Buy 1x 3050 call, Sell 2x 3100 calls.

M

morphiusx

New Member
#1
#1
If you think the NIFTY is not going to be above 3150 on the 26th of Feb 2009, but could get close then:

a) Buy 1000 contracts of 3050 strike calls @ 33.0
b) Sell 2000 contracts of 3100 strike calls @ 19.25

(You can do any number in the ratio of buy 1x and sell 2x. I will use 1000 by 2000 number of contracts for analysis here.)

You receive Rs. 5,500 upfront for above trade.
Margin to be posted is around Rs. 1.1 lacs

Table below shows how much you make/lose based on NIFTY on 26th.

NIFTY on 26th-----Final payoff------Total profit
3000--------------------------0---------------5,500
3050--------------------------0---------------5,500
3075--------------------25,000--------------30,500
3100--------------------50,000--------------55,500
3125--------------------25,000--------------30,500
3150--------------------------0----------------5,500
3175-------------------(25,000)------------(19,500)
3200-------------------(50,000)------------(44,500)
3300------------------(150,000)----------(144,500)

and so on...(Numbers in brackets mean loss)

Basically, if your view is that NIFTY will not go up beyond 3,150 in another 9 trading days, then this is an easy way to make some premium upfront.
 
A

AW10

Well-Known Member
#2
#2
There sre some observations /clarification here
1) do u mean 1000 contracts of nifty or 1000 units/50 (nifty lotsize) = 20 contracts ?

2) As you will be trading 1000+2000 = 3000 contracts.. HAve u taken into consideration the brokerage into your profit calculation (I think now). Even if we let the options expire, still we got to pay the brokerage to open this trade.

And if we find mkt jumps to 3175 and we decide to cut our losses then brokerage will hit us again.

IMO, practically there is not enough reward for the risk that we are goning to take.
Don't mean to criticise your approach. Appreciate your effort to initiate discussion on ratio Call spread stretegy.
1) What if we use this strategy when pemium is significant not just 20/30 rs. 100 to 200 rs.
Conceptually, we are selling more calls so we want the mkt to go down.. so this is sort of bearish strategy.

Happy Trading.
 
T

terminator_123

Active Member
#3
#3
Another spread similar to this but with lesser upper protection:
Buy 1 2900 FEB call
Sell 3 3000 FEB calls

Brokerage: Extra
Margin required: 28500 ?
Upper protection: 3088 (just above the 3067 resistance)...
Return if unchanged: 5400
Maximum return of 8030 at 3000
 
Last edited:
M

morphiusx

New Member
#4
#4
AW10 said:
There sre some observations /clarification here
1) do u mean 1000 contracts of nifty or 1000 units/50 (nifty lotsize) = 20 contracts ?

2) As you will be trading 1000+2000 = 3000 contracts.. HAve u taken into consideration the brokerage into your profit calculation (I think now). Even if we let the options expire, still we got to pay the brokerage to open this trade.

And if we find mkt jumps to 3175 and we decide to cut our losses then brokerage will hit us again.

IMO, practically there is not enough reward for the risk that we are goning to take.
Don't mean to criticise your approach. Appreciate your effort to initiate discussion on ratio Call spread stretegy.
1) What if we use this strategy when pemium is significant not just 20/30 rs. 100 to 200 rs.
Conceptually, we are selling more calls so we want the mkt to go down.. so this is sort of bearish strategy.

Happy Trading.
Click to expand...
Agree, the above idea is a bearish strategy and return on capital (margin) is 5% if both strikes expire worthless. (And I meant 1000 NIFTY contracts...so basically 60 options contracts overall. Also, brokerage was not included in my calculations).

Ideally, you want to do this on the put side as vol priced for lower strikes is very high. Like for instance buy 1x 2900 put at 68 and sell 2x 2850 at 51. You make 34 upfront with some added upside if market ends between 2900 and 2800. (Downside below 2800).

But then, it all depends on your index view as well (as it is a very short-term trade). Personally I think this market will rally a bit more and then sell-off. Hence the choice of strikes at 3050 and 3100. Even if the market rallies in the next week, I don't think it will go beyond 3100.

Another possibility could be the 1:3 2900/3000 calls suggested by terminator_123.
 
bandlab2

bandlab2

Well-Known Member
#5
#5
morphiusx said:
If you think the NIFTY is not going to be above 3150 on the 26th of Feb 2009, but could get close then:

a) Buy 1000 contracts of 3050 strike calls @ 33.0
b) Sell 2000 contracts of 3100 strike calls @ 19.25

(You can do any number in the ratio of buy 1x and sell 2x. I will use 1000 by 2000 number of contracts for analysis here.)

You receive Rs. 5,500 upfront for above trade.
Margin to be posted is around Rs. 1.1 lacs

Table below shows how much you make/lose based on NIFTY on 26th.

NIFTY on 26th-----Final payoff------Total profit
3000--------------------------0---------------5,500
3050--------------------------0---------------5,500
3075--------------------25,000--------------30,500
3100--------------------50,000--------------55,500
3125--------------------25,000--------------30,500
3150--------------------------0----------------5,500
3175-------------------(25,000)------------(19,500)
3200-------------------(50,000)------------(44,500)
3300------------------(150,000)----------(144,500)

and so on...(Numbers in brackets mean loss)

Basically, if your view is that NIFTY will not go up beyond 3,150 in another 9 trading days, then this is an easy way to make some premium upfront.
Click to expand...
most brokers wont accept 2L, 3L orders which means each trade is treated on its merit for margine requirement. 2000 = 40 lots, margin for writing 1 lot = 20k, so for 40 lots its 8lakh rupees.

on 8 lakh rs margin, your reward is not much. plus 60 lots of options, brokerage is 100 rs per lot, so total brokerage is 6k on one side. if close, another 6k. so total 12k. your broker must be very happy for this trade.

now nifty is at 2750, so you would have got profit of 5500 rs. this with a margin of 8 lakhs, brokerage of 12k. is it worth ?
 
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