Paper Trading Nifty Straddles

bandlab2 · #1 25th January 2009, 12:40 PM

I am going to paper trade nifty stradle buy/sell here fo 6 montha and based on the results will do actual trades

Straddle : Call/Put of same strike price
Stangle : Call/Put of ifferent strike price

Strategy 1:

Sell nifty straddle 5 sessions before expiry of prev month. For Feb, you need to trade this around 22nd jan (aound 5 sessions before curent month expiry). Stop loss 50% of investment, target 50% of investment. You need to do this close to present maket rate to get equal premium on both legs

on 22nd jan , sell for 2700 feb series
Call : 157
Put : 170

Covered in 2373 - 3027 nifty

Need 2 times margin

Strategy 2:

Buy nifty straddle 5 sessions after the start of curent series . For Feb series, buy around 5th Feb. Stop loss 50% of investment, target 50% of investment. You need to do this close to present maket rate to get equal premium on both legs

Its possible you may end up squaring off these trades in 2nd strategy against 1st if there is no movement in nifty or its avaialble to same strike after 10 sessions. I am traking both these stategies independantly to see which one is better.

I will also log the highest/lowest combine premiums fo both strategies even though our sl/target is 50% of investment

Pl be aware for selling options you need to maintain margin of nifty and carries UNLIMITED risk, even though we have 50% stop-loss, due to high gap up/down our stoploss may be useless. Also you can consider selling strangles for Strategy 1 to incease your range. You can also consider far month, but longer the time frame, higher is your risk

PL DO NOT TRADE THESE , WE ARE DOING IT ON PAPER ONLY

Prabhjeet · #2 25th January 2009, 01:08 PM

Quote:

Originally Posted by bandlab2

I am going to paper trade nifty stradle buy/sell here fo 6 montha and based on the results will do actual trades

Straddle : Call/Put of same strike price
Stangle : Call/Put of ifferent strike price

Strategy 1:

Sell nifty straddle 5 sessions before expiry of prev month. For Feb, you need to trade this around 22nd jan (aound 5 sessions before curent month expiry). Stop loss 50% of investment, target 50% of investment. You need to do this close to present maket rate to get equal premium on both legs

on 22nd jan , sell for 2700 feb series
Call : 157
Put : 170

Covered in 2373 - 3027 nifty

Need 2 times margin

Strategy 2:

Buy nifty straddle 5 sessions after the start of curent series . For Feb series, buy around 5th Feb. Stop loss 50% of investment, target 50% of investment. You need to do this close to present maket rate to get equal premium on both legs

Its possible you may end up squaring off these trades in 2nd strategy against 1st if there is no movement in nifty or its avaialble to same strike after 10 sessions. I am traking both these stategies independantly to see which one is better.

I will also log the highest/lowest combine premiums fo both strategies even though our sl/target is 50% of investment

Pl be aware for selling options you need to maintain margin of nifty and carries UNLIMITED risk, even though we have 50% stop-loss, due to high gap up/down our stoploss may be useless. Also you can consider selling strangles for Strategy 1 to incease your range. You can also consider far month, but longer the time frame, higher is your risk

PL DO NOT TRADE THESE , WE ARE DOING IT ON PAPER ONLY

Why cant we buy the options instead of selling them,

coolboy007 · #3 25th January 2009, 02:55 PM

Quote:

Originally Posted by prabhjeetrana

Why cant we buy the options instead of selling them,

Bandlab ,
The First strategy is really good and am sure you will make good profits in even paper trades. Next month Options also lose prem quickly in Exp week and in 1st week of new series too.
Prabhjeetrana
What the member wants is to eat PREM DUE TO TIME DECAY. Near Exp , Prem of all Options get reduced at a quick pace and Profit from this scenario can be made only be selling Options and Buying them back at lower rates. Buying Options before exp week will lead us to losses i think.
Bandlab plz confirm. I hope this is your only motto.

bandlab2 · #4 25th January 2009, 07:26 PM

Quote:

Originally Posted by coolboy007

Bandlab ,
The First strategy is really good and am sure you will make good profits in even paper trades. Next month Options also lose prem quickly in Exp week and in 1st week of new series too.
Prabhjeetrana
What the member wants is to eat PREM DUE TO TIME DECAY. Near Exp , Prem of all Options get reduced at a quick pace and Profit from this scenario can be made only be selling Options and Buying them back at lower rates. Buying Options before exp week will lead us to losses i think.
Bandlab plz confirm. I hope this is your only motto.

yes coolboy, the motive for 1st stategy is to eat the premium and that of 2nd is to take avantage of volatility. both are mutually exclusive and have a place if we do it at appropriate times

we are NOT buying them before expiry week. we are doing 5 weeks ahead in 1st strategy and 3 weeks ahead in 1st

mk4r8 · #5 26th January 2009, 12:03 AM

bandlab2
hi... pls update as i am interested in this

mk

bandlab2 · #6 26th January 2009, 05:52 PM

Quote:

Originally Posted by sohan1_1

Hi Guys,

I have just started few days back reading about Options.

