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[soft_trader]

@ Amit:

Are you dumping the Pair buying strategy completely?

 

[PartTime_Trader]

I will opt "for regular small gains with very limited risk". To make that possible I must mostly keep the shorts covered and trade a smaller qty. Focus is on risk. "Wing-ing" them is also an apt option... it eliminates infinite risk factor in one go.

Here is an approach you can try with August Expiry, 5 weeks to go . . .

For first 2 weeks, put in place the wings on both side and try to bring the cost down to zero by actively trading with long options on both sides depending on the trend direction.

For last 3 weeks of the expiry we focus more on short legs and build our strategy as suitable to the situation (credit spreads / short strangle with wings / IC / Butterfly, etc.)

My personal view is that at EoD we should never carry options that are short naked without protection.

now for a few days i will refrain from posting on the thread and let you implement these things if you find value in them.

Cheers :thumb:

 

[jamit_05]

Here is an approach you can try with August Expiry, 5 weeks to go . . .

For first 2 weeks, put in place the wings on both side and try to bring the cost down to zero by actively trading with long options on both sides depending on the trend direction.

For last 3 weeks of the expiry we focus more on short legs and build our strategy as suitable to the situation (credit spreads / short strangle with wings / IC / Butterfly, etc.)

My personal view is that at EoD we should never carry options that are short naked without protection.

now for a few days i will refrain from posting on the thread and let you implement these things if you find value in them.

Cheers :thumb:

Checking the potential.

Say we currently buy 200 OTM wings on either side (@33 each) and soon 4900 is reached.

The estimated costs would then be.

4900PE Wing @ 90
5100PE one leg of straddle @ -190
-----------------------
diff -100

We had collected Rs.175 when straddle was shorted.
Difference is Rs.75/=

If prices go one side then at expiry I would still be at a loss of Rs. 125; The only way to change that would be trade them as per futures system.

<have completely ignored the CE side, assuming it will not come since we are discussing the worst case of one sided move after we have taken the short straddle>

 

[jamit_05]

@ Amit:

Are you dumping the Pair buying strategy completely?

Oh no... will be buying a pair soon. But will be managing them a little differently. Something I look forward to.

 

[PartTime_Trader]

Checking the potential.

Say we currently buy 200 OTM wings on either side (@33 each) and soon 4900 is reached.

The estimated costs would then be.

4900PE Wing @ 90
5100PE one leg of straddle @ -190
-----------------------
diff -100

We had collected Rs.175 when straddle was shorted.
Difference is Rs.75/=

If prices go one side then at expiry I would still be at a loss of Rs. 125; The only way to change that would be trade them as per futures system.

<have completely ignored the CE side, assuming it will not come since we are discussing the worst case of one sided move after we have taken the short straddle>

did not understand your above presentation, if the market moves by 200 points your 1 pair of wings should be in money by 80-100 points depending upon volatility, date i.e days to expiry etc.


anyway, here's some historical data you can use to run your scenarios

Expiry Date		Settelment Price	   Aprox. Change
28-Jul-11			5487.75			  N.A
25-Aug-11			4839.60			 -650
29-Sep-11			5015.45			 +200
25-Oct-11			5191.60			 +175
24-Nov-11			4756.45			 -450
29-Dec-11			4646.25			 -100
25-Jan-12			5158.30			 +500
23-Feb-12			5483.30			 +325
29-Mar-12			5178.85			 -300
26-Apr-12			5189.00			 +10
31-May-12			4924.25			 -250
28-Jun-12			5149.15			 +225
26-July-12		     5050 - 5150		+/-100

The above is just expiry to expiry, for testing you will have to consider Max Adverse Excursion.

 

[jamit_05]

did not understand your above presentation, if the market moves by 200 points your 1 pair of wings should be in money by 80-100 points depending upon volatility, date i.e days to expiry etc.

.
.

Considering the down legs only.

Now market at 5100.
We have already shorted 5100 PE and also want to short 200 OTM i.e. 4900 PE as to protect infinite loss... does this correctly cover the concept of wings?

 

[PartTime_Trader]

Considering the down legs only.

Now market at 5100.
We have already shorted 5100 PE and also want to short 200 OTM i.e. 4900 PE as to protect infinite loss... does this correctly cover the concept of wings?

Shorting OTM will increase risk, we need to use long OTM for protection from sudden / swift moves against your short option position

Focus on risk, run different scenarios for what if, can use past data to verify

 

[jamit_05]

Shorting OTM will increase risk, we need to use long OTM for protection from sudden / swift moves against your short option position

that was a mistake... i meant buying 200 OTM.... only then we will be able to protect the shorted 5100PE from giving infinite loss...

 

[PartTime_Trader]

that was a mistake... i meant buying 200 OTM.... only then we will be able to protect the shorted 5100PE from giving infinite loss...

I don't feel a need to buy double quantity of OTMs / wings as its for rare event when we have a move of more than 200/300 points, we also need to keep the cost low.

Last year we have 5 months with more than 300 points diff out of which 2 have a diff of 500 or more, taking all this into consideration you can come up with a better strategy and plan to generate regular income from markets by trading option

Best :thumb:

 

[jamit_05]

Current positions:

Shorts:

5100 PE @89 units:100
5200 CE @74 units:100
----------------------------
Total @163

Premium Rcvd: Rs.175.

Took a loss of Rs.2200 on NF. Need to recover that. Will do so by shorting options after getting a clear direction on Friday.