Experiments with Strategies

badarivt

Active Member
#1
I have learnt quite a lot from seniors in Traderji, many thanks to them and the site. As a novice, I have done quite a bit of naked trades and have mostly lost money. Only recently, I have started using the 'neutral' strategy - strangle. Trading in long strangles is essentially trading volatility. Today, initiated a long strangle 8200CE + 7900PE at Rs 105.4 (around 01.25PM, VIX was 12.9) and closed the position at 02.08PM at Rs 112 (VIX around 13.2). Even if the up move is very big and VIX falls, since delta of the call increases and put decreases, the strategy will pay. This was seen in today's trade as well when the market moved from 7950 to 8000.
 
#2
I have learnt quite a lot from seniors in Traderji, many thanks to them and the site. As a novice, I have done quite a bit of naked trades and have mostly lost money. Only recently, I have started using the 'neutral' strategy - strangle. Trading in long strangles is essentially trading volatility. Today, initiated a long strangle 8200CE + 7900PE at Rs 105.4 (around 01.25PM, VIX was 12.9) and closed the position at 02.08PM at Rs 112 (VIX around 13.2). Even if the up move is very big and VIX falls, since delta of the call increases and put decreases, the strategy will pay. This was seen in today's trade as well when the market moved from 7950 to 8000.
Hi

According to the given data from your exchange, this trade would be possible the way you mentioned it. So according to that, I believe you so far. :)

Could you kindly post in the future, at least for twice or thrice, your entry and exit time by giving a quick post after you did it (entry and exit), so we even can see your live trading approach. No need to explain your trading plan (Strategy you do is the long Strangle and the trading plan is an other thing), if you not wish, but posting around the times you do your trade would prove your live trading skills. Posting a trade after market is closed is not really a prove of any thing, expect that a certain idea exist. Guess you know what I mean.

Take care and have a nice evening / Dan :)
 
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badarivt

Active Member
#3
Your suggestion is accepted. Today, I am waiting for volatility to shoot up to create a short strangle (8200CE + 7800PE) since we are faced with a 5 day break (until Tuesday). I am bullish today (01 Oct 2014); if the market holds above 7946, expecting it to close above 8000 or 8020

Update at 3.30PM: Created a short strangle at 3.00PM 8100CE + 7800PE, total is Rs 103.8. Since my discount broker does not provide a means to initiate a strategy, had to sell one after the other. Hence, instead of Rs 106+, ended up with Rs 103. Hope time value will make up for this and much more. Also, considering the bearishness of the market, might have as well gone short on only calls. Let us see the situation on Tuesday
 
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#4
Update at 3.30PM: Created a short strangle at 3.00PM 8100CE + 7800PE, total is Rs 103.8. Since my discount broker does not provide a means to initiate a strategy, had to sell one after the other. Hence, instead of Rs 106+, ended up with Rs 103. Hope time value will make up for this and much more. Also, considering the bearishness of the market, might have as well gone short on only calls. Let us see the situation on Tuesday
Hi

As your market is closed for a few days, you play the time decay game. Nicely done. :)

I am glad you mention the way the legs are executed, as it seems that others do not know that and think that if a spread of five or a profit of five is shown in there calculation, it also will be executed as that. Some even think they can do that on a regular string with ten and more option trades per day with limit orders. But that is nonsenses if the legs have to be executed as separate trades and it even is difficult when the exchange offers spread trading, and this specially in a moving market.

Your 8100 call shows a lover IV compare to the 7800 put. 8100 call, IV 10.74 and 7800 put, IV 14.45. Let's also spot on that point, as this is a significant different of nearly 4%.. Here it seems that a possible drop in the market would already be implemented in the pricing of the put options by a higher IV. Here we would spot on the "Volatility smile" in option trading.

Take care and enjoy your "Vijayadashmi" / Dan :)
 
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badarivt

Active Member
#5
Thanks for your reply. I noticed the difference in IV only after executing the trade. However, I hope nothing much will happen in the next five days. If IV and NIFTY level does not change, I may be able to buy at Rs 90 to 98. Somehow, losing money selling gives the jitters more than in long positions. Wish you too a happy weekend
 

pakatil

Well-Known Member
#6
Hi

As your market is closed for a few days, you play the time decay game. Nicely done. :)

I am glad you mention the way the legs are executed, as it seems that others do not know that and think that if a spread of five or a profit of five is shown in there calculation, it also will be executed as that. Some even think they can do that on a regular string with ten and more option trades per day with limit orders. But that is nonsenses if the legs have to be executed as separate trades and it even is difficult when the exchange offers spread trading, and this specially in a moving market.

Your 8100 call shows a lover IV compare to the 7800 put. 8100 call, IV 10.74 and 7800 put, IV 14.45. Let's also spot on that point, as this is a significant different of nearly 4%.. Here it seems that a possible drop in the market would already be implemented in the pricing of the put options by a higher IV. Here we would spot on the "Volatility smile" in option trading.

Take care and enjoy your "Vijayadashmi" / Dan :)
Dan I am very weak in Options TA. For Holiday special i have 8000 Short Straddle supported by Long Legs........8200 CE & 7800 PE. Just hoping that Mkts will reward my crude Trade. :D
 
#7
Dan I am very weak in Options TA. For Holiday special i have 8000 Short Straddle supported by Long Legs........8200 CE & 7800 PE. Just hoping that Mkts will reward my crude Trade. :D
There is nothing crude with your trade. It is a very legal and normal trade. Only the adjustment is open with your trade and you may be prepared to do such an adjustment with your option trade.

http://voptions.com/neutral_strategies_long_butterfly.htm

http://www.graymetalbox.com/tutorial/butterfly_tutorial.htm

Take care / Dan :)
 

badarivt

Active Member
#8
HealthRaj posted a very useful article on understanding the option chain. On Wednesday, there was a sudden increase in 7500PE OI which should have alerted every trader about an impending fall in the market. Reminding myself to be more vigilant and not ignore obvious signals
 

badarivt

Active Member
#9
It is necessary to review our past trades to improve future trades
Short strangles can capture the following
a. Premiums of options expiring out of the money
b. Time value decay during long trading holidays
In the first case, we chose options close the current market price (CMP) to capture the maximum premium. For case B, as I have done on Wednesday time value decay increases more for options far out of the money. Also, when market moves significantly as it did in US markets on Wednesday and Thursday, choosing far out of the money would have been the better choice. Reviewing my past trade, I now feel it would have been better to create a short strangle with 7700PE and 8200CE. Comments from Pakatil and Dan will be welcome
 

badarivt

Active Member
#10
It is necessary to review our past trades to improve future trades
Short strangles can capture the following
a. Premiums of options expiring out of the money
b. Time value decay during long trading holidays
In the first case, we chose options close the current market price (CMP) to capture the maximum premium. For case B, as I have done on Wednesday time value decay increases more for options far out of the money. Also, when market moves significantly as it did in US markets on Wednesday and Thursday, choosing far out of the money would have been the better choice. Reviewing my past trade, I now feel it would have been better to create a short strangle with 7700PE and 8200CE. Comments from Pakatil and Dan will be welcome
 

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