I had learnt that selling the options without owning it is high risk.

I can see from the few comments here that, we are trying to eat premium during expiry week and first week of next month series.

I would say if such is the scenario every month that during the end premium prices decrease and in the first week too

Then why cant we buy the options on the last trading day of first week and then sell it on the last day of second week.

Please suggest or correct me if i am wrong.

I have just started reading about this. I dont know much, so plz suggest on this.

Hi sohan,

I think you misundestood my strategy 1. We are trying eat premium of next series by selling in last week of this series

Yes you are right, selling options cay unlimited risk. i would NOT recommend it for stocks (satyam example). fo nifty we have more time to react.

AW10 · #7 27th January 2009, 12:44 AM

bandlab2, thanks for starting this interesting thread. Just a questions on yr strategy 1, rule for stoploss at 50% of investment.
While selling straddle, our initial investment is anyway ZERO. It is credit position for the account, not a debit position where we pay something to open this trade. Then, what do u mean by 50% of investment as SLoss ?

Maybe I am missing something here or the rule is loosely defined ?

If possible, plz give an example.. or I can wait for few days when we will see it from real life paper trade.

Happy Trading.

coolboy007 · #8 27th January 2009, 01:00 AM

Quote:

Originally Posted by AW10

bandlab2, thanks for starting this interesting thread. Just a questions on yr strategy 1, rule for stoploss at 50% of investment.
While selling straddle, our initial investment is anyway ZERO. It is credit position for the account, not a debit position where we pay something to open this trade. Then, what do u mean by 50% of investment as SLoss ?

Maybe I am missing something here or the rule is loosely defined ?

If possible, plz give an example.. or I can wait for few days when we will see it from real life paper trade.

Happy Trading.

AW10
Well i guess , he means that if we get credited 80RS premium we can keep SL at 120 ( 50%of 80 = 40 , PREM+40 =120). By my mind , i think this is what he intends

sarathc · #9 27th January 2009, 07:17 AM

Quote:

Originally Posted by bandlab2

Strategy 1:

Sell nifty straddle 5 sessions before expiry of prev month. For Feb, you need to trade this around 22nd jan (aound 5 sessions before curent month expiry). Stop loss 50% of investment, target 50% of investment. You need to do this close to present maket rate to get equal premium on both legs

on 22nd jan , sell for 2700 feb series
Call : 157
Put : 170

Covered in 2373 - 3027 nifty

Should we still have a stop loss as 50% here? I think it would be a good idea to exit cost-to-cost than to have a stop

bandlab2 · #10 27th January 2009, 07:38 AM

Quote:

Originally Posted by AW10

bandlab2, thanks for starting this interesting thread. Just a questions on yr strategy 1, rule for stoploss at 50% of investment.
While selling straddle, our initial investment is anyway ZERO. It is credit position for the account, not a debit position where we pay something to open this trade. Then, what do u mean by 50% of investment as SLoss ?

Maybe I am missing something here or the rule is loosely defined ?

If possible, plz give an example.. or I can wait for few days when we will see it from real life paper trade.

Happy Trading.

Yes, as coolboy (thanks cb) mentioned its 50% of combined premium collected. If we collected 300 rs and if combine premium goes up to 450 rs then close the position. this 50% is losely defined now, after collecting the stats fo 6 months then we will know the min, max, deviation etc

The Following 11 Users Say Thank You to bandlab2 For This Useful Post:
ankitgarg20 (29th January 2009), AW10 (27th January 2009), munde_77 (4th February 2009), Pattel (31st January 2009), pkamalesh (16th February 2009), rajendrani (1st February 2009), santhosh44 (7th February 2009), sarathc (27th January 2009), Sunil (28th January 2009), terminator_123 (27th January 2009), uasish (31st January 2009)

The Following 3 Users Say Thank You to coolboy007 For This Useful Post:
pkamalesh (16th February 2009), Prabhjeet (26th January 2009), sohan1_1 (13th February 2009)

The Following User Says Thank You to coolboy007 For This Useful Post:
AW10 (27th January 2009)

The Following User Says Thank You to bandlab2 For This Useful Post:
AW10 (27th January 2009)