An (Simple) Option Trade
- Thread starter PartTime_Trader
- Start date
- Tags delta neutral
yeah,
This straddle will surely work, because for Long Straddle strategy market should move in any direction. Here profit building starts after 3% movement in any direction. Considering the facts,
1) RBI's monetary policy on Jan 29 and
2) Budget on Feb28,
there will be a sharp movement in NIFTY(whether upside or downside not a matter).
This straddle will surely work, because for Long Straddle strategy market should move in any direction. Here profit building starts after 3% movement in any direction. Considering the facts,
1) RBI's monetary policy on Jan 29 and
2) Budget on Feb28,
there will be a sharp movement in NIFTY(whether upside or downside not a matter).
We don't mind the close of feb expiry between 6300 and 5900 which is theoretically -ve zone for this Straddle, as long as we keep capturing the volatility (small moves) on either side
Eventually if it moves on one side only, the position size keeps reducing and the losing side can be converted into a credit spread by shorting equal amount of options on the same side with nearer SP
Cheers
:thumb:
Eventually if it moves on one side only, the position size keeps reducing and the losing side can be converted into a credit spread by shorting equal amount of options on the same side with nearer SP
Cheers
:thumb:
Dear PartTime_Trader
Thanks to post a new idea in TJ
May I ask or spot on some points which are not explained in dept by you.
Any specific amount of options you want to sell on each of that moves? Any specific calculations you made on that?
If you just sell on one side, lets say each time 100 options by every move, you surely will take profit on those options you take out. But on the other side you still have the same amount of options (2000) against you, as they are in loss. Now if market moves for example in a row of three times 40 points down in two days, you will take profit on 3 times 100 put options. Now you have only 1700 options left on the put side. Now market starts to move up in a row of 5 times 40 points and that move is finished after 5 days and weekend is ahead.
How do you act now as you not can sell any call, as they are in loss? Some call this a trick question.
As you now have a dis balance between the puts (1700) and the calls (2000), did you calculate how much it needs to bring you in profit for the whole strategy include time decay and vola increase and decrease? In other words: How much profit do you have to make now on the call side to not be in any loss? How far needs the market to move to do that? Did you over work or test such possible market actions?
Good trading
DanPickUp
Edit: I just see that you made new post when I was writing this post. So it is a bit of a cross over posting. Even than, I do not delete it.
Thanks to post a new idea in TJ
May I ask or spot on some points which are not explained in dept by you.
Any specific amount of options you want to sell on each of that moves? Any specific calculations you made on that?
If you just sell on one side, lets say each time 100 options by every move, you surely will take profit on those options you take out. But on the other side you still have the same amount of options (2000) against you, as they are in loss. Now if market moves for example in a row of three times 40 points down in two days, you will take profit on 3 times 100 put options. Now you have only 1700 options left on the put side. Now market starts to move up in a row of 5 times 40 points and that move is finished after 5 days and weekend is ahead.
How do you act now as you not can sell any call, as they are in loss? Some call this a trick question.
As you now have a dis balance between the puts (1700) and the calls (2000), did you calculate how much it needs to bring you in profit for the whole strategy include time decay and vola increase and decrease? In other words: How much profit do you have to make now on the call side to not be in any loss? How far needs the market to move to do that? Did you over work or test such possible market actions?
Good trading
DanPickUp
Edit: I just see that you made new post when I was writing this post. So it is a bit of a cross over posting. Even than, I do not delete it.
Hello Dan
I usually execute this with
I
1. Long Nifty Futures - 1000 and
2. Long ATM Puts - 2000
or
II.
1. Short Nifty Futures - 1000 and
2. Long ATM Calls - 2000
but using options on both side on this trade
I intend to keep booking 10% of the initial size where-ever the move comes, and at the end of the day if the delta is highly skewed adjust for it, but don't worry too much about making it neutral.
In theory i should be using greeks to make my decisions but I use the price of the options for that, i suppose all the greeks and every thing else would be factored in the price of these options.
As of now i want to book first five units of 10% each (i.e. 200) at gain of 15+20+25+30+35 points, but if this happens we will be about 250 points away from here and the remaining options (50% or 1000) from the winning side have already made money for both sides.
Time Value is the enemy no one, so even if Nifty price keeps in the band what we need is, it to keep moving enough so that we can keep unwinding small portions at some profit without skewing the delta too much and making it a directional trade.
I am expecting the unwinding of major part of the position to take place in 3 weeks as last 2 weeks the time value depreciation will just kill us
By then if we are not able to wind-up then maybe we look at adjustments by shorting some options but for now hoping for some wild swings
Cheers
:thumb:
I usually execute this with
I
1. Long Nifty Futures - 1000 and
2. Long ATM Puts - 2000
or
II.
1. Short Nifty Futures - 1000 and
2. Long ATM Calls - 2000
but using options on both side on this trade
I intend to keep booking 10% of the initial size where-ever the move comes, and at the end of the day if the delta is highly skewed adjust for it, but don't worry too much about making it neutral.
In theory i should be using greeks to make my decisions but I use the price of the options for that, i suppose all the greeks and every thing else would be factored in the price of these options.
As of now i want to book first five units of 10% each (i.e. 200) at gain of 15+20+25+30+35 points, but if this happens we will be about 250 points away from here and the remaining options (50% or 1000) from the winning side have already made money for both sides.
Time Value is the enemy no one, so even if Nifty price keeps in the band what we need is, it to keep moving enough so that we can keep unwinding small portions at some profit without skewing the delta too much and making it a directional trade.
I am expecting the unwinding of major part of the position to take place in 3 weeks as last 2 weeks the time value depreciation will just kill us
By then if we are not able to wind-up then maybe we look at adjustments by shorting some options but for now hoping for some wild swings
Cheers
:thumb:
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