Combo spread

#1
hello all

Well, there are vertical speads (same month, different strike prices) and there are horizontal spreads (successive months, same strike price). If you make a combo of these two, what you get is "COMBO SPREAD".

How to set up?

This is ideally set-up around 1st of every month.

Bullish direction: Sell Put of current month which is around 250 and buy put of next month which is around 150 (net credit inflow 100). Whenever Nifty rises about 200 points from this day, get out with abt 80 points profit.

For bearish Nifty: Same as above , replace Put with Call.

In the current month, a bearish spread was created on on 4-OCT which was squared up on 17-Oct when Nifty fell to 8550.

Actuals: On 4-Oct the OCT 8600 ce was sold at 250 and NOV 8700ce was bought at 140.
On 17-Oct bought OCT ce at 70 (profit 180) and sold NOV ce at 210 (loss 70). Net profit 110 (after removing expenses it is Rs 7500 on investment of 50k which is 15%). Agree that such sharp fall will not occur every month, but even 8% looks good in first leg (first 15 days of a month).

It is also possible to set up one more spread in the remaining part of the moth.

If the directional call goes wrong, the loss is small.

If any of you have been practicing COMBO spreads then what is the experience?

Await your responses.

pos_trader
 
#2
basically you wish to gain on the Time value.. the risk here is unfavorable big move against the trader too early in the trade.e.g.

if u r bullish and nifty goes against you say 100/150 points within 1-2 days of trade ( which actually happened in oct more than couple of times).. see where we stand on 100 points movement

ATM short put would be ITM short...short put premium of 250 likely would be 330-340 ( with volatility spike also)
the long OTM Put position of next month ... would become ATM and premium likely be 200-220 ( as vega would be very high due to sudden movement )

hence net position stands at:
(+250-340)+ (-150+220) =-90 +70 = -20 per lot of trade!

this strategy should work if nifty stays rangebound for sometime...then moves
 

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