Educational thread on a long APR Infy Strangle

[Somatung]

Hello

This thread is for educational purpose and nothing else.

Underlying:

- INFY (Closed today @ 3271.25)

Trade: Long APR Strangle

- Long APR 3000 put @ 33.70, IV 34.19, OI 1'625
- Long APR 3600 call @ 38.00, IV 32.20, OI 20'500

Risk:

- Limited: 33.70 from the put and 38.00 from the call = 71.70

Profit potential:

- Zero to unlimited

Level:

- Intermediate to advanced

End of day option matrix 19 Mar 2014:

- http://i57.tinypic.com/2pq0xv5.png

End of day charts 19 Mar 2014:

- Monthly: http://i61.tinypic.com/73i4d3.png
- Daily: http://i59.tinypic.com/33mc19j.png

Reason behind the trade:

Have a look at the monthly chart in the last few years. There are not many candles which have a range of over 600 points. On the other hand: The volume on this monthly chart still is very low compare to the other candles which made such ranges. Also all the next candles to the right side of those huge candles are small or in a range of 300 points. So we could buy an APR 3000 put and an APR 3600 call = Long APR strangle. If we want to short, we add and sell APR 3100 put and APR 3500 call = Long Iron Condor or we sell APR 2900 put and APR 3700 call = Short Iron Condor. According to market moves with a range of 100 - 150 point on a single day, we adjust our long options by moving the other side up (Put) or down (Call) to the next 100 strike level.

Trading plan:

- If market moves in either direction in one day over 100 and more points, we adjust the other side according to the whole move by rolling up or down the put or call.

- If market shows up with a side way zone in which he jumps up and down 100 point, we do not roll up or down the legs. We try to take out profit of those moves by selling legs and buying back legs.

- If market moves in either direction less then 100 points a day, we wait and analyze the situation. If needed we protect profit by selling legs.

- To protect any profit, we will test the selling of 50 point strike levels at what ever strike level it makes sense. We have to analyze any OI, IV and prices on those specific levels.

Edit by adding information:

To keep it on a normal level, only the following specific four strategies are used in this thread/trade:

- Long strangle: http://www.theoptionsguide.com/long-strangle.aspx (Neutral - bullish on Volatility)

- Long Iron Condor: http://www.theoptionsguide.com/iron-condor.aspx (Neutral - bearish on Volatility)

- Short or reverse Iron Condor: http://www.theoptionsguide.com/reverse-iron-condor.aspx (Neutral - bullish on Volatility)

- Calendar spreads: http://www.theoptionsguide.com/neutral-calendar-spread.aspx (Neutral - bearish on Volatility)

There are different kind of Calendar spreads like "Horizontal Calendar Spreads" or "Diagonal Calendar Spreads" or "Double Calendar Spreads". In this educational thread I will use only some sort of "Horizontal Calendar Spreads" if needed/possible.

Here some videos about the used option strategies in case you do not have any idea about them:

- Long Strangles: https://www.youtube.com/watch?v=l5z_blc_zk8

- Calendar Spreads: https://www.youtube.com/watch?v=LXUAUAEPu6k or https://www.youtube.com/watch?v=Ywu1AueH2b8

- Iron Condors: https://www.youtube.com/watch?v=PflbtM2K1Zo

And here how the option legs are used and in what combinations they can be implemented:

Basically we start with two long legs which are a long put and a long call. Those two legs you will find in any shown combinations:

- Long otm Call + long otm Put = Long Strangle

Now we add the legs in what ever way it will be needed. Market is the boss, so we act according to his moves and volatility sentiments. In some cases we may stay with two legs in the trade, in other cases with three or even four legs.

