Direction future trading , using option as stoploss

[trader_ks]

1) Buy 1 FU lot and buy 1 PE ATM lot (direction - bullish) (first- half of the month).reason time decay is less and atm almost move with 1 delta
2) Buy 1 FU lot and sell 1 CE ATM lot (direction -bullish) (second- half of the month). reason time decay is more and atm almost move with 0.5 delta

I don't think that ATM moves with delta 1 anytime in 1st half of month. Most of the time delta movement of ATM will be in range of 0.5~0.6(not counted volatility decrease as that may hamper delta too)

Moreover Please tell how you will handle gap down in some worst news flow because that is the time where most of the traders are failed in their strategy.
Mr. Market is known to give surprise

In my view you will face severe loss if market change its direction or goes against view. Are you really going to execute this strategy or will do paper trading only

 

[rebeck10]

Trade taken on 14 aug

direction b.k long and 15000 ce naked 1 lot..

As you see on the future , 100 points gain and 50 points loss on option.

 

[rebeck10]

I don't think that ATM moves with delta 1 anytime in 1st half of month. Most of the time delta movement of ATM will be in range of 0.5~0.6(not counted volatility decrease as that may hamper delta too)

Moreover Please tell how you will handle gap down in some worst news flow because that is the time where most of the traders are failed in their strategy.
Mr. Market is known to give surprise

In my view you will face severe loss if market change its direction or goes against view. Are you really going to execute this strategy or will do paper trading only

The thing is theoretically I am well aware that atm can't move with delta of 1, but what I am talking about is the delta tending towards 1 , when it becomes heavily toward in the ITM, and believe me , 200 points move is sufficient for that in the starting of the month. My entire observation is for my strategy of tar getting 100 points on the B.K and using options as a stoploss with a cushion of 200 points i.e 2 strikes from either direction.

 

[tradedatrend]

I am not sure apart from few minor scalping opportunity how you can make big money out of this, but beside it if you leave the trade to expire (fut, call, put all three of sept expiry,and this difference between price of call and put persist even when Sept Fut is at 7800) then you can get decent 3% return, irrespective of the direction of the market and regardless of volatility.

Thanks Timpeass and Somatung for figuring out what my idea would be. :clap:
Timepass I really appreciate your spirit man and thanks for the answers.:thumb:

As the headline of my post suggested
the idea is
1) Buy 1 FU lot and buy 1 PE ATM lot (direction - bullish) (first- half of the month).reason time decay is less and atm almost move with 1 delta
2) Buy 1 FU lot and sell 1 CE ATM lot (direction -bullish) (second- half of the month). reason time decay is more and atm almost move with 0.5 delta

I will be posting trade snapshots tmmrw to further clarify this . Tell then let me know further views about this.

 

[trader_ks]

The thing is theoretically I am well aware that atm can't move with delta of 1, but what I am talking about is the delta tending towards 1 , when it becomes heavily toward in the ITM, and believe me , 200 points move is sufficient for that in the starting of the month. My entire observation is for my strategy of tar getting 100 points on the B.K and using options as a stoploss with a cushion of 200 points i.e 2 strikes from either direction.

In case of 2nd half of month , you are not doing any hedging.
Believe me that futures without hedging for overnight gives good returns most of the time but once in a while it gives major shock too and that is time mostly when traders goes out of market suffering huge financial loss.
So what is your strategy for handling that shock ?
If you have something different in mind, then please share.

 

[rebeck10]

I am not sure apart from few minor scalping opportunity how you can make big money out of this, but beside it if you leave the trade to expire (fut, call, put all three of sept expiry,and this difference between price of call and put persist even when Sept Fut is at 7800) then you can get decent 3% return, irrespective of the direction of the market and regardless of volatility.

Kindly elaborate on this strategy of yours.
I am highly eagerly awaiting for the details of this . Even 3 % month amounts to 36 % per annum and any trader or hedge fund , would die for that. Honestly I don't think its possible. 12 months and your success ratio has to be more than 80 % for this too work.

