Low Risk Options Trading Strategy - Option Spreads

[prashyrao]

AW10,

Can't thank you enough for your level-headed analysis. From your posts, I find that you have been here long enough, and probably wouldnt have been here without employing a clear strategy. When I look at myself, probably I am graduating to a newer level, and you are reaffirming that it's the right direction. I have come to appreciate even a 500 bucks a day even at the cost of missing the opportunity to make a few 10s of grands - as long as it has been lowest on the risk scale. So, thanks a lot again!

 

[prashyrao]

ppmatkari, sorry to hear about this disastrous trade.
Anyway, we can't do anything of what/who/how it happened, lets look forward and findout what can be done now..
First thing is to look at the chart and see what the stock is doing. You need to take your decision here.. To me it looks that the stock has bounced from 460 level and hit the resistance zone of 600 today. It was not able to cross 600 in last 4 attempts and every time it came here, it got sold. so Chances are high that it may not go above 600 but we can't say that for sure.. cause nifty also reversed from 5180 but today it crossed that level.

Possible actions -
1) if you get margin call, at current price. then let broker close the position. And you have to accept the loss. unfortunately.
2) If you don't get margin call, then plz monitor the call premium.. not and keep a stoploss at Pivot highs on option premium chart (not sure if you have access to that thru yr broker's trading platform or not). Otherwise, just take today's highest premium level and keep stop loss there.. and then keep moving it down as market develops.
This will ensure that u get out if the stock moves higher.
3) If you are lucky and stock trades lower tomorrow.. and yr stop is not hit, then by end of the day, either close whole position or atleast reduce size from 3 contract to 2 or 1 contract.
4) Looking at the current sentiments and the time of the year, chances are high that market will be going up, so your position will get worse.
Unfortunately, u can't do much with a loosing position that has gone so much against you (atleast I don't know it). You can to limit losses by buying higher strike call, but
that doesn't save u from margin call. If stock goes higher, to say 650, your margin requirement will go up and broker will squareoff the position. They don't consider your call position to reduce your margin. Moreover, u will have to throw money to buy new Calls..ie. throwing good money to save bad money.
So only painful choice I can think of is to take the pain and accept the loss.
Ensure that your brother learns his lessons from this costly trade.
1) read the charts, and don't trade based on some tips
2) focus on risk mgmt, profit will take care of themselves if he can just control the losses
3) stay away from stock options.. cause these type of crazy move can hurt your account badly

All the best.

I second that. It's better to salvage whatever you can from a burning house without getting burnt yourself!

 

[ppmatkari]

AW10,

Can't thank you enough for your level-headed analysis. From your posts, I find that you have been here long enough, and probably wouldnt have been here without employing a clear strategy. When I look at myself, probably I am graduating to a newer level, and you are reaffirming that it's the right direction. I have come to appreciate even a 500 bucks a day even at the cost of missing the opportunity to make a few 10s of grands - as long as it has been lowest on the risk scale. So, thanks a lot again!


I second that. It's better to salvage whatever you can from a burning house without getting burnt yourself!

Yes i agree with both your posts. To tell you the long story short, the amount of money i earned in last 7-8 months, my bro lost almost the entire amount in 1 trade.

@ AW10 now there are 2 short positions (both at strike price 520) & i have been assigned for 1 by the clearing corp.. how do i know at what price i was assigned?

 

[AW10]

Yes i agree with both your posts. To tell you the long story short, the amount of money i earned in last 7-8 months, my bro lost almost the entire amount in 1 trade.

Thats is the risk of short option trades. I have known people who have lost 2 yrs of earing in 1 month when position went against them. Anyway, that is not the end of the world. You can still build it up again.. and the costly lessons will keep u away from risky trade.

@ AW10 now there are 2 short positions (both at strike price 520) & i have been assigned for 1 by the clearing corp.. how do i know at what price i was assigned?

Assignment by exchange is done at the day end settlment price. plz chk the NSE site, F&O section that publishes the settlement price for the day.
Generally it is equal to the spot closing price with minor deviation.

happy trading

 

[S S]

Hi!

I am sorry that I saw this thread a bit late and I must confess that I have NOT read all the posting in the thread. I read the starting postings by AW10 and then some intermittently.

While I too trade in options, I usually use the options only to cover the futures. I could clarify by giving an example.

Let is ay that the Nifty is around 5180 and futures for Jan around 5210, I would buy futures for Jan and watch.

If the Nifty keeps going up, I sell 5200 Nifty Puts. That way, the value of 5200 shall go on diminishing as the markets move up, and also as the time decay takes place.

