Am i correct

[ahmadshahwaqar]

Hi Everybody out there,
I am a humble learner who wants to ask all you seniors and learned persons to please suggest if my strategy is correct or not and also asking for improvements.(BROKERAGE EXCLUDED)
THEORATICAL CONSTRUCTION OF MY STRATEGY IS GIVEN BELOW

buy 1 NF lot Strike price 5000
buy PE 5000 Premium 15/-
sell CE 5000 Premium 25/-

Suppose on expiration Nifty is at 5275
then
Profit on NF 275/-
Loss on PE 15/-
Loss on CE 275-25 = 250/-
TOTAL PROFIT= (275-250-15)= 10/-


Suppose on expiration Nifty is at 4875
then
Loss on NF 125/-
Profit on PE (125/- - 15/-)= 110/-
Profit on CE 25/-
TOTAL PROFIT= (110+25-125)= 10/-

PLESE GIVE UR VALUABLE COMMENTS
ASAP
WAITIN ANXIOUSLY
Thanx in advance for ur valuable comments

 

[AW10]

Theoratically u are right. By 1 short Call + 1 long put, what u are creating is Synthetic Short stock position.
With NF, u are basically long stock.. and with 2 options, u are short stock. hence position is neutral to market movement.

But think practically, for 3 position, even if u pay 2 points as brokers, u have lose 6 points of profit. For short call, and long NF, u will have to pay margin (around 45k)
and wait till expiry for this equation to workout. .Before expiry due to market inefficiency this equation may not give u same output..
Moreover, you may not be able to open NF position exactly at 5000.. so there will always be some gap between your NF trade opening price and 2 strike price used for option trade.

So why would u trade this strategy in real world. What kind of Returns are you gaining.

Having said that, this can effectively be used for hedging the position. It is not meant for speculation or earning money from mkt.but just for hedging.

Hope this helps.

happy trading.

 

[anuragmunjal]

hi.
I would differ a little on this. the charges that u pay fr short call and long put would b much less than what u pay fr long futues. as a matter of fact short call and long put is a synthetic fr long futures.this is a riskless trade and u will never get 10 rs. . ideally u wd get 2-3 rs. which would barely cover ur trnsaction cost. if at all there is a possibility of geting 10 rs., do take sum time out 2 tell me after u r through with ur trade.I would personally trade any quantity fr 10 rs. in this particular trade.

regards

Anurag