Option Selling during quarterly results

[sridhga]

has anyone done analysis of Faaarrrr away strangle in Nifty?

for example writing 10000 PE and 13000 CE (monthly), agree that it needed 1.2L as capital but one could earn potentially 1%+ p.m. If they put money in this trade vs in say FD. Just hypothetical question as i'm new to Option world.

Boss, don't write strangles when the markets are trending. Instead, maybe you should look at covering them with current week's long strangle

 

[mohan.sic]

High Confidence in market is injurious. In the opstradefine edge websitesite you can see the option prices in back testing every 5 minutes how the situation looks. Allow me to illustrate it with an example Let me select March 2020 monthly expiry Series I will build a position say March 16th.Creating a strangle with delta ~15 on both sides. Now look at the buttons where I can click forward and backwards by 5m,15m,30m,1 Hr and 1 Day.

Yes in between the position was in Red on certain days. Like all the trading systems this will have MAE and MFE situations and drawdowns.

So there is a way to backtest the position every 5 minutes and check how did it look in the past. Since the win % here is around 70% the trader has to adjust the risk appetite accordingly since the reward is defined. It depends on the traders mindset. IF psychologically this kind of trading fits their porfile.

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exactly the point i made... so lets take the trade you created as an example. Please give below 2 points on your position created on march 16.

1. What is the Net p&l of the position created - on expiry date

2. What is the max drawdown the position has seen during those 15 days.

 

[sanju005ind]

exactly the point i made... so lets take the trade you created as an example. Please give below 2 points on your position created on march 16.

1. What is the Net p&l of the position created - on expiry date

2. What is the max drawdown the position has seen during those 15 days.

19thMarch, - -19500, 23 March -39000, Final Profit on expiry is 15,761 on 26th March.

 

[mohan.sic]

19thMarch, - -19500, 23 March -39000, Final Profit on expiry is 15,761 on 26th March.

Therefore at one point the loss was -39000 and on expiry it was profit +15761

This is what was trying to say, people usually calculate profits to expiry and they seem lucrative due to this.
But who can hold up such steep loss (-39000 in this case) and it may increase also if we hold on to positions. Obviously traders will exit positions and moreover any reasonable trader will have a SL and it will be hit. So in real he will incur loss and would have seen that +15761.

 

[sanju005ind]

Therefore at one point the loss was -39000 and on expiry it was profit +15761

This is what was trying to say, people usually calculate profits to expiry and they seem lucrative due to this.
But who can hold up such steep loss (-39000 in this case) and it may increase also if we hold on to positions. Obviously traders will exit positions and moreover any reasonable trader will have a SL and it will be hit. So in real he will incur loss and would have seen that +15761.

Options selling needs to have a different mindset. In this scenario I had taken the most adverse situation. That is why most of the time if you capture more than 50% of premiums one should look for booking profits or booking the profit leg and keep shifting the position.

 

[mohan.sic]

Options selling needs to have a different mindset. In this scenario I had taken the most adverse situation. That is why most of the time if you capture more than 50% of premiums one should look for booking profits or booking the profit leg and keep shifting the position.

That's all fine in theory, but how do we implement -

1) what if market is directional and we are in loss before we see any profit
2) A loss created in gap up/down is a loss. We can never adjust the position. How can we handle this.

 

[sanju005ind]

That's all fine in theory, but how do we implement -

1) what if market is directional and we are in loss before we see any profit
2) A loss created in gap up/down is a loss. We can never adjust the position. How can we handle this.

I of all people would not discuss theory. I faced the situation on 31st Aug Monday morning it opened Gap up and then went all the way down. So it changed the delta and increased volatility. My position was in Deep red. Then two things two I had in my mind
1. Markets never like overreaction it always reverts to the mean.
2. Being in Weekly options Theta decay is exponential. Even one or two days of sideways is good enough for a seller
3. Option seller will lose 30%(Atleast my system) of the time. most of the times it is scratch trades. 70% of your win is good enough to cover those.

Even in the last 10 days Nifty moved 1000 points and in the upmove the IV also has been continuously rising negating any theta decay, now I am I may take a loss or profit who knows Let me show the current position. Position was created on 7th Oct. Currently it is in Positive -587/- (keeps changing while I am taking screenshot

Breakevens are 11657 - 12120. Those which have red dots mean that position has been closed.

 

[sanju005ind]

In continuation of the previous post and current trade.This one trade since Oct 7th was in the Red.But when you are aware about your breakevens.Then you need to be patient. The way things stand EOD.

 

[sanju005ind]

Closing the trade. Also there was an error, there was not selling of 12100CE. Corrected it. Closing now so that fresh position can be created for next week options. Translates to roughly about 2.5% of ROCE.

 

[mohan.sic]

In continuation of the previous post and current trade.This one trade since Oct 7th was in the Red.But when you are aware about your breakevens.Then you need to be patient. The way things stand EOD.
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But these are not a hedge positions ... more puts value were sold which generated the positive return. Ideally when we target value from time decay, we can say it positive trade only when the profit comes from time decay with equal delta positions at any point during the trade and adjustments cycle. Here I guess the loss from directional movement exceeded the profit from time decay. And the profit we see here is from excess put selling.

And also ideally 11600 strikes should be there in the positions which are missing. Had it been there that would increase the loss.
I guess I dint read thing wrong. Let me know your views.