Earn 180% profit through nifty strategy

Discussion in 'Advanced Trading Strategies' started by rajgiri21, Jul 14, 2012.

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How would u rate this idea?

  1. Worst crap!!!

    31.0%
  2. Quite normal!!!

    29.3%
  3. Goood!!!

    29.3%
  4. Excellent!!!

    10.3%
  1. rajgiri21

    rajgiri21 New Member

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    Dear All,

    I have been doing some calculations to make a strategy in Nifty and got an idea which i would like to share here and know whether it has any shortfall.. Pls guide me, any constructive criticism is welcome!!!

    Here goes my thought:

    Step 1: Buy Nifty futures for the near month say now Nifty 31Aug 2012 @ 5265

    Step 2: Sell "in the money" option say 5200CE 31Aug2012 @ 165

    Thats it!!! Whenever market falls below 5200 sell nifty and once it comes back to 5200 buy it!! In this way once the contracts expires we will be getting the time premium of 100 points (say nifty closes @ 5400 on 31st Aug, sell the futures which will be @5400 giving us a profit of 135 points and buy the 5200CE @ 200 which has a loss of 35 points) earning Rs.5000 per lot giving you a profit of 30% in 50 days. We can do the same for 6 times in a year which will give u a profit of 30,000 p.a on a capital of 16,750 i.e 180% returns!!!

    The capital required will be say 25,000 - 8250 (50*165) = 16750 per lot!!! One more advantage is that when the market goes up u will be credited with the MTM as well!!!

    As it looked very simple to me am confused whether i have left any loopholes here!!! Pls guide me if there is any loop holes left!!!

    (One loophole i thought is tat if market goes gap down from 5220 to 5150, i might not be able to sell nifty futures @ 5200, but still i have 100 points on which i can lose 50points and still earn decent profit and a gap down over 50-70 points is rare)

    Thanks in advance!!!

    Regards

    Giri
     
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  2. gurmy.

    gurmy. Well-Known Member

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    seems a fair idea to me
     
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  3. veeemkay

    veeemkay Member

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  4. DanPickUp

    DanPickUp Well-Known Member

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    Dear rajgiri21

    The name of the strategy: Covered call. Risk capped and reward capped.

    What you now mention is to increase your reward through trading the future beside the short itm call. Can be done, no question about that. You also mentioned one loophole which are the gaps. (Linkon7 is a future trader and sits in front of his terminal. So he not trades the future above or under a fixed level. In that way he is in control of the strategy.)

    The way you want to trade the strategy can look a bit different in reality: Why?

    The option must not behave one to one to the future. I do not mean the delta, I speak about the volatility. Your calculation is only done on the basis of the delta factor but in reality the vola factor will or can hurt you.

    If market gaps down, vola will jump up and that will increase the price of the long and short options. This increase can be heavy. So, there is no guarantee of profit atoll in case you run into a down trend or into an uptrend.

    Ok, you can say in case of a down trend: Never mind, my future got stopped out and now I wait until the short calls expires. Question: Can you stand it? At the same time there will be also no kind of trading any future.

    In case of an uptrend: You have to be able to sell your short call at a certain time. Now it depends how much you have to pay for the call and the different from the short to the long call price is what the future has to bring. If now market turns a bit later and suddenly jumps down again, you have to be a clever trader to manage it. :) Short call was bought back and future now is stooped out through the stop loss.

    If you implement such a covered call, be sure that market is in sideway mode and do not trade the future unless you are in control of the situation like Linkon7 is.

    Good trading

    DanPickUp
     
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  5. timepass

    timepass Moderator

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    Hello Dan, it seems to me that he will make a loss only if NF expire below 5100 on 31Aug, in all other eventualities it may be a profitable trade.
     
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  6. DanPickUp

    DanPickUp Well-Known Member

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    Dear Timepass

    The title of the thread gives the expression that this 180% can be made easily.

    Do it once in live trading and then let us discuss again about the 5100 level.

    Actually: Do it now at present time ! Do it now and show us at the end of the expanded time that you made the 180%. Do even show that you made a constant 100% at the end of the time.

    Common: You should know that trades, calculated on paper always look best. No live filled included and no special event included, even normal day trading. No trading psychology, no nothing, Just numbers.

    I have meet people in my live which came to me with excel calculations and explained me the success the systems show they have in mind. After asking them: Did you ever try to get out even 200 $ in a day on a permanent level from the market, most of them had to decline.

    If that example would work the way it is presented, then calculate once the numbers which would made with it.

    It is quit a big number. If I now come and tell, that this is my yearly average income for the fund I will open, would you give me your money?

    If yes, why would it be me? Because I am the best as not even one ore some other body before tried to trade such strategies and now I come up with the holy grail. (By the way: That is no personal critic to the poster of the idea. Dear Rajgiri21, hope you got that point :))

    Please think about it and I am waiting for your 100% profit for the coming period or even for the next period before option expiration.

    By the way: Why do you think such hedge strategies are made the way they are and not the way some traders want to change or improve them?

    Changing and improving such strategies is for absolute pros and how it is done is not written any where in the net. Believe me about that.

    Good trading

    DanPickUp
     
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  7. gunsho

    gunsho Well-Known Member

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    As you have mentioned this looks very simple and awesome in book :) You should try to do it for one month. I use to trade same way mentioned by linkon (posted above). Hedging straddle + future. The challenge is what time frame to reverse the positions?

    We can safely ignore gap up / gap down. That happens once in a while, and if we follow any system persistently, we will overcome the loss of gap up/ gap down, just matter of time.

    Goal is to stay long > 5200 and short <5200:
    As we all know, within a day it can go below 5200 and go up again (and market can do this multiple times). There are times this is very annoying. One might wait for the bar to close and take action. As time frame of the bar goes bigger, so does the loss.

    Linkon had a good point of having few points around strike price to reduce whipsaws. Short below 5170 and long above 5230 (Have taken +/-30 for just discussion purpose). Again, this also has whipsaws many times and can reduce our profit potential, significantly.

    Hedging option writing + futures is good, but challenging.

    Forget about options + futures. Just trade Nifty alone by staying long above a round number and short below the round number. Whenever Nifty crosses the next round number, keep this new round number as reversal.

    For educational purpose, NF at 5265 now. Hoping we have shorted at 5300.
    *) Long above 5300.
    *) If NF crosses 5200 => Long above 5200 and carry the short below 5200.
    similarly when it crosses 5100 or 5400 on the other side etc...

    Practically in my trades, I have found it very challenging to stay above/below round numbers like above. I might be missing something very simple also. So if you know any way to be long/short around round number, please throw some light :)

    This month, just see how many times market has crossed 5300.

    IMHO, you should change the title :)
     
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  8. gunsho

    gunsho Well-Known Member

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    Dan, Giri also says, he will buy the future again when it goes >5200.

    What I understand from Giri's post is, sell 5200 CE. Always stay long Futures >5200. Stay like this until expiry. I think, he doesn't want to buy back the CE when it goes up. Leave it until expiry. He seems to be interested only in the premium. Basically as you said Covered call :).
     
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  9. DanPickUp

    DanPickUp Well-Known Member

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    Dear Gunsho

    As you traded the idea, you also recognized the challenge it takes to end in profit when trading the future live beside having the short call.

    The strategy as it is by it self is a closed one. Nothing to add and it is not recommended to change any thing in it. Why?

    It is a perfect very simple hedge strategy from two legs. Any change in it to three legs or what ever needs also a change of hedging.

    Good trading

    DanPickUp
     
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  10. rajgiri21

    rajgiri21 New Member

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    Dear Gurmy,

    Thanx alot!!! :)
     
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