- Long Apr otm Call + short further Mar otm Call = Call Calendar spread

- Long Apr otm Call + short near Mar atm Call = Call Calendar spread

- Long Apr otm Put + short further Mar otm Put = Put Calendar Spread

- Long Apr otm Put + short near Mar atm Put = Put Calendar spread


- Long otm Call + short less otm Call + short less otm Put + long otm Put = Long Iron Condor

- Short further otm Call + long otm Call + long otm Put + short further otm Put = Short or Reverse Iron Condor

Some last informations:

The level of option trading discussed here will not be for beginners. Intermediate level is a must, as we go up to advanced levels at any time needed. Of course: Every body is welcome to follow this thread. But let me clear one point: If you have any questions about the basic of option Greeks, please refer to existing threads in the option section. Threads which already posted about this topic into the last details. I will not answer any questions about option Greeks. Kindly read in the following threads about this needed knowledge in option trading if you are not familiar with it:

http://www.traderji.com/options/305...ading-strategy-option-spreads.html#post333541

http://www.traderji.com/options/66266-option-trading-danpickup.html#post639903

http://www.traderji.com/options/92743-options-my-way-looking.html#post941872

Now you are invited to follow this educational trade and let's see what can be done or what happen. I not can guarantee to update here every day, but as you have all numbers, just follow them and write them down.

Warning: This thread is only for educational purpose. Option and future trading can lead to huge losses. You (The reader or even active writer in this thread) are responsible by your self for what happen with any trade you do or implement in the market. No responsibility can be token from any body here (Neither me or any other person) for what is discussed or what is given as ideas. I/we do not share any profit or loss which can occur in this educational thread and trade.

Somatung

 

[Somatung]

Original trade and trade begin:

19 Mar 2014

INFY closed @ 3271.25)

- Long APR 3000 put @ 33.70, IV 34.19, OI 1'625
- Long APR 3600 call @ 38.00, IV 32.20, OI 20'500

20 Mar 2014

Infosys Limited open @3270 and closed @ 3303.05

High of the day 3349 at around one PM.

Long 3000 put was @ 24.75, IV 34.87, OI 9'875
Long 3600 call was @ 51.00, IV 31.44, OI 20'500

If we got a sell signal or thought this is the top of the day, also considering we have Thursday, we can think about taking some profit on the long call and going for time decay for the weekend. If market tomorrow not flips out, we will profit fully from time decay and our loss potential should be small. Now how could we do this?

Analyze all the data you have from your long legs: Change in OI, change in IV and change in price. You will find some conclusions in it which the chart in the afternoon presented.

Now about the time decay we want to have on our side and the take of some profit. Here we can sell the Apr 3700 call @ 35.00, IV 32.76, OI 8'125. Now we have a call debit spread on this side plus the long put on the other side. If market now falls, nothing can happen and if it moves further up, nothing can happen.

Considering the time decay on the put side we have to be careful. If market now falls, our short put should add less value compare to the long put. So we only could see a put further otm like the 3000 put. But there are any traded expect the Apr 2800 put. But I do not like this put, as IV is high and the put seems to be over priced. So let's see what happen tomorrow.

End of day positions with three legs:

- Long APR 3000 put @ 31.00, IV 34.19, OI 1'625 = - 2.70

- Long APR 3600 call @ 43.00, IV 32.20, OI 20'500 = + 4.00
- Short APR 3700 call @ 28.70, IV 33.01 OI 8'250 = + 6.30

End of day matrix: http://i58.tinypic.com/zntunp.png

Hope you enjoy "The food for thoughts about option trading".

Somatung

 

[Somatung]

Resume for the past:

Original trade and trade begin:

- 19 Mar 2014

INFY closed @ 3271.25

Long APR Strangle:

- Long APR 3000 Put @ 33.70, IV 34.19, OI 1'625
- Long APR 3600 Call @ 38.00, IV 32.20, OI 20'500

- 20 Mar 2014

Added an other leg:

- Short Apr 3700 Call @ 35.00, IV 32.76, OI 8'125

End of day positions with three legs (APR Call Debit Spread plus long one APR Put)

- Long APR 3000 Put @ 31.00, IV 34.19, OI 19'875

- Long APR 3600 Call @ 43.00, IV 32.20, OI 20'500
- Short APR 3700 Call @ 28.70, IV 33.01, OI 8'250

---------------------------------------------------

Hello

First: Some new infos about the Call Debit Spread. The Call Debit Spread is part from a Short Iron Condor. You can say it is half of a full Short Iron Condor. The other part or half is the Put Debit Spread. In this thread, we will handle each side of any Short Iron Condor separate. Means: Some times we will trade the Short Iron Condor as a whole option strategy and in other situations we will trade and act only on the Call Debit Spread or on the Put Debit Spread. So always have in mind to look at any Short Iron Condor through the glass of two separate Debit Spreads.

