Low Risk Low Returns- Target 50 NF per month per NF Lot

jamit_05

Well-Known Member
As a result, at Nov expiry if market closes at 11000, we get 500 points from 10 lots of NOV 11500 PE (profit of other 10 gets adjusted against loss of10 NF) i.e. a total 5000 points. Plus, the premium that we are collecting, lets consider it to be a humble 100 points per lot, i.e. total 1000 points on 10 lots. Our initial investment is 4000 points, so this works out well: 5000+1000-4000 = 2000 points i.e. Rs.150000 over 2.5 months on an investment of Rs.9L, which is bearable.

That's the theory. Lets see what really happens, after all its Mr.Market we are dealing with.
 

jamit_05

Well-Known Member
Position:
Long: 10 Lots NF 11500
Long: 20 Lots Nov 11500 PE Rs.200
Short: 3 lots Nov 11000 PE@ 126
Collection: Rs.28350

Action 1:

3 lot sold Nov 11000 PE @ 194 --- Rs.29100=
4 lot sold Nov 11000 PE @ 225 --- Rs.67500=
Total Collection: Rs.125700 // 1860 points
(10 lots PEs Sold)

Target 4500 points.
Required: 2640

Nov must expire 11500 +/- 264 points for us to make profit.

If I were to sell more PEs, then I'd be taking risk by leaving that many NF lots naked. But a measured amount of risk could be absorbed considering we need only 264 spread, and we are 500 points away.

In that spirit.

Action 2:
1 lot sold Nov 10700 PE @ 107
Total Collection: 1967 points
Need 2533 points more.

To reduce the risk factor, I chose a far away strike. The premium hasnt reduced all that much
NOV PE 11000 is at 180. For 70 points more premium I'd be risking 400 points in loss at expiry (1:6)
 
Last edited:

jamit_05

Well-Known Member
Stock:
Long: 10 Lots NF 11500
Long: 20 Lots Nov 11500 PE Rs.200
Spent: 4000 points.
------------------------------------------
Short: 3 lots Nov 11000 PE@ 126
3 lot sold Nov 11000 PE @ 194
4 lot sold Nov 11000 PE @ 225
1 lot sold Nov 10700 PE @ 107
Collected: 1967 points
Sold 11 lots of PE.
Target: 4500 points

Balance: 2533 points
-----------------------------------------
Now we will make profit if market remains 254 points above or below 11500. We are now 500 points below, hence have that 250 point extra margin. So, let us use this margin to do something so that if market goes up we win, if it remains down we win.
 

jamit_05

Well-Known Member
Set 1:
Stock:
Long: 10 Lots NF 11500
Long: 20 Lots Nov 11500 PE Rs.200
Spent: 4000 points.
------------------------------------------
Short:
3 lots Nov 11000 PE@ 126
3 lot sold Nov 11000 PE @ 194
4 lot sold Nov 11000 PE @ 225
1 lot sold Nov 10700 PE @ 107
Collected: 1967 points
Sold 11 lots of PE.
Target: 4500 points

Nifty made a strong down move yesterday, to make use of this

2 lots:
Buying CE OCT 11000 251
Spent: 502 points

Intend to Sell NOV CE 11500 on the next upday. Will do the calculations then.

If this spread fails, I lose 312 points, but the whole set makes 5000 points. Which far exceeds my profit target.
If this spread succeeds, I get 1000 points, against an expense of 312 points. 1:3 is very good.

2 lots:
Buying CE OCT 10950 239
Spent: 478

Pending: Selling of CE NOV 11500 (total 4 lots pending to sell)

Same logic. Hv opened up room for 2000 points gain, for a 624.
Till expiry, will try to create several such win win situations. As a result, somewhere down the line our profits will be guaranteed.
 
Last edited:

jamit_05

Well-Known Member
On the next upday, will sell the far OTM CEs against the recently purchased ATM CEs.

If expiry was today, I wouldve made
5000 points from 11500 PEs.
1967 from premium collected.
Less around 500 points from the 11000-11500 CE Bull Call Spread.

4500 was the target
 
Last edited:

jamit_05

Well-Known Member
The idea, now, is to prepare for the worst case scenario, which is if Nov expires at 11500 we would only get around 3500. We will proceed to create win win situations without taking additional risk.

Error1: The 10700 sold PE was rash. If market were to crash like 2008 we would have nothing to protect it with. We will avoid taking on such "infinitely" risky positions, and still manage to secure 4500 at least in every possible case of expiry. First thing, will buy back the 10700 PE at the first strong upclose.

Error2: This is a partial error, but error nonetheless. We have two and half months until expiry. This is plenty of time, therefore there was no need to sell all the PEs all so quickly. The process could be more gradual. However, since the weekly trend is still strong and up, I thought this an opportunity to sell atleast 10 legs of PEs, as I did not think that the market would give a better opportunity. If this wouldve happened on the upleg, I wouldnt make such large moves in a single day.
 
Last edited:

jamit_05

Well-Known Member
Point 1: Nov Options are not liquid enough. Oct ones decay too quickly. Yet, if real money was on the line, one would have to go with OCT.

Point 2: In the spirit of creating win-win situations, we could sell a straddle, if market moves sharply we get to sell Options against our initial bought straddle, if it does not move we profit from the sold current month sold straddle.

Selling of OCT Straddle of One lot each of PE 11000/CE 11100 would give us 199+155=359 points.
Expectation is that it will decay 10% in three days, till Monday.

My expectation is that, we will follow a certain ebb and flow pattern. We would book 10% profit, and then wait for the market to move 80+ points. Then sell again, so on. There may be back to back moves, which would give us a loss on one lot, but put the entire portfolio in a strong position.

PS: As funny as it may be, in the process I assume a bank of cash to support margin money.
 
Last edited:

jamit_05

Well-Known Member
Set 1:
Stock:
Long: 10 Lots NF 11500
Long: 20 Lots Nov 11500 PE Rs.200
Spent: 4000 points.
------------------------------------------
Short:
3 lots Nov 11000 PE@ 126
3 lot sold Nov 11000 PE @ 194
4 lot sold Nov 11000 PE @ 225
1 lot sold Nov 10700 PE @ 107
Collected: 1967 points
Sold 11 lots of PE.
Target: 4500 points

Nifty made a strong down move yesterday, to make use of this

2 lots:
Buying CE OCT 11000 251
Spent: 502 points
PENDING: Sell NOV CE 11500 on the next upday. Will do the calculations then.


2 lots:
Buying CE OCT 10950 239
Spent: 478
Pending: Selling of CE NOV 11500 (total 4 lots pending to sell)

Selling of OCT Straddle of One lot each of PE 11000/CE 11100 would give us 199+155=359 points.
(By EOD it was 340, Will get out of this by Wednesday)

Also, today... Purchased OCT CE 11000 @ 215 (because it was a strong down day, it fell 51 points)
PENDING: Selling of OCT OTM CE of around 11300 plus, and making it a Bull Call Spread.

One move a day is enough. If the day is particularly big, then may be 3. It was wrong to have sold the entire set.
 

jamit_05

Well-Known Member
This set was too easy. Market crashed 500 points as soon as it started. Clearly majorly profitable. We need to test this method in sideways market, like in May June '18.

Would like to start over, hoping it will be a challenge in next couple of months.

Long: 10 NF 11009
Long: 20 PE Nov 11000 260
Paid: 5300 points.
 

Similar threads