Simple way to make 100 Nifty points a month (low risk)

[pos_trader]

Folks

I have back-tested this for last three months and it works well.

What is the strategy --- SHORT GUT : sell CALL from lower strike and sell PUT from higher strike (strike price higher than current price of underlying).

When to enter --- this is the real trick which suddenly struck me. Enter SHORT GUT in the middle of earlier month of expiry (e.g. For July expiry sell CE and PE around mid-June) and in next 20 - 25 days one can easily cover both positions about 100-120 points lower.

Example - On 20 Feb Nifty spot was 8800 so sold 8500 CE and 9000 PE for March expiry for a total premium of about 750 and by 10 Mar covered the same for 550 (profit of 200)

On 20 Mar Nifty spot was 8600 so sold 8300 CE and 8800 PE for April expiry for a total premium of about 650 and by 17 Apr covered the same for 530 (profit of 120)

On 20 Apr Nifty spot was 8450 so sold 8200 CE and 8700 PE for May expiry for a total premium of about 640 and by 20 May covered the same for 520 (profit of 120).

It so happened that in between the total premium went higher but since this GAME is for 20-25 days, one can wait patiently. But somehow if the premium remains on higher side till two days before expiry (which means NIFTY has swung outside no-loss zone), then add some capital to sell more CE or PE (as the case may be) so as to get out at least in no profit no loss manner.

So, are we game for July expiry?

It looks like till mid-July NIFTY will remain range-bound between 8000 and 8500. Thus, I am planning to sell July 8000 CE and 8500 PE late next week for a premium of about 680 - 700 points and then cover the positions for about 550 points by 10-15 July.

Expert comments invited.

Thanks in advance for your patience and time.

pos_trader

 

[monkeybusiness]

what if Nifty decides to break range of 8000-8500:annoyed:

 

[Somatung]

what if Nifty decides to break range of 8000-8500:annoyed:

No need to look angry as he will have to adjust or act in any way on his implemented option legs. . Let's see what he has to post on this point.

 

[molthi]

While selling Option Stradles normally Its OTM options are sold for better profit as they might expire worthless.

 

[pos_trader]

Thanks to all those who have replied to my original post.

@monkeybusiness and Somatung

By 15 July there is a realistic possibility that Nifty may move outside 8000 - 8500 range. But if premium collected is 700 then 7800 - 8700 is no-loss zone. This has been addressed in my post above (quoted below) :

//
But somehow if the premium remains on higher side till two days before expiry (which means NIFTY has swung outside no-loss zone), then add some capital to sell more CE or PE (as the case may be) so as to get out at least in no profit no loss manner.
//

Which means in a rare possibility of Nifty hovering below 7800 or above 8700 by 22 July, I will have to add some capital and sell either more CE or PE to average out the price of that leg so that I can get out without loss (or minor loss) .... and this may happen only once in a year.

I hope this answers your query.

@mothil

What you have mentioned is called SHORT STRANGLE. But in SHORT GUT the trader collected huge amount of premium and thus effective outflow of capital is less. This results in higher quantity in given capital. This in turn results in higher profit in term of Rupees which results in higher RoI.

(Example - For certain capital if you can set-up 10 lots of SHORT STRANGLE then for the same capital you can possibly set-up 15 lots of SHORT GUT. Please do some paperwork with some capital, say 2 lacs, and then you will realize).

Any more queries, pls post here.

pos_trader

 

[Somatung]

Trading a short Gut means selling itm options and selling a traditional short strangle means selling otm options. That is why they have different names.

 

[pos_trader]

@mothli -- sorry for incorrect spelling of ur name

@Somatung - one correction. If options of DIFFERENT strike prices are sold then it is called SHORT STRANGLE (not STRADDLE).

So, what mothli was referring to is STRANGLE .... this is a commonly used strategy by many traders but I find SHORT GUT less risky. One reason is that since the premium collected is a huge amount like 650 as opposed to 80 as normally collected in SHORT STRANGLE, it puts my mind at ease with manipulation, if and when required. (650 reducing to 570 is easier to deal with than 80 reducing to 68 .... I hope you get the point). Thus, in SHORT GUT one can make an easy decision to close the position much before expiry.

Thanks again for your responses.

pos_trader

 

[Somatung]

@mothli -- sorry for incorrect spelling of ur name

@Somatung - one correction. If options of DIFFERENT strike prices are sold then it is called SHORT STRANGLE (not STRADDLE).

So, what mothli was referring to is STRANGLE .... this is a commonly used strategy by many traders but I find SHORT GUT less risky. One reason is that since the premium collected is a huge amount like 650 as opposed to 80 as normally collected in SHORT STRANGLE, it puts my mind at ease with manipulation, if and when required. (650 reducing to 570 is easier to deal with than 80 reducing to 68 .... I hope you get the point). Thus, in SHORT GUT one can make an easy decision to close the position much before expiry.

Thanks again for your responses.

pos_trader

Typo was already corrected.

 

[pos_trader]

@molthi -- sorry once again for incorrect spelling.

pos_trader

 

[Somatung]

@mothli -- sorry for incorrect spelling of ur name

@Somatung - one correction. If options of DIFFERENT strike prices are sold then it is called SHORT STRANGLE (not STRADDLE).

So, what mothli was referring to is STRANGLE .... this is a commonly used strategy by many traders but I find SHORT GUT less risky. One reason is that since the premium collected is a huge amount like 650 as opposed to 80 as normally collected in SHORT STRANGLE, it puts my mind at ease with manipulation, if and when required. (650 reducing to 570 is easier to deal with than 80 reducing to 68 .... I hope you get the point). Thus, in SHORT GUT one can make an easy decision to close the position much before expiry.

Thanks again for your responses.

pos_trader

@Pos_trader

I can understand your way of thoughts. On the other hand: You can trade short Strangles at least three months far away from expiry and close them after two months. Probably not the best way in your market, but it all depends how someone want's to trade and feels comfortable with what he is doing. So many ways we can trade in options and our option strategies and so many ways we can handle our BE and stop loss levels.

Any way: Thanks to come up with your thread and talking about the "Short Guts" option strategy. :clapping::clapping::thumb: People really can learn some thing here in this thread. So I guess this thread will be remembered and active in the future.

Have a nice weekend / Dan