- 21 Mar 2014

Infosys Limited open @ 3329.05 and closed @ 3305.65

Infy price showed slow swings today. No need to act as the market was acting like a slow motion "Ping Pong" game. Nifty was also playing Ping Pong, but much faster and very dangerous for players who tried to run behind the directions of the market.

During the day, in Infy the APR 2950 put was traded with one unit. The whole OI on this strike level is only 125. So careful by trading this strike because of the low OI. As we have Friday, we can use this strike level to hedge the long APR 3000 put over the weekend. Funny thing: Both of them are now priced the same. Now we have an other new leg added to our strategy/trade. The Short Iron Condor is now completed and stays over the weekend in the market. Our risk is very low and we could enjoy the weekend with out thinking about this trade. This is the third day for this strategy/trade and we already used a Long Strangle. Then we saw a Put Debit Spread. Now we are confronted with a Short Iron Condor. I think now you understand why I told: The thread is not for beginners even they are absolute welcome to follow us.

Todays trade: Adding one new leg to hedge the put side over the weekend.

- Short APR 2950 Put @ 25, IV 37.59, OI 125

End of day positions with four legs = Short Iron Condor (Put Debit Spread and Call Debit Spread)

- Short APR 2950 Put @ 25.00, IV 37.68, OI 125
- Long APR 3000 Put @ 25.00, IV 34.09, OI 24'375

- Long APR 3600 Call @ 36.80, IV 29.87, OI 22'000
- Short APR 3700 Call @ 27.00, IV 32.21, OI 9'000

End of day Mar option matrix: http://i61.tinypic.com/kb3ehj.png
End of day APR option matrix: http://i58.tinypic.com/9zrqxw.png

Expect a heavier move next week in either direction. Then the fun starts. If you want to do some thing over the weekend: Check the Put Call ratio in the Mar and Apr series.

Hope you enjoyed todays: "Food for thoughts about option trading".

Somatung

 

[DSM]

Thanks for the post.... had to read it s-l-oh-w-l-y to understand, but still it seems as introduction to 'Option Calculus' to me. If o.k with you, would appreciate if you could clear the following for better understanding of the strategy.

The purpose of this trade ofcourse is to make money. This is achieved by :

1. Selling profitable leg of option when in money.
1a. If above is so, how is the position hedged.? By buying new higher OTM's?
2. Cutting losing part of the trades.
2a. If so, how is the position hedged?
3. Holding positions to benefit from time decay.
4. Profiting by managing volatility.
5. Holding the trending part of the option to increase value.
6. All of the above?

Guess these are too many questions, but having answers to this, will help to make it easier to understand how the idea behind the trade. No issues if you are busy.

Thanks.

Resume for the past:

Original trade and trade begin:

- 19 Mar 2014

INFY closed @ 3271.25

Long APR Strangle:

- Long APR 3000 Put @ 33.70, IV 34.19, OI 1'625
- Long APR 3600 Call @ 38.00, IV 32.20, OI 20'500

- 20 Mar 2014

Added an other leg:

- Short Apr 3700 Call @ 35.00, IV 32.76, OI 8'125

End of day positions with three legs (APR Call Debit Spread plus long one APR Put)

- Long APR 3000 Put @ 31.00, IV 34.19, OI 19'875

- Long APR 3600 Call @ 43.00, IV 32.20, OI 20'500
- Short APR 3700 Call @ 28.70, IV 33.01, OI 8'250

---------------------------------------------------

Hello

First: Some new infos about the Call Debit Spread. The Call Debit Spread is part from a Short Iron Condor. You can say it is half of a full Short Iron Condor. The other part or half is the Put Debit Spread. In this thread, we will handle each side of any Short Iron Condor separate. Means: Some times we will trade the Short Iron Condor as a whole option strategy and in other situations we will trade and act only on the Call Debit Spread or on the Put Debit Spread. So always have in mind to look at any Short Iron Condor through the glass of two separate Debit Spreads.

- 21 Mar 2014

Infosys Limited open @ 3329.05 and closed @ 3305.65

Infy price showed slow swings today. No need to act as the market was acting like a slow motion "Ping Pong" game. Nifty was also playing Ping Pong, but much faster and very dangerous for players who tried to run behind the directions of the market.

