Trading strategy for banknifty

#1
Hi traders,
Bank nifty closed today at 18528.35.Banknifty futures are being traded at 18670.05 with premium of 141.70 points.Today's close price of call and put option at 18500 strike price for the current month expiry were Rs.534.30 and Rs.350 respectively. So my strategy is to sell call (ATM)at Rs.534.30 and buy put(ATM) at Rs.350 and be long in bank nifty future at current price for the 29-01-2015 expiry.:)
Happy trading
 
#2
Hi traders,
Bank nifty closed today at 18528.35.Banknifty futures are being traded at 18670.05 with premium of 141.70 points.Today's close price of call and put option at 18500 strike price for the current month expiry were Rs.534.30 and Rs.350 respectively. So my strategy is to sell call (ATM)at Rs.534.30 and buy put(ATM) at Rs.350 and be long in bank nifty future at current price for the 29-01-2015 expiry.:)
Happy trading
Hello

If you Sell Call and Buy Puts, you are not Long BNF, you are Short BNF . . .

because . . .

A Short Call Option + A Long Put Option = A Synthetic Short on Future

Thanks
 
#3
Hello

If you Sell Call and Buy Puts, you are not Long BNF, you are Short BNF . . .

because . . .

A Short Call Option + A Long Put Option = A Synthetic Short on Future

Thanks
Hi BNFTrader

I guess you must read his post again. He is talking about three legs and not only two legs. Here you miss interpreted his post.

You are right by posting your view about the first two legs, http://www.theoptionsguide.com/synthetic-short-futures.aspx which are options, but he means to be long with the third leg, which is the future. So he is talking about a three leg strategy and not only about a two leg strategy.

Take care / Dan :)
 
#4
Hi BNFTrader

I guess you must read his post again. He is talking about three legs and not only two legs. Here you miss interpreted his post.

You are right by posting your view about the first two legs, http://www.theoptionsguide.com/synthetic-short-futures.aspx which are options, but he means to be long with the third leg, which is the future. So he is talking about a three leg strategy and not only about a two leg strategy.

Take care / Dan :)
Hi

Maybe you are right, he has created a delta neutral position with 3 legs.

when I re-read the OPs post it seems that he maybe talking about position with 3 legs :)

Anyway, we will know when he writes back :thumb:

Thanks
 
#5
Hi

Maybe you are right, he has created a delta neutral position with 3 legs.

when I re-read the OPs post it seems that he maybe talking about position with 3 legs :)

Anyway, we will know when he writes back :thumb:

Thanks
He is presenting an other, modified collar. He has a profit on the sold call, as the bought put has far less value. The max profit he can make is linked to the future leg. :D His profit potential is limited and his loss potential is limited. The future is plus 100 Delta and the two option legs are minus 100 Delta (Short call is minus delta and long put is minus delta and together they are minus 100 Delta). So it is a nice hedge.

Here the analyze picture from the book when done it the classical way and not modified: http://www.theoptionsguide.com/the-collar-strategy.aspx

Edited, as the rest is a go.
 
Last edited:

mastermind007

Well-Known Member
#6
He is presenting an other, modified collar. He has a profit on the sold call, as the bought put has far less value. The max profit he can make is linked to the future leg. :D His profit potential is limited and his loss potential is limited. The future is plus 100 Delta and the two option legs are minus 100 Delta (Short call is minus delta and long put is minus delta and together they are minus 100 Delta). So it is a nice hedge.

Here the analyze picture from the book when done it the classical way and not modified: http://www.theoptionsguide.com/the-collar-strategy.aspx

Edited, as the rest is a go.
Somatung

I can't figure out the circumstances in which this three-legged strategy would make profit. If BNF goes bearish, profits in options will be consumed by the losses in long future and if BNF goes bullish, profits in long future will get consumed by the call leg as well as put leg

Also, If you consider all three legs collectively, this profit is unlimited profit/unlimited risk
The option pairs are both bearish, call leg with limited profit/unlimited risk and put leg with unlimited profit/limited risk whereas future leg is unlimited profit/unlimited risk

What am I failing to grasp?
 
#7
Hi MM007 and happy new year

You have to consider the option Greeks, which are especially for this strategy time decay on the short leg and the delta from each separate leg in conjunction with each other leg. Here it gets a bit complicated.

Best help here is to visualize the trade with software which is able to show such constructs. Here the two option legs which are called "Synthetic short future". http://i57.tinypic.com/1zdyi6v.png This trade is a free trade, as we used the money from the sold call to buy the long put. We already have some profit even if market not moves. We make further money when market moves down, as we have a directional trade for the down side, but we make very quickly loss if market moves up. This is clearly seen through the dotted line, which is the so called zero line. But that is not the idea of the "Collar" strategy. With the Collar we want to play a small up move and we want less or no risk to the down side.

Now at the moment I add the third leg, which is the long future, you will see some thing like this http://i62.tinypic.com/wag4es.png, as we have already a profit after we implemented such a trade and no more can fall under the zero line. Now the image I show looks a bit like this http://www.theoptionsguide.com/the-collar-strategy.aspx, which is still in the loss zone if market moves down, as other option legs are used.

Hope you understand the idea now in a better way and here it get's clear why I call people who want to go deeper into option strategy trading to get professional software which allows such visualization.

Take care / Dan :)
 

mastermind007

Well-Known Member
#8
Hi traders,
Bank nifty closed today at 18528.35.Banknifty futures are being traded at 18670.05 with premium of 141.70 points.Today's close price of call and put option at 18500 strike price for the current month expiry were Rs.534.30 and Rs.350 respectively. So my strategy is to sell call (ATM)at Rs.534.30 and buy put(ATM) at Rs.350 and be long in bank nifty future at current price for the 29-01-2015 expiry.:)
Happy trading
Did your trade make profit?
 

Similar threads