BankNifty No Loss Hedging

Hi Friends,

I have not tested this strategy before. I found it somewhere. Now want to know your view over this. Please share your thoughts either it will work or not.

Banknifty weekly option loss their points more fast because of time decay. So, this is based on that.

I am sharing here two strategy. Let me know which will work best?
Banknifty is at 10AM: 19516

Strategy 1:
Sell Current week 19500 CE (2nd FEB 19500 CE)
Buy Current Month 19500 CE (FEB 19500 CE)

Exit when in 20-30+ points profit

Strategy 2:
Sell Current Month 19500 CE (FEB 19500 CE)
Buy Current Week 19500 CE (2nd FEB 19500 CE)

I have confusion which strategy to choose.

They both have the same delta, so change in underlying won't affect much.
but
in strategy 1, if the volatility goes down then you loose more than what you gain from Time decay.

in strategy 2, if the volatility goes up then you loose more than what you gain from Time decay.
Theoretically, the sum of gain from Theta is equal to 1% change in IV in this case.

So if volatility is high and you expect it to go down, take strategy 2 & vice-versa for 1.

If you don't understand greeks stay away bcos this cannot be back tested so easily and nor will paper trade help.

If you expect the market to go down then strategy 1.

If you expect the market to go up then strategy 2.

Weekly option price increases much faster than monthly.

The statement Weekly option price increases much faster than monthly.
is incorrect both have the same delta & move the same in terms of points.
Only on expiry day the Theta kicks more for the weekly.

Bhai iska kya hua?

To add where you got it wrong, is that this is direction neutral Option Strategy,
so "where does expecting market to move come in?"

If I knew market is going down, I will Sell call or buy put, how do I hedge with same strike opposite side instrument.

Wrong.
The gamma is much more important.
This is the difference between theory traders and practical traders.

http://www.netpicks.com/monthly-or-weekly-options-trade/

You're emphasizing something out of context.
For a directional neutral strategy, your trying to dictate direction.
That's not the right approach.

Secondly, you are underestimating vega.
The gamma difference b/w the two is no where close to Vega, and yes, I'm talking practical with this weeks Volatility.
Its in the highest range.

Somehow most books emphasis that the sold option should have nearer expiry than the bought one. It implies Strategy 1.

I am currently trading like this.

Arre Bhai, kindly don't just refer books/links, run your strategy through decent options simulator.

As per yesterday, if strategy were to be executed,

As far as direction is concerned,
sell near, buy far: One has 30pt upside window to make money (around Inr. 30) after which loss kicks in. (For BN, isn't this dumb, I might as well scalp)

Buy near, sell far: Anything more than 30pt move in any direction and you make money.

Any delta neutral, direction neutral strategy works in funny way.
Eg: long straddle requires large move in either side to make money else loss
and short straddle prefers to stay in the middle for max profit and large moves have unlimited loss.

Yesterday, IV was around 36-38% for BN, today its 56-58%, is this impact understood ?

Again, when it is 1:1 lot, there are differences in movement of price as per MTM.
So if sell earns 10 points from theta, the buy would have lost 30 points in theta. How do you balance that?