Low Risk Options Trading Strategy - Option Spreads

[trader_man]

Hello DanPickUp. How are you. I have gone through you posts and find them very useful. Recently I have ventured into options trading. i was doing well untill this one trade in which I have got stuck.. If you can help me out.. I bought 6300 october nifty options @30 10 lots. since then the markets have fallen badly since then. Moreover we are entering the expiry week starting monday. So if you can give me any idea , what will be the likely value of nifty at expiry. Secondly, is there any posibility of 6300 october nifty options coming in the money anytime before expiry. Thanks in advance.

How can we take advantage of this situation? I mean there are lots of people who make these kinds of mistakes in options and many do not know about time decay. So, how can someone who is a little more knowledgeable about options take advantage? Should we think about selling calls or puts OTM very near to expiry?

 

[RAGHUERK]

Thanks DAN and thanks Savant Sir. As Savant Sir said its 6300 strike Nifty Call for October. As advised by Savant Sir, I would try to get out of it if I get an opportunity on monday itsef.

Thanks and Regards,

RAGHUERK

 

[sandy26jan]

hello frnds,
i m new at this forum

 

[DanPickUp]

Thanks DAN and thanks Savant Sir. As Savant Sir said its 6300 strike Nifty Call for October. As advised by Savant Sir, I would try to get out of it if I get an opportunity on monday itsef.

Thanks and Regards,

RAGHUERK

Hi Raghuerk

Hope you are out of your trade.

Use my questions next time, before you enter a trade.

Now to your question, how to get out of the situation. You have a few ways to get out of it.

First : Leave with the loss you have.

Second : Wait until market rebounds on a certain level and go long the future.

Third : My way :

Next time, you short nifty. As you have long calls, you can go short nifty future. If market moves down, you make your money with the future, as you can buy it back for less money and your loss with the call is protected.

Beside that, you have to find a way, to get money in your pocket, as you already lost money with the long call. That is not mentioned by other ones, because they may do not know it, as most traders here are more in futures than in real professional option trading.

Here the solution I trade in my markets : You are now long the call and your are short the future. The next step is to sell a call credit spread.

You sell one deep in the money call, which brings you back cash, you lost with your long calls !!

To protect now this sold call, you buy one further out of the money call.

You now have one long call, the short future and a call credit spread and the whole trade is managed.

That is professional option and future trading.

Good luck in your home market. Test it and if it works in your home market, remember, it is from Danboy.

Have a nice Day

DanPickUp

 

[RAGHUERK]

Thanks a lot DAN. As of now I am already out of my trade. But lost quite a big amount. I once again agaain thank you for your valuable suggestions. I would certainly like to be a professional options trader like you. I have to kearn a lot of things from you. Would certainly implement your suggested plan in my future trades. Thanks a lot


With Best Regards,

RAGHUERK

 

[trader_man]

Hi Dan,

I am also in a bit of a loss with the following Bear Call Spread trade:

1 Lot Short Call 5900 @ 172......CMP @ 207
1 Lot Long Call 6000 @ 100......CMP @ 112

So, I am down -23 points. Currently Nifty is at 6082. To make profit, I need Nifty to go down to 5900 by 28th Oct. This is highly unlikely but possible.

What would you recommend in this case? Thanks.

 

[DanPickUp]

Hi Dan,

I am also in a bit of a loss with the following Bear Call Spread trade:

1 Lot Short Call 5900 @ 172......CMP @ 207
1 Lot Long Call 6000 @ 100......CMP @ 112

So, I am down -23 points. Currently Nifty is at 6082. To make profit, I need Nifty to go down to 5900 by 28th Oct. This is highly unlikely but possible.

What would you recommend in this case? Thanks.

Hi trader_man

Do you have any software to analyze and test your trades ? If you want to trade options on a permanent level, it is a must !

A trade, which went wrong, is wrong.

Generally speaking : First set your stop loss. If the market goes against you, analyze what is going on and then make a new decision.

So, what to do now ?

Here some ways to act.

First : As the expiry day of the options hits you tomorrow, you can take the loss and concentrate on a new trade. If you trade, you are also married with losses and as long as they are smaller than your wins, you will make money and your trading model is good.

Second : As the expiry is here and you may still hope, market runs in your favor next month, you could roll your position in to the next months options series.

Even then : Taking new legs in a trade, where you are in a loss, is a trade with a loss until market may rebounds in your needed way )

Third : What about leg in next time ? As you any way have to give a stop loss to your spread, why not give a stop loss to one leg, let the market run in your favor and then leg in ?

Have a nice day

DanPickUp

 

[munde_77]

Hi Dan,

I am also in a bit of a loss with the following Bear Call Spread trade:

1 Lot Short Call 5900 @ 172......CMP @ 207
1 Lot Long Call 6000 @ 100......CMP @ 112

So, I am down -23 points. Currently Nifty is at 6082. To make profit, I need Nifty to go down to 5900 by 28th Oct. This is highly unlikely but possible.

What would you recommend in this case? Thanks.

As tomorrow is expiry day, there is not enough time for repairing position by doing adjustments in the trade

As said by DanpickuP. It is better to exit with small . Dow Jone is 120 points down . If nifty opens below 6000 tomorow you can exit the strategy. All the best

 

[DanPickUp]

I will call this post : The hidden problems for not experienced option traders

As you remember my post :

""Here the solution I trade in my markets : You are now long the call and your are short the future. The next step is to sell a call credit spread.
You sell one deep in the money call, which brings you back cash, you lost with your long calls !!
To protect now this sold call, you buy one further out of the money call.
You now have one long call, the short future and a call credit spread and the whole trade is managed.""

Now, hidden problems ? Where ?

As market was heading down, selling the future hedged the long calls loss. Sounds easy, but has a few details which can become nasty.

Now lets point on the first one of them :

- As the long call never was in the money, he did not act one to one with the future. Only itm calls are likely to act like the future ( Delta of the options )

The future made slightly some more money, comparing to the loss of time decay and intrinsic value the call lost.

And here is the next detail :

- Time decay. The life of the options are a significant point in any option strategy. The one I mentioned in that situation, works strongly on that behavior of the options.

So far, for exactly that situation we had now, this fine tuned strategy worked fine with the bought call and sold future.

Will be continued in the next post

DanPickUp

 

[harishr27]

can someone tell me in practical terms are there any thumb rules followed wrt the selection of options in strategies by option traders?.for eg. the OTM options in a strangle...
how should i decide on the basis of the underlying that how away from the ATM strike should i buy these options???