ST Sir, I have one small query. What if NF opens Big GAP down. 9400 call will become zero, But 8800 put may shoot up beyond the premium collected. How do you manage such situations. It will help us a lot in understanding of dealing with GAPS.
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Yes,if the market opens 300 points gap down, I will lose on 8800 puts and gain on 9400 calls.It is not a hedged strategy....so if 8800 gets violated, I will have to make a choice of whether to repair it or take the loss and close the positions. If the gap is due to some geopolitical reasons which could crash the market further, I will book the loss and look for the next trade but if the break is slow and limping move, I will try to repair by selling 8500 or 8600 calls. That decision will be based on how violently market breaks 8800 on downside...
I do not expect 8800 to get cracked but anything can happen in the market and we have to be prepared with the action plan beforehand.
Smart_trade
The very small delta selling leverages a safety strategy that ST Sir is exploiting.
A simple example, HDFCBank has a 30% weightage in BN but when it jumped 750pts Futures was up only 400pt bcos mkt also has to factor that in.
Similarly, such huge gaps have a very low probability and we ride that.
If it does gap, then one has to manage position.
Trump election time, BN gapped down 1000+ and closed in green so no need to panic, mkt also is screwed and it has to level which will
have to support sudden changes.
worst case scenarios have very low probability n u have to book loss like normal trade and comeback to earn.
