Nifty short strangle

V

vijayabv

New Member
#1
#1
Hi,

As on 12th Nov 2008, Nifty spot is 2850
Nifty Nov 3400 CE is trading @ Rs.11.70
Nifty NOv 2300 PE is trading @ Rs.31.05
Total Premium = Rs.42.75
Is it wise to create a short strangle by selling both these options?
@ expiry,
if nifty spot closes either at 2301 or 3399 will I still get Rs.42.75 as Profit?
Pls suggest your comments.

Thanks & regards,

VIJAY
 
T

terminator_123

Active Member
#2
#2
vijayabv said:
Hi,

As on 12th Nov 2008, Nifty spot is 2850
Nifty Nov 3400 CE is trading @ Rs.11.70
Nifty NOv 2300 PE is trading @ Rs.31.05
Total Premium = Rs.42.75
Is it wise to create a short strangle by selling both these options?
@ expiry,
if nifty spot closes either at 2301 or 3399 will I still get Rs.42.75 as Profit?
Pls suggest your comments.

Thanks & regards,

VIJAY
Click to expand...
You might be able to pull this off 3400-2300 is quite a wide range... but really is 42.75 worth the margin you have to pay for this ?
I'm following this strategy these days:
Take x amount out. Based on your analysis trade with x/2 amount.
Keep the x/2 amount with you till you are sure if the trade is correct. if it is not you can either average out by buying at lower levels or find better opportunities at the new levels... this might act as a hedge..
it works for me :D at least
 
S

shssince1985

New Member
#3
#3
I have the same query as Vijay. Let me simplify it further.
If I sell a Nifty 2400 Put at premium of Rs. 25 and if at expiry the Nifty is 2401 and the premium is Rs 100, then
1) Can I let my sold position expire worthless, since the Put is still out-of-money?
2) Will I incur a loss of (25-100) * 50 based on the difference in premium?

My broker says I'll incur a loss. But going by the options theory, I feel my position will expire worthless and I'll pocket the premium.
Please help.

Thanks.
 
Last edited:
F

fast_rizwaan

Active Member
#4
#4
shssince1985 said:
I have the same query as Vijay. Let me simplify it further.
If I sell a Nifty 2400 Put at premium of Rs. 25 and if at expiry the Nifty is 2401 and the premium is Rs 100, then
1) Can I let my sold position expire worthless, since the Put is still out-of-money?
2) Will I incur a loss of (25-100) * 50 based on the difference in premium?

My broker says I'll incur a loss. But going by the options theory, I feel my position will expire worthless and I'll pocket the premium.
Please help.

Thanks.
Click to expand...
1) Yes
2) No, on the expiry day, option value is in pennies :D
 
munde_77

munde_77

Banned
#5
#5
shssince1985 said:
I have the same query as Vijay. Let me simplify it further.
If I sell a Nifty 2400 Put at premium of Rs. 25 and if at expiry the Nifty is 2401 and the premium is Rs 100, then
1) Can I let my sold position expire worthless, since the Put is still out-of-money?
2) Will I incur a loss of (25-100) * 50 based on the difference in premium?

My broker says I'll incur a loss. But going by the options theory, I feel my position will expire worthless and I'll pocket the premium.
Please help.

Thanks.
Click to expand...
The premium will be 0 on expiry date for put of 2400 if nifty expires at or above 2400
 
A

AW10

Well-Known Member
#6
#6
1) Can I let my sold position expire worthless, since the Put is still out-of-money?
Click to expand...
Yes. Infact, yr breakever is at 2400-25 = 2375. i.e. Even if nifty falls but stays above 2375, u are in profit.

2) Will I incur a loss of (25-100) * 50 based on the difference in premium?
My broker says I'll incur a loss.
Click to expand...
That is why he is broker, not a trader. If u are right, if are holding to expiry.
He is right, if you square-off your position in the market and not hold till expiry (actually borker wants u to squareoff so that they get the commission on closing leg as well. I won't be surprised, if yr broker is not educated on holding till expiry fundas because they are not supposed to part the info which doesn't help them ).

Happy Trading.
 
D

dashr

Banned
#7
#7
AW10 said:
Yes. Infact, yr breakever is at 2400-25 = 2375. i.e. Even if nifty falls but stays above 2375, u are in profit.



That is why he is broker, not a trader. If u are right, if are holding to expiry.
He is right, if you square-off your position in the market and not hold till expiry (actually borker wants u to squareoff so that they get the commission on closing leg as well. I won't be surprised, if yr broker is not educated on holding till expiry fundas because they are not supposed to part the info which doesn't help them ).

Happy Trading.
Click to expand...
If by closing bell of expiry, I am in profits on a short strangle and I do not square off the trade manually, will I be saving on the brokerage?
 
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