adjust a losing position, the more we jeopardize our initial plan/trade.

As far as I understand, you have considered this strategy from the view-point of a fund manager who can afford to go to smaller ranges to balance the legs and make it a more complex one. I think the member who posted the original strategy also considered 'money' as a constraint to the whole equation.