In the event the markets reverse say after Nifty going to 5240, and I feel that it is a temporary reversal, I sell the Puts bought and buy additional Puts.

When markets again take the uptrend, I sell the Puts bought and sell fresh Puts.

During all this time, I keep my purchase value of Nifty Futures as the stop loss for the futures.

An alternate and a better way could be, to by Nifty Futures and watch them grow. Do not enter in Options trade as yet.

If market reverses, say at 5300, then sell 5300 Call. The fall in Nifty Futures rate shall get compensated [to some extent] by the fall in Nifty Calls. When markets once again go on the rise, square-off Nifty Calls sold earlier and buy fresh.

Whichever methods of the two above is chosen, effectively, the result is more or less the same.

But I strongly feel that the fresh entrants and all those who have never ever got into selling any options, should stay away from all the methods mentioned above.

Any ignorance from there side for timely square-off may lead to heavy losses, for which their in-sufficient knowledge shall be responsible, and definitely NOT I.

Cheers!
SS

 

[natrium]

Fot trading Options, where can I can get details of Open Intrest and Greeks?

Thanks

Vasu

 

[sriugdh]

Hi AW10,


My colleague recently decided to get into share trading. He was very reluctant to take any risk. I suggested that Nifty options would give handsome profit and asked him to invest in 5100 (DEC) PUT @ 30. Now the price is dropping. I feel guilty of making him lose the money. Will Nifty go below 5100 before expiry? Can he save his money? I too have 2 lots of
5100 (DEC) PUT @ 30. I know its a small sum, but I dont want him to lose money because of me. Please help sir.

Thanks,
Sri

 

[AW10]

Fot trading Options, where can I can get details of Open Intrest and Greeks?

Thanks

Vasu

For OI, u can goto NSE site, option chain section and get the data.
Use option oracle software which can get data from NSE and help u in option analysis (including greeks for each strike).

Happy Trading

 

[AW10]

Hi AW10,


My colleague recently decided to get into share trading. He was very reluctant to take any risk. I suggested that Nifty options would give handsome profit and asked him to invest in 5100 (DEC) PUT @ 30. Now the price is dropping. I feel guilty of making him lose the money. Will Nifty go below 5100 before expiry? Can he save his money? I too have 2 lots of
5100 (DEC) PUT @ 30. I know its a small sum, but I dont want him to lose money because of me. Please help sir.

Thanks,
Sri

Replied to your post in another thread created by you for this. Chk out there.

 

[AW10]

Hi!

I am sorry that I saw this thread a bit late and I must confess that I have NOT read all the posting in the thread. I read the starting postings by AW10 and then some intermittently.

While I too trade in options, I usually use the options only to cover the futures. I could clarify by giving an example.

Let is ay that the Nifty is around 5180 and futures for Jan around 5210, I would buy futures for Jan and watch.

If the Nifty keeps going up, I sell 5200 Nifty Puts. That way, the value of 5200 shall go on diminishing as the markets move up, and also as the time decay takes place.

In the event the markets reverse say after Nifty going to 5240, and I feel that it is a temporary reversal, I sell the Puts bought and buy additional Puts.

When markets again take the uptrend, I sell the Puts bought and sell fresh Puts.

During all this time, I keep my purchase value of Nifty Futures as the stop loss for the futures.

An alternate and a better way could be, to by Nifty Futures and watch them grow. Do not enter in Options trade as yet.

If market reverses, say at 5300, then sell 5300 Call. The fall in Nifty Futures rate shall get compensated [to some extent] by the fall in Nifty Calls. When markets once again go on the rise, square-off Nifty Calls sold earlier and buy fresh.

Whichever methods of the two above is chosen, effectively, the result is more or less the same.

But I strongly feel that the fresh entrants and all those who have never ever got into selling any options, should stay away from all the methods mentioned above.

Any ignorance from there side for timely square-off may lead to heavy losses, for which their in-sufficient knowledge shall be responsible, and definitely NOT I.

Cheers!
SS

Thanks SS for sharing your trading approach with us.
I use slight variation of this to limit my risk of futures trade. During mkt hours my futures positions carry stoploss to manage risk. At EOD, I hedge them by selling double quantity of options. eg. If 1 lot I am long NF, then near mkt close, I will sell 2 lot ATM nifty calls.
This reduces the risk of Gap open. By doing this, I am reducing the DELTA +1 of NF with (-1)*2*0.5 from short CALL. On next trading day, I will squareoff the sold call and use Stops on NF. On many days, I end up collecting small profit after brokerage on my short call position while NF still remains in stoploss range. Otherwise, the broekrage on 1 short call trade is the price I pay for my one night's sound sleep.

Happy Trading