During the day, in Infy the APR 2950 put was traded with one unit. The whole OI on this strike level is only 125. So careful by trading this strike because of the low OI. As we have Friday, we can use this strike level to hedge the long APR 3000 put over the weekend. Funny thing: Both of them are now priced the same. Now we have an other new leg added to our strategy/trade. The Short Iron Condor is now completed and stays over the weekend in the market. Our risk is very low and we could enjoy the weekend with out thinking about this trade. This is the third day for this strategy/trade and we already used a Long Strangle. Then we saw a Put Debit Spread. Now we are confronted with a Short Iron Condor. I think now you understand why I told: The thread is not for beginners even they are absolute welcome to follow us.

Todays trade: Adding one new leg to hedge the put side over the weekend.

- Short APR 2950 Put @ 25, IV 37.59, OI 125

End of day positions with four legs = Short Iron Condor (Put Debit Spread and Call Debit Spread)

- Short APR 2950 Put @ 25.00, IV 37.68, OI 125
- Long APR 3000 Put @ 25.00, IV 34.09, OI 24'375

- Long APR 3600 Call @ 36.80, IV 29.87, OI 22'000
- Short APR 3700 Call @ 27.00, IV 32.21, OI 9'000

End of day Mar option matrix: http://i61.tinypic.com/kb3ehj.png
End of day APR option matrix: http://i58.tinypic.com/9zrqxw.png

Expect a heavier move next week in either direction. Then the fun starts. If you want to do some thing over the weekend: Check the Put Call ratio in the Mar and Apr series.

Hope you enjoyed todays: "Food for thoughts about option trading".

Somatung

 

[Somatung]

Thanks for the post.... had to read it s-l-oh-w-l-y to understand, but still it seems as introduction to 'Option Calculus' to me. If o.k with you, would appreciate if you could clear the following for better understanding of the strategy.

The purpose of this trade ofcourse is to make money. This is achieved by :

1. Selling profitable leg of option when in money.
1a. If above is so, how is the position hedged.? By buying new higher OTM's?
2. Cutting losing part of the trades.
2a. If so, how is the position hedged?
3. Holding positions to benefit from time decay.
4. Profiting by managing volatility.
5. Holding the trending part of the option to increase value.
6. All of the above?

Guess these are too many questions, but having answers to this, will help to make it easier to understand how the idea behind the trade. No issues if you are busy.

Thanks.

@DSM, the man with the great threads. :thumb:

Purpose of this thread: As told in post one: Educational purpose and nothing else.

Your comment about: Understanding about the strategy. As you surely have recognized: We use and jump from one option strategy to the next one. So there is no one strategy. This is what has to be understood in option strategy trading and here most of people struggle and move away from it, as this is quit tricky to handle. No absolute fix rules to hold on like options are. By the way: I did not say you belong to this category nor every body else here. Just pointed to an existing problem.

Now short answers to your short questions:

1: We did short a call on yesterdays high if we got a sell signal from our system or when we thought it is done for today. Through this we hedged the profit of the long call.

2: By acting when needed. Different ways to do so. Will post a way at the moment it happen. Other wise this topic can fill a whole thread.

3: Different ways to do so. One way is to short options. Basic knowledge.

4: Different ways to do so. One way is to short when vola is high. Basic knowledge even posted from others like AW10 and DPU.

5: Common sense, market knowledge, charting knowledge, different ways to do so. In this example we have the long strangle and expect a move in either direction. Some numbers are expected in April from Infy. Until then we have to manage this long Strangle. This is the main exercise of this thread. Any other ideas posted beside what I do is welcome, even out of the box ideas. There is no problem to drive different strategies in this thread. Just post your basic trading plan, so we can differ between the posters.

6: Knowledge in option trading, knowledge in MM, have fun to trade, have fun to improve knowledge in trading day by day, have fun and motivation to trade option and even futures, have fun to exist and to be happy as we are

Somatung

 

[DSM]

Thanks Somantung for the clarification. Though it will take me time to understand it better, I will follow your post and also update myself on knowledge from elsewhere as well. 5 star rating from me!

@DSM, the man with the great threads. :thumb:

Purpose of this thread: As told in post one: Educational purpose and nothing else.