 

[rebeck10]

In case of 2nd half of month , you are not doing any hedging.
Believe me that futures without hedging for overnight gives good returns most of the time but once in a while it gives major shock too and that is time mostly when traders goes out of market suffering huge financial loss.
So what is your strategy for handling that shock ?
If you have something different in mind, then please share.

Bang on target buddy !! you got the archelles heel of my strategy !! I though have a solution, which requires improvement and your valuable suggestions, which I will be sharing soon.

 

[rebeck10]

In case of 2nd half of month , you are not doing any hedging.
Believe me that futures without hedging for overnight gives good returns most of the time but once in a while it gives major shock too and that is time mostly when traders goes out of market suffering huge financial loss.
So what is your strategy for handling that shock ?
If you have something different in mind, then please share.

Considering the max average volatility of b.k i.e 100 points in a day as per current trend, i would expect a gap opening of 200 points worst case scenario .

Now since you rightly pointed , that shorting options is not hedging, cuz a huge movement, won't protect you.

My strategy would be
1) always short an options which has atleast 200 points premium.
2) if carrying overnight, exit the short option if premium less than 200 and purchase another one


I have one problem here , which I expect you guys to help me out with
1) sometime , it does happen that in a day , apart from gap-up b.k does move 300-400 points, and if it does happen when i am short on option, my protection wont be good , destroying my RRR

 

[trader_ks]

Considering the max average volatility of b.k i.e 100 points in a day as per current trend, i would expect a gap opening of 200 points worst case scenario .

Now since you rightly pointed , that shorting options is not hedging, cuz a huge movement, won't protect you.

My strategy would be
1) always short an options which has atleast 200 points premium.
2) if carrying overnight, exit the short option if premium less than 200 and purchase another one

a) 200 point premium will not protect gap down of 200 points.
b) Market react to negative news more badly hence volatility increase will hit you from both side.
c) Always protect yourself on downside, though you can take risk of gapup. Reason is that majority of traders are expecting upside, hence volatity reaction will not be much on Gap up.


Though I don't prefer to play with futures overnight without hedging , but it depends upon risk appetite of individuals.

I have one problem here , which I expect you guys to help me out with
1) sometime , it does happen that in a day , apart from gap-up b.k does move 300-400 points, and if it does happen when i am short on option, my protection wont be good , destroying my RRR

Gap up movement and movement upside will always give you profit. Right because you are short of call and have 1 long future.

 

[rebeck10]

a) 200 point premium will not protect gap down of 200 points.
b) Market react to negative news more badly hence volatility increase will hit you from both side.
c) Always protect yourself on downside, though you can take risk of gapup. Reason is that majority of traders are expecting upside, hence volatity reaction will not be much on Gap up.


Though I don't prefer to play with futures overnight without hedging , but it depends upon risk appetite of individuals.


Gap up movement and movement upside will always give you profit. Right because you are short of call and have 1 long future.

As I state again, this all for my strategy of targeting 100 points on b.k with a 200 points cushion determining my trade is wrong . My risk strategy involves using options to act as a hedge to make my R:R 1:1
Regarding your points
a) 200 points premium want protect me, but it will reduce my loss to half. eg
if b.k is at 15200 and I buy 1 lot FU and short 1 15200 CE @ 200 and if b.k falls to 1500 and let's say 10 days are left for expiry. Your 15200 CE would be 100 i.e 2.5 k profit and fu loss -5k . net loss =2.5k
b) Since I am hedged , I fail to see how volatility will impact me in above example . I am well aware volatility increases in these new events
c) That's your general opinon. But I can't risk it


And regarding your answer on the question ,
what i meant was

sometime , it does happen that in a day , apart from gap-up b.k does move 300-400 points, and if it does happen when i am short on option, my protection wont be good , destroying my RRR

==> if i am caught on the wrong side of the trade. e.g bk is at 15000 and i got short in fu @1500 and short 1500 PE @ 200 and market moves 400 points up in a single day.