Trading for Living -- Successfully Completed one year as Full Time Trader

[anildnr]

There is one more point which may be explained by Amrutham. How to adjust the position when the trade goes against you.

Yeah anyway amrutham is the person to make the picture clear.
But personal opinion is you should have all calculations in your mind as it is simple maths..hoe much max debit and how to make it into credit ...alwats make surw that your positions time value is more when compared with real value

 

[amrutham]

Entered into below BN position for May expiry.

BN spot @ 26150

Buy BN 26200 CE 600 Qty @ 131
Sell BN 26300 CE 1200 Qty @ 96
Buy BN 26400 CE 600 Qty @ 67

Net Debit = 131+67 - 192 = 6*600 = 3.6K

Max Loss = 3.6K


View attachment 25603

Adjusted this position.

BN Spot @ 26570

Sell BN 26500 PE Qty 80 Qty @ 137. This is a hedge for the above butterfly. Will close this position if BN brakes 26400.

Credit = around 11K

Net credit = 11 - 3.6 = 7.4K

 

[amrutham]

Entered into below stock option positions for May expiry.

Sell 1 lot SBIN 220 PE @ 3.15
Sell 1 lot PNB 80 PE @ 1.1
Sell 1 lot INFY 1220 CE @ 14

Net credit = around 22K

Planning to hold these positions until May expiry.

Closed this position.

1 lot PNB 80 PE @ 0.2
1 lot INFY 1220 CE @ 8

SBIN 220 PE was closed earlier @1

Net Profit = around 13K

 

[amrutham]

Entered into below stock option position for May expiry.

Sell 1 lot Rcom 10 PE @ 0.3

Credit = 28000*0.3 = 8.4 K

Plan is to buy Rcom shares if it goes below 10.

Closed this position @0.05

Net Profit = around 7K

 

[amrutham]

When do u prefer entry into expiry trade. Earlier i think you used to enter 2-3 days before expiry.
Do u watch iv before entering or do u think iv is not so important as u have protection legs.
What if the ATM leg is sold? Will we not pocket more premium?
How to choose between call & put? Should we enter call or put based on iv or have u ever tried entering both.
I asked so many questions coz i couldnot figure out how to backtest historical data as i am not from programming background

Expiry trades are intraday trades taken on expiry day. Other BN butterfly strategies I enter mostly on Mondays.Selecting CE/PEs are based on the short term market trend. Since market is going up this week, CEs were taken. IVs are not that much important with the strategies I am trading.

My target with these trades is either to close the trade with small profit or in the worst case make the trade break-even.

 

[amrutham]

There is one more point which may be explained by Amrutham. How to adjust the position when the trade goes against you.

If the trade is going against me ,i e if BN is moving out of my expected range, then I sell 2-3 lots in the opposite direction. If it moves still further in the opposite direction, I do not need to do anything. If it comes again in to the range, then the hedged position will be closed.

If we take example of this week trade,

I expected BN to be in the range of 26000 - 26500, hence taken the below trade.

Original Trade:

BN spot @ 26150
Buy BN 26200 CE 600 Qty @ 131
Sell BN 26300 CE 1200 Qty @ 96
Buy BN 26400 CE 600 Qty @ 67

Adjustment 1:
Since today BN moved above 26500 and trading there consistently, I took below hedged position.

Sell BN 26500PE Qty 80 Qty @ 137

Now three days remaining for the expiry and if BN stays above 26500, I don't need to do anything until expiry.

If it again goes below 26500 in the next 1-2 days, I will probably close the hedged trade at around cost price and then the original butterfly can be closed with some profit.

This trade can go into negative if BN gaps down with more than 300-500 points. In that case also, Since I am net short only on 2 lots, the loss cannot be much.

 

[amrutham]

I'd wait for @amrutham to give a detailed reply although you have to understand the foundation of his trades before hand.

It is simple to explain but executing requires his skill, so let this part be clear.
Referring to his butterfly spreads, they are indeed entered on a directional perspective so if you cant do this properly you'll hit the wall more times than you want.
I assume most of his trades are be based on the highest OI on either side ( ie. Bullish & Bearish) then find a middle ground what can also be called Max Pain and try to center the expiry there and that would also be the center spot of the butterfly.

In spreads like butterfly etc, IV doesn't play much role with the bottom line, it is the Theta and underlying that's more important.

With bullish expiries he may prefer Call spreads and use Put spreads for Bearish expiries. Theta effect is highest on Mon-Tue for weekly BNO and that's where most of his trades originate.

Hope this explains a bit.

@travi

The way you put your thoughts into writing is brilliant.

 

[travi]

Expiry trades are intraday trades taken on expiry day. Other BN butterfly strategies I enter mostly on Mondays.Selecting CE/PEs are based on the short term market trend. Since market is going up this week, CEs were taken. IVs are not that much important with the strategies I am trading.

My target with these trades is either to close the trade with small profit or in the worst case make the trade break-even.

I didn't add this in my prev post, bcos it has more to do with the expiry than options,
but it has been my observation for around 2 yrs, that expiries are skewed with the trend by 100pts to the Max pain strike derived purely from OI.

Do check this if you've seen something similar when the BN expiries are of status quo type, not the large swing ones which move +250pts.

so for eg. if current move is in uptrend, Max Pain is 26400 but you'll get a close around 26500 and if it were a downtrend, you'll get 26400 instead.

The stronger side tries to extract that 1-2 strikes advantage in their favour.

 

[sangram1705]

If the trade is going against me ,i e if BN is moving out of my expected range, then I sell 2-3 lots in the opposite direction. If it moves still further in the opposite direction, I do not need to do anything. If it comes again in to the range, then the hedged position will be closed.

If we take example of this week trade,

I expected BN to be in the range of 26000 - 26500, hence taken the below trade.

Original Trade:

BN spot @ 26150
Buy BN 26200 CE 600 Qty @ 131
Sell BN 26300 CE 1200 Qty @ 96
Buy BN 26400 CE 600 Qty @ 67

Adjustment 1:
Since today BN moved above 26500 and trading there consistently, I took below hedged position.

Sell BN 26500 Qty 80 Qty @ 137

Now three days remaining for the expiry and if BN stays above 26500, I don't need to do anything until expiry.

If it again goes below 26500 in the next 1-2 days, I will probably close the hedged trade at around cost price and then the original butterfly can be closed with some profit.

This trade can go into negative if BN gaps down with more than 300-500 points. In that case also, Since I am net short only on 2 lots, the loss cannot be much.

"Sell BN 26500 Qty 80 Qty @ 137". This is CE I SUPPOSE

 

[amrutham]

"Sell BN 26500 Qty 80 Qty @ 137". This is CE I SUPPOSE

It is PE. Edited the original post.

Since the original trade is with CEs, hedge is with PE.