Your comment about: Understanding about the strategy. As you surely have recognized: We use and jump from one option strategy to the next one. So there is no one strategy. This is what has to be understood in option strategy trading and here most of people struggle and move away from it, as this is quit tricky to handle. No absolute fix rules to hold on like options are. By the way: I did not say you belong to this category nor every body else here. Just pointed to an existing problem.

Now short answers to your short questions:

1: We did short a call on yesterdays high if we got a sell signal from our system or when we thought it is done for today. Through this we hedged the profit of the long call.

2: By acting when needed. Different ways to do so. Will post a way at the moment it happen. Other wise this topic can fill a whole thread.

3: Different ways to do so. One way is to short options. Basic knowledge.

4: Different ways to do so. One way is to short when vola is high. Basic knowledge even posted from others like AW10 and DPU.

5: Common sense, market knowledge, charting knowledge, different ways to do so. In this example we have the long strangle and expect a move in either direction. Some numbers are expected in April from Infy. Until then we have to manage this long Strangle. This is the main exercise of this thread. Any other ideas posted beside what I do is welcome, even out of the box ideas. There is no problem to drive different strategies in this thread. Just post your basic trading plan, so we can differ between the posters.

6: Knowledge in option trading, knowledge in MM, have fun to trade, have fun to improve knowledge in trading day by day, have fun and motivation to trade option and even futures, have fun to exist and to be happy as we are

Somatung

 

[TradeOptions]

Thanks Somatung for the excellent thread :thumb:

 

[Somatung]

Resume for the past:

Original trade and trade begin:

- 19 Mar 2014

INFY closed @ 3271.25

Start with a: Long APR Strangle

- Long APR 3000 Put @ 33.70, IV 34.19, OI 1'625
- Long APR 3600 Call @ 38.00, IV 32.20, OI 20'500

- 20 Mar 2014

Added an other leg:

- Short Apr 3700 Call @ 35.00, IV 32.76, OI 8'125

End of day positions with three legs (APR Call Debit Spread plus long one APR Put)

- Long APR 3000 Put @ 31.00, IV 34.19, OI 19'875

- Long APR 3600 Call @ 43.00, IV 32.20, OI 20'500
- Short APR 3700 Call @ 28.70, IV 33.01, OI 8'250

- 21 Mar 2014

Added again a new leg to hedge the put side over the weekend.

- Short APR 2950 Put @ 25, IV 37.59, OI 125

End of day positions with four legs = Short Iron Condor (Put Debit Spread and Call Debit Spread)

- Short APR 2950 Put @ 25.00, IV 37.68, OI 125
- Long APR 3000 Put @ 25.00, IV 34.09, OI 24'375

- Long APR 3600 Call @ 36.80, IV 29.87, OI 22'000
- Short APR 3700 Call @ 27.00, IV 32.21, OI 9'000

--------------------------------------------------

Hello

Infosys Limited open @ 3289.70 and closed @ 3276.80

As todays market was a bit boring, thought I can bring in some action by doing some low risk switches with each of the separate option legs. Enjoy:

As we had the Short Iron Condor over the weekend, we did not have to think about our trade. After market opening we wait to see what is going on. If market starts to real trend in either direction or you got a sell signal in what ever way, we act. Infy went a bit up in the morning and then made this double top around 10:30 AM. On this level we got the signal and bought back the short APR 2950 put @ 22.05. We now have left the long APR 3000 put and we still have the APR Call Debit Spread with a profit on the short leg. We can stay like this or we act. As market is down and we got a sell signal like crossover of MA or through the chart pattern or through what ever your system or specially your commons sense says, we also sold the long APR 3600 call @ 38.00.

Left position is the long APR 3000 put and the short APR 3700 call. At this moment we had a directional trade with some space around atm, as the short call is in profit. We are bearish for the moment and have to be careful with the up side. If a protection is needed, we buy a cheap MAR call which is done at around 01:00 PM, as this could be the low of the day. So we bought the MAR 3400 call @ 4.40, IV 32.26, OI 365'375. Now market jumped and showed a little fake break out to the upside. No problem as we already have the long MAR 3400 call for no money. At the same time on the call side we have our first: Call Calendar Spread. If market really jumps or trends up, the long MAR 3400 call will increase value faster compare to the short APR call. So risk is limited in this case.

Now we do implement a Put Calendar Spread, so we have on both sides the same strategy running. Stop reading here and first try to find a way how to do this. It is a good exercise if you understand it and know how to do it by your self.

