3 Option Strategies Tested Here

gunavadhi · #1 25th June 2008, 10:21 PM

seniors please tell me when i post anything wrong

There are 3 simple option strategies.Straddle,Strangle and Gut.

1.Straddle, is a volatile option strategy or what we call Market Neutral Strategy. Being market neutral means that a Long Straddle profits no matter if the underlying asset goes up or down. Yes, a Long Straddle allows you to simply put on the position and then totally take your mind off the stock as you will profit no matter if the underlying asset goes up or down.(ex:when nifty is around 4100 buying 1 lot 4100 call and 1 lot 4100put)

2.Strangle, is a volatile option trading strategy that profits when the stock goes up or down strongly. The Strangle is a cousin of the Long Straddle and the Long Gut, making up a family of basic volatile options strategies. Learning the Straddle first makes the Strangle easy to understand.(ex:when nifty is around 4100 buying 1lot 4200calll and i lot 4000put)

3.Gut Spread is a volatile options trading strategy designed to profit when the underlying stock moves strongly upwards or downwards. The Long Gut Spread is a cousin of the Long Straddle and the Long Strangle with the only difference being that In The Money options are used instead. The Long Gut Spread is useful when no At The Money options are available when you want to use a Straddle. In fact, since exactly at the money options are so rare, the Long Gut Spread using in the money options and the Long Strangle using Out Of The Money options are far more commonly used than the Straddle.(ex:when nifty is around 4100 buying 1 lot 4000 call and 1 lot 4200 put)

Today i followed these 3 strategies in PAPER TRADING and will post position of these 3 from time to time during trading hours.for this i taken nifty july options. i will post like this.4181--201+170--158+139--270+216( this means when nifty spot is 4181, nifty 4100call traded @201,nifty4100put traded@170,nifty4200call traded @158,nifty4000put traded@139,nifty4000 call traded@270 and nifty 4200 put traded@ 216.actually this is in morning of 25th JUNE..

Straddle cost is 201+170=371.

Strangle cost is 158+139=297.

Gut cost is 270+216=486.

multiply cost with lot size 50.

AW10 · #2 26th June 2008, 01:23 AM

Thanks Gunavadhi for taking the step to paper trade 3 strategies on NIFTY and post the results for everybody's benefit.
I have my reservation on these strategies that I will share as we progress.
I will be closely watching this thread.

Happy Trading.

ravalsb · #3 26th June 2008, 01:59 AM

Quote:

Originally Posted by gunavadhi

i taken nifty july options. i will post like this.4181--201+170--158+139--270+216( this means when nifty spot is 4181, nifty 4100call traded @201,nifty4100put traded@170,nifty4200call traded @158,nifty4000put traded@139,nifty4000 call traded@270 and nifty 4200 put traded@ 216.actually this is in morning of 25th JUNE..Straddle cost is 201+170=371.Strangle cost is 158+139=297.Gut cost is 270+216=486.multiply cost with lot size 50.

Isnt that equal to three straddles @4200,@4100 and @4000....

Regards

gunavadhi · #4 26th June 2008, 10:47 AM

26-june2008 10-20a.m.

4281--268+136--214+105--331+174

PROFIT/LOSS OF THE 3 STRATEGIES GIVEN BELOW

STRADDLE-(268+136)-371=+33

STRANGLE-(214+105)-297=+22

GUTS-(331+174)-486=+19

gunavadhi · #5 26th June 2008, 11:03 AM

Quote:

Originally Posted by ravalsb

Isnt that equal to three straddles @4200,@4100 and @4000....

Regards

maybe you are correct. but we are going to see the value of these strategies at various levels of nifty.

gunavadhi · #6 26th June 2008, 11:49 AM

26-june2008 11-44a.m.

4257--268+136--214+105--331+174

PROFIT/LOSS OF THE 3 STRATEGIES GIVEN BELOW

STRADDLE-(258+148)-371=+35

STRANGLE-(202+116)-297=+21

GUTS-(325+186)-486=+25

jstraju · #7 26th June 2008, 12:50 PM

Hi,
Request for a simple modification,
It can be in a separate column,do not consider LTP,
Take bid price for selling,
ask price for buying.

Just to see how slippage changes the picture.Trading options result relatively more slippage than futures.

Thanks,
Raju.

gunavadhi · #8 26th June 2008, 02:00 PM

26-june2008 1.54p.m.

4290--280+128--217+100--347+159

PROFIT/LOSS OF THE 3 STRATEGIES GIVEN BELOW

STRADDLE-(280+128)-371=+37

STRANGLE-(217+100)-297=+20

GUTS-(347+159)-486=+20

gunavadhi · #9 26th June 2008, 03:52 PM

26-june2008 3.30p.m.

4315--268+137--207+104--340+175

PROFIT/LOSS OF THE 3 STRATEGIES GIVEN BELOW

STRADDLE-(268+137)-371=+34

STRANGLE-(207+104)-297=+14

GUTS-(340+175)-486=+29

AW10 · #10 27th June 2008, 04:18 AM

To summariaze 3 strategies and allow easier comparision..
1) Straddle = Strike price is same, buy a put and buy a call
2) Strangle = Strike prices are different, buy a put and buy a call
3) Gut = Strike prices are different and they are In the Money, sell a put, sell a call

Strangle can be created for any two strike prices. But the moment you create it for ITM strike price and Take a position of SELLER.. you are creating a gut position.
Very important Point to keep in mind is that in Gut, you are selling 2 positions hence you have limited reward but unlimited RISK position. (you can't afford to leave it unmonitored) whereas in other two strategy, you have limited risk and unlimited PROFIT position and you can forget about monitoring them as long as you are prepared to loose limited risk (= initial purchase price).

Gunavadhi has created
1) Straddle - @4100 with cost = 371 Rs.
2) Strangle - 4000 Put - 4200 Call with cost = 297 Rs.
3) Gut - 4000 Call - 4200 Put with cost = 486 Rs.

Gunavadhi - hope I have not misread you anywhere ? Plz correct if required.

Happy Trading..

The Following User Says Thank You to gunavadhi For This Useful Post:
optionstrader (31st July 2008)

The Following User Says Thank You to gunavadhi For This Useful Post:
jravinderkumar (29th July 2008)