This is the modified version of a strategy I played and the progress is documented in this thread...
http://www.traderji.com/options/27603-nifty-straddle-target-whole-premium.html
Now, the strategy has become a bit complex and the old rules no longer apply. There were certain design flaws and the rules have been modified so that I can add to my profit without having to add extra risk. I find this is to be the safest and most profitable way to play nifty positions.
The process might sound a bit complicated, but making money in this market is never simple and easy. there is no short cut.
last month i was able to gain 34 thousand by using this strategy but a good amount of it was luck. I acheved my targeted profit early and i exited.
I have initiated the following positions yesterday, on 21st April’09
-- Nifty long on 2 lots at 3402
-- Nifty 3400 PE may 2 lot sold at 215
-- Nifty 3400 CE may 2 lots sold at 230
Total investment about 1,25,000 /-
Profit target : 40,000 plus
How I want to play these positions…
shorting straddles (i.e. selling both calls and puts of the same strike price) is a neutral strategy where the expectation is that market will remain range bound and at the end of the series, you get to keep a portion of the premium that u receive.
for example,
I shorted ‘3400 call May’ at 222
and shorted ‘3400 put May’ at 203
total premium received = 445
my lower break even is 3400 - 445 = 2955
and upper break even is 3400 + 445 = 3845
If nifty closes between 2955 and 3845 when the series closes on 28th May’09, I stand to make a profit.
Now my target is to use this 445 points as my hedge, so every time bad luck happens, I end up loosing some of the targeted profit. It’ll take a lot of misfortune for me to loose 445 points playing nifty. And if I am lucky, I can add to that 445 points. Let me explain how…
Below 3400, I will short nifty and above 3400 I will go long.
Below 3400, the nifty shorts and short 3400 put act like a covered put and the amount of points I gain by shorting nifty will be marginally nullified by the loss on shorting 3400 put. But the other leg, 3400 call will loose value more rapidly and ultimately bring the straddle to a profit.
And likewise, above 3400, it becomes a covered call and the amount of points I gain by going long on nifty will be marginally nullified by the loss on shorting 3400 call.
So eventually, I get to keep the whole premium i.e.445 points. This strategy looked fine on paper but when I put it to trade, gap ups and gap downs were tearing this strategy to shreds. Plus I had to rely a lot on luck and that’s not good for any strategy’s success rate. Plus I noticed that every time nifty comes back to the strike price, I was gaining on the straddle but I was giving up profits from nifty.
What I mean is… I shorted nifty at 3397 and it went down to 3360 levels, the 3400 put gained in value, 3400 call lost some value and nifty short was in good profit. But when nifty started going back to 3400 levels, why should I let the profit I made in shorting nifty go away by riding it back. I closed the short at 3365 and put a sell nifty trigger at 3367 and hence I can safely wait it out, for nifty to break 3400 on the upside and 3367 on the down side. And when nifty started falling, I can short it again and ride it down for some more profit. but the main golden rule is not to let nifty go down without me. 3400 and 3367 becomes the range and I have to ride nifty breaking out in either direction.
I welcome any comments or observations or criticism. The very purpose of posting the progress is to attract opinions and that will help me weed out any more flaws.
http://www.traderji.com/options/27603-nifty-straddle-target-whole-premium.html
Now, the strategy has become a bit complex and the old rules no longer apply. There were certain design flaws and the rules have been modified so that I can add to my profit without having to add extra risk. I find this is to be the safest and most profitable way to play nifty positions.
The process might sound a bit complicated, but making money in this market is never simple and easy. there is no short cut.
last month i was able to gain 34 thousand by using this strategy but a good amount of it was luck. I acheved my targeted profit early and i exited.
I have initiated the following positions yesterday, on 21st April’09
-- Nifty long on 2 lots at 3402
-- Nifty 3400 PE may 2 lot sold at 215
-- Nifty 3400 CE may 2 lots sold at 230
Total investment about 1,25,000 /-
Profit target : 40,000 plus
How I want to play these positions…
shorting straddles (i.e. selling both calls and puts of the same strike price) is a neutral strategy where the expectation is that market will remain range bound and at the end of the series, you get to keep a portion of the premium that u receive.
for example,
I shorted ‘3400 call May’ at 222
and shorted ‘3400 put May’ at 203
total premium received = 445
my lower break even is 3400 - 445 = 2955
and upper break even is 3400 + 445 = 3845
If nifty closes between 2955 and 3845 when the series closes on 28th May’09, I stand to make a profit.
Now my target is to use this 445 points as my hedge, so every time bad luck happens, I end up loosing some of the targeted profit. It’ll take a lot of misfortune for me to loose 445 points playing nifty. And if I am lucky, I can add to that 445 points. Let me explain how…
Below 3400, I will short nifty and above 3400 I will go long.
Below 3400, the nifty shorts and short 3400 put act like a covered put and the amount of points I gain by shorting nifty will be marginally nullified by the loss on shorting 3400 put. But the other leg, 3400 call will loose value more rapidly and ultimately bring the straddle to a profit.
And likewise, above 3400, it becomes a covered call and the amount of points I gain by going long on nifty will be marginally nullified by the loss on shorting 3400 call.
So eventually, I get to keep the whole premium i.e.445 points. This strategy looked fine on paper but when I put it to trade, gap ups and gap downs were tearing this strategy to shreds. Plus I had to rely a lot on luck and that’s not good for any strategy’s success rate. Plus I noticed that every time nifty comes back to the strike price, I was gaining on the straddle but I was giving up profits from nifty.
What I mean is… I shorted nifty at 3397 and it went down to 3360 levels, the 3400 put gained in value, 3400 call lost some value and nifty short was in good profit. But when nifty started going back to 3400 levels, why should I let the profit I made in shorting nifty go away by riding it back. I closed the short at 3365 and put a sell nifty trigger at 3367 and hence I can safely wait it out, for nifty to break 3400 on the upside and 3367 on the down side. And when nifty started falling, I can short it again and ride it down for some more profit. but the main golden rule is not to let nifty go down without me. 3400 and 3367 becomes the range and I have to ride nifty breaking out in either direction.
I welcome any comments or observations or criticism. The very purpose of posting the progress is to attract opinions and that will help me weed out any more flaws.
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