We sold two long APR 3000 put @ 31.00 = 62.00 in, and we bought one long MAR 3300 Put @ 34.00, IV 17.69, OI 200'750. Later we can switch the whole trade/strategy again into a long APR Strangle, surley done when MAR series is ended. By the way: If you do Calendars, always know and understand the mentioned kind of risk. If you do not understand the Calendars, kindly watch the videos in post one about them or read in the given link.As told, the thread is for educational purpose. You can come up about the commissions. Yes, that is true. But what we do here is more about the thought process which defines our understanding of the connections from those different option strategies and how to use, implement and switch them with low risk.

Todays trades:

- Bought back the short APR 2950 Put @ 22.05
- Sold the long APR 3600 Call @ 38.00
- Sold two long APR 3000 Put @ 31.00
- Bought one long MAR 3400 Call @ 4.40, IV 32.26, OI 365'375
- Bought one long MAR 3300 Put @ 34.00, IV 17.69, OI 200'750

New leg:

- Bought the long MAR 3400 Call @ 4.40, IV 32.26, OI 365'375
- Bought the long MAR 3300 Put @ 34.00, IV 17.69, OI 200'750

End of day positions with four legs: (Call Calendar Spread plus Put Calendar Spread)

- Short APR 3000 Put @ 30.00, IV 36.19, OI 26'875 (Entry long at 33.70 and switched to short at 31.00)
- Long MAR 3300 Put @ 35.00, IV 17.69, OI 197'375 (Entry at 31.00)

- Long MAR 3400 Call @ 4.50, IV 30.33, OI 353'000 (Entry at 4.40)
- Short APR 3700 Call @ 28.40, IV 37.16, OI 9'500 (Entry at 35.00)

Here the link to the option matrix you always can use: http://www.nseindia.com/live_market...&instrument=OPTSTK&symbol=INFY&date=27MAR2014

Hope you enjoyed "Todays thoughts about option trading".

Somatung

 

[gmt900]

Excellent education !

I have been struggling to understand calendar spreads. I am still doing it. ( slow learner)This trade is helping me in that process.

I am planning to use calendar spreads for nifty.

 

[Somatung]

Excellent education !

I have been struggling to understand calendar spreads. I am still doing it. ( slow learner)This trade is helping me in that process.

I am planning to use calendar spreads for nifty.

@Gmt900 and @TradeOptions

Thanks for your kind words.

Short updates and some new stuff for now:

25 Mar 2014

Our positions from yesterday with updated numbers:

Put side:

- Short APR 3000 Put @ 30.00, IV 36.19, OI 26'875 /
- Updated during the day: 30.95, IV 35.22, OI 26'250 / (Original long @ 33.70, IV 34.19, OI 1'625 and switched to shorted at 31.00)

- Long MAR 3300 Put @ 30.00, IV 17.69, OI 197'375 /
- Updated during the day: 44.60, IV 15.75, OI 110'250 / (Original long @ 34.00, IV 17.69, OI 200'750)

New leg on the Put side:

- Hedge profit from the long MAR 3300 Put as it was @ 44.60 =

- Shorted MAR 3250 Put @ 18.15, IV 25.57, OI 104'000

-------

Call side:

- Long MAR 3400 Call @ 4.50, IV 30.33, OI 353'000 /
- Updated during the day: 2.95, IV 37.65, OI 352'875 (Original long @ 4.40, IV 32.26, OI 365'375)

- Short APR 3700 Call @ 28.40, IV 37.16, OI 9'500 /
- Updated during the day: 18.00, IV 33.69, OI 9'750 (Original shorted @ 35.00, IV 32.76, OI 8'125)

New leg on the Call side:

- Hedged profit from the short APR 3700 call as it was @ 18.00 =

- Shorted APR 3750 Call @ 17.00, IV 35.00, OI 250

-------------

This just a way to not lose this existing profit, which was 10 point on the short APR 3700 call and 10 point on the long MAR 3300 put = 20 points. Here we also see the value of the 50 strike levels, as this allows to work more precisely with those option numbers/prices. A real improve in Indians option market. Hope they even will improve it to 25 or 10 strike levels.

Now we have six legs to play with. This now starts to get tricky.

Hope you enjoyed "Todays thoughts about option trading"

Somatung