GOOD PROFIT: Hedged nifty positions with straddle...

[jamit_05]

you can have a difference of as many points as you like. then the strategy is called strangle but the functionality remains the same. if you sell 3700 call and 3200 put then you are playing for a wider range and hence will receive a lower premium. a 3400 put and 3500 call will narrow the range but you'll receive a higher premium.

Hello Linkon,

It is only my humble opinion that strangles are suitable when a range formation is expected, however these times do not indicate range-bound action. It appears as though this strangle has little chance of being profitable. One could be very well wrong. What counter measures do you suggest if this strangle went kaput.

Additionally, what strategy is suitable when we expect the market to be trending (at least volatile). Am not too inclined towards bull call spreads or sorts, but more like a non-directional one... please reply at your convinience.

 

[Xaero]

I could have continued with this strategy for another 10 thou at least but decided to take a graceful exit...

I think that's the most important point with trading when you are already in profits stretching for more makes us risk our profits and end up losing. I feel that the market is overheating and the huge gap with will almost always filled. I'm sure we'll see the Nifty filling the gap at the 3500 levels which means we can expect a good retracement. What happens after the elections is a different story and better let the market take it's time and decide the trend before jumping in.

 

[linkon7]

Hello Linkon,

It is only my humble opinion that strangles are suitable when a range formation is expected, however these times do not indicate range-bound action. It appears as though this strangle has little chance of being profitable. One could be very well wrong. What counter measures do you suggest if this strangle went kaput.

Additionally, what strategy is suitable when we expect the market to be trending (at least volatile). Am not too inclined towards bull call spreads or sorts, but more like a non-directional one... please reply at your convinience.

You are right about the straddle / strangle being suitable for a rangebound market... but we are adding a third element to it, NF. This makes it a directional strategy.

spreads are the best if u have a directional bias for the market. selling 3600 put and buying 3400 put is a good long strategy. another long strategy is to go for covered calls, buying nifty and selling 3700 call...

the logic here is to have protection...in case the direction goes against you....

 

[linkon7]

I think that's the most important point with trading when you are already in profits stretching for more makes us risk our profits and end up losing. I feel that the market is overheating and the huge gap with will almost always filled. I'm sure we'll see the Nifty filling the gap at the 3500 levels which means we can expect a good retracement. What happens after the elections is a different story and better let the market take it's time and decide the trend before jumping in.

true that...! when market gets stretched then it's time to book profits. if this was a steady rise to these levels, then i would look to add to my profits. its the rate at which it went up that scared me. On hindsight, i might feel stupid or feel wise with that decisions to get out. but "when in doubt...get out....!" has payed me good dividend so far and hopefully, will pay me more in days to come....

 

[jamit_05]

You are right about the straddle / strangle being suitable for a rangebound market... but we are adding a third element to it, NF. This makes it a directional strategy.

spreads are the best if u have a directional bias for the market. selling 3600 put and buying 3400 put is a good long strategy. another long strategy is to go for covered calls, buying nifty and selling 3700 call...

the logic here is to have protection...in case the direction goes against you....

Okay... so if we framed a strategy such that if we buy a NF and sell a OTM call against it (covered call), such that we pocket the calls premium if our stop loss on NF is hit... then we have a strategy with a very low drawdowns... interesting flexibility that Futures alone do not have

Moreover, if our direction is correct and NF pans out well, then still be keep the premium on the sold call... although we might be limiting our profit...

 

[Smart_trade]

Okay... so if we framed a strategy such that if we buy a NF and sell a OTM call against it (covered call), such that we pocket the calls premium if our stop loss on NF is hit... then we have a strategy with a very low drawdowns... interesting flexibility that Futures alone do not have

Moreover, if our direction is correct and NF pans out well, then still be keep the premium on the sold call... although we might be limiting our profit...

If we buy NF and sell out of money call against it, and our stoploss is hit in nifty,we will have to cover the call also as it becomes a naked call sale after NF leg is taken off....the profit on calls sale and cover will be less than the loss in future.

The profit also will be reduced as if future goes up and we decide to take profit,the call premium will go up too...and we will have to square off calls at a loss.

Best wishes,

Smart_trade

 

[jamit_05]

If we buy NF and sell out of money call against it, and our stoploss is hit in nifty,we will have to cover the call also as it becomes a naked call sale after NF leg is taken off....the profit on calls sale and cover will be less than the loss in future.

The profit also will be reduced as if future goes up and we decide to take profit,the call premium will go up too...and we will have to square off calls at a loss.

Best wishes,

Smart_trade

Hmm... indeed Sirji... thanks for look out for me... very clearly I still need a lot more education in options.

 

[linkon7]

Okay... so if we framed a strategy such that if we buy a NF and sell a OTM call against it (covered call), such that we pocket the calls premium if our stop loss on NF is hit... then we have a strategy with a very low drawdowns... interesting flexibility that Futures alone do not have

Moreover, if our direction is correct and NF pans out well, then still be keep the premium on the sold call... although we might be limiting our profit...

Nobody minds profit, no matter how small it is. Losses- that's the hush-hush word. Think from the loss point of view. If the direction you take bombs, the OTM call you sold gives you that added protection on the down side. The reason we require a strategy is to protect the "what-if " scenarios. Market has a tendency to go down the moment we buy. We dont target maximum profit. we target minimum losses.

We write a call just to make sure we get an exit.

 

[jamit_05]

Nobody minds profit, no matter how small it is. Losses- that's the hush-hush word. Think from the loss point of view. If the direction you take bombs, the OTM call you sold gives you that added protection on the down side. The reason we require a strategy is to protect the "what-if " scenarios. Market has a tendency to go down the moment we buy. We dont target maximum profit. we target minimum losses.

We write a call just to make sure we get an exit.

I guess I will stick to what I said earlier that I should trade, even options, with a method which has the essentials specifically laid down.... thanks for levelling this gush

 

[pasha]

Bought the June 4300/4200 straddle on Friday at 174/168. Already down 28 bucks :annoyed:
Will hold for some time and see what happens.

Edit: Stop loss is 25%