Trading options with one month view

[ananths]

....
Max profit = 1750 + 950 = Rs. 2,700
Max loss = ((100 x 50) - 2700)) = Rs. 2,300

You will make money as long as Nifty stays in a wide 6% range of 5700 and 6100.

Do this every month and stay within the 6% strikes, and you will make a minimum of 20% returns per year on capital - even during volatile times. Your returns could be in the range of 30% plus, in a range bound market.

Nicely explained with example...Just if we think w.r.t RR It's almost 1:1 (approximately)
If we go with just a Debit spread (Bull/Bear) with say (20/30 points debit spread) the RR would be 1:4 (approximately) and you don't need to wait until the expiry. If market is well above your strike price any time during the month, you will get a handsome profit to exit. So IMO debit spread is better than Iron Condor.

All these strategies are good and works well but only thing needed is discipline to manage the trade. :thumb:

 

[smartcat]

If we go with just a Debit spread (Bull/Bear) with say (20/30 points debit spread) the RR would be 1:4 (approximately) and you don't need to wait until the expiry. If market is well above your strike price any time during the month, you will get a handsome profit to exit. So IMO debit spread is better than Iron Condor.

All these strategies are good and works well but only thing needed is discipline to manage the trade. :thumb:

I think directional options bets (bull/bear spreads) are more suitable for experienced traders - those who can predict the direction of the market with some degree of accuracy. Newbies will find higher success rates with widely spaced iron condors.

Personally, I use futures for placing directional bets. Risk control is via diversification and stop losses. And I use options for placing non-directional market neutral bets.

Different boots for different terrain

 

[abcpankaj]

I think directional options bets (bull/bear spreads) are more suitable for experienced traders - those who can predict the direction of the market with some degree of accuracy. Newbies will find higher success rates with widely spaced iron condors.

Personally, I use futures for placing directional bets. Risk control is via diversification and stop losses. And I use options for placing non-directional market neutral bets.

Different boots for different terrain

hi smartcat,

Who is your broker and what is the margin being charged for Iron condor.

One can use iron condor when IV is expected to fall , In case IV is expected to rise , one can consider double calendar or double diagonal.

regards

 

[smartcat]

I have no idea about margin requirements, but logically, it should be almost equal to the maximum loss on the position. I can't find out the margins because I run multiple strategies in my account and I can only see the total margin amount blocked.

 

[abcpankaj]

I have no idea about margin requirements, but logically, it should be almost equal to the maximum loss on the position. I can't find out the margins because I run multiple strategies in my account and I can only see the total margin amount blocked.

Exactly.
Logically ,it should be around maximum loss on the position.
But none of the brokers in India I talked to , accepts this low margin.
Even foreign broking firm ,Interactive brokers do not accepts margin on this logic, for Indian markets.

So if one makes 20 points (1000 Rs ) in a Iron condor.The yield is 16 % for Rs 6000 margin , but 3 % for 30000 margin.

Do let me know if you find any broker who accepts margin of around maximum loss on the position ,for Indian markets.

regards

 

[kesk]

I believe to sell a call/put, you need an amount equivalent for future trading.

Edit: You require 22,154 to sell a 6100CE and 21064 for 5700PE according to edelweiss.

 

[avinav2712]

Exactly.
Logically ,it should be around maximum loss on the position.
But none of the brokers in India I talked to , accepts this low margin.
Even foreign broking firm ,Interactive brokers do not accepts margin on this logic, for Indian markets.

So if one makes 20 points (1000 Rs ) in a Iron condor.The yield is 16 % for Rs 6000 margin , but 3 % for 30000 margin.

Do let me know if you find any broker who accepts margin of around maximum loss on the position ,for Indian markets.

regards

Really doubt if there's any broker who's willing to accept margin as maximum loss, because no broker considers a spread, and considers every leg separately. So each sell option would require additional margin.

 

[Reki]

Thank you guys for sharing your ideas. Smartcat, abcpankaj and ananths your examples and discussions of wide spread options startegy was quite enriching. Since monitoring the markets intraday may not be possible for me with my options trades I will need to develop more conservative strategies which will primarily be limited loss - limited gain setups and with a risk to reward of 1:2 min. I further have decided to monitor such trades on weekly basis.

Reki

 

[Reki]

It is rewarding idea of creating an iron condor at the beginning of the month with a veiw till month end and as 2 or 3 weeks pass by and only a week is there for expiry we may have a very strong convition of what will not happen i.e. nify will not go down or go up beyond our iron condor strikes. And accordingly we can close the probable debit spread and keep the other profitable and probable debit spread.

Reki

 

[Reki]

Hi Smartcat, 20 to 30% returns is a very good return with less monitoring and around 3-4 trades in a month. I think that instead of always taking a neutral view of the market and construction iron condor 3% + and - from the month begining nifty spot, if we have a positive view of nifty than the same iron condor may be constructed with spot + 100 points as base and then selecting strikes 3% + and - to this base. Similarly if our month end view on nifty is bearish than the base will be spot - 100 points.

100 points is just and example. And this variable would vary on the basis of degree of bullishness or bearishness of our view on Nifty is.

Would the above mentioned work, with the same weekly monitoring and 3 - 4 trades a month. Solicit your views.

Reki