GOOD PROFIT: Hedged nifty positions with straddle...

honestly, i dont mind having more trades. like above 3400, i didnt have much trade at all... as i am in the wait and watch mode. markets went to 3485 levels and then sold off... and again showed bullishness....

my action if i wanted to add to my profit here in such a strategy would be to catch the down move, say from 3375 to 3360... i would place a sell at 3375 and immediately place a buy at 3380.... i am risking just 5 points plus 2 points for brokerage. if the down move would reverse at 3375 and go up, i would buy it back at 3378 or even 3379 before the buy trigger gets hit. that way i loose fewer points. but if the down move went below 3375 to 3365 levels, i would place the buy trigger at 3373.... and trail it down for added profits....

you see, i am risking losing profits only when i feel confident of the market direction. i am not pre-empting the market's move. i am not trying to catch the peak and sell high and catch it low. that would be risky. the moment i sell / buy...i immediately place a buy / sell order.

like on friday, i was not sure what the market direction was and the volatility was scary. i just placed a sell at 3390 and waited it out the whole day.

you see... the logic of this system is as long as markets trade near the strike price... I benefit from the decay of the straddle. as soon as the market moves away from the strike price...i lock the profit of the straddle with nifty. I just try to avoid the nifty ride back to the strike price. in case i fail and ride back to the strike price... no harm done to my profit target. i only lose the extra profit that i could have made.

i hope i was able to explain my thought process here...

Would be nice if you could start a new thread and continue where this left off
http://www.traderji.com/derivatives/3665-delta-neutral-strategy-long-nifty-long-puts.html
Ideal for choppy markets

scrip cost present diff profit/loss
3400 CE 230.00 227.00 3.00 300.00
3400 PE 215.00 152.00 63.00 6,300.00
Nifty Futures 3,210.00 3,465.00 255.00 25,500.00


Total = 32,100.00


The position of the nifty straddle as of end of 27th April’2009

Script
3400 CE bought at 230 has a current price of Rs. 227 is at a profit of Rs.300
3400 PE bought at 215 has a current price of Rs. 152 is at a profit of Rs.6300
Nifty Futures long Innitiated at the averaged price of 3210 has a current price of Rs. 3465 is at a profit of Rs. 25500

Total = profit of Rs. 32100

Statistics

Cost of the straddle = 445.00
present price of the straddle = 379.00
Actual value of the straddle = 65.00
profit on straddle = 66.00
Profit on nifty = 255.00

total profit = 321.00

Activity today :
Asian market weak. Expecting a gap down and the gap to be bought
,market looks ready to test 3480-3511 levels
broke the previous high of 3511…. Placed sl at 3495
SL got triggered.
placed a buy at 3450….


nifty calculation
bought at3253, covered at 3495, points gained 242, -2 as brokerage, net gain of 240 points

effective cost of nifty long = last price longed , 3450 minus 240
3210

this guy is a professional trader, not a learner like me. His trading style is good though. making any position delta neutral is a very good strategy. And he knows what he was doing. 1000 lots of nifty.... hedged with 2000 lots of ATM puts.... in my dreams i could pay for that....:yahoo:

thanks for high-lighting the thread for me though... learnt a few things there...

All of us here are learners.....
It does'nt need 1000 lots, it can be done with 4 lots ATM options + 10 lots minifty
The principles are exactly the same, and would be interesting to see how much profit it yields.

That strategy is relatively simple one. where the bias is totally neutral. double the number of atm puts to the number of nifty longs. now based on the movement, they kept booking profits from the direction of the movement. the incremental booking of the profit was the key.

u cant play that without having a big exposure. thats their target. ROI target is just 5%.... what i failed to understand was that after one starts booking profit in one direction and if the market continues its direction upwards then what will happen to the puts.

its more like buying lots of new cars and buying double lots of insurance. sell the cars so that u can cover the cost of the insurance and make a decent profit.
in todays scenario, one has to try it with calls and nifty shorts. but the premium on the atm calls are very high and recovering money by expecting a big move down or up looks tough.

IMHO, a better strategy having the same effect would be to go for covered calls. or covered puts depending on ur bias.

what do u think....

I think 5% ROI is a big return for the strategy, it should be more like 2-3%.
The bigger the move, the bigger the profit. As the puts loose the futures profit increases.
Don't think of it as a continous process, do it 1 step at a time.
Put on position
Take profit
Put on position
Take profit
and over and over
Since you use options oracle, deltas are available from it.

edit: A large position is not necessary, just scale his position down to minifty

The best part of options is that u can make a lot of combination and play what you feel comfortable. The only time i use options to hedge positions in nifty is when i plan to carry it for the next day.

I don't use pairs at the time of initiation. I rather play naked nifty and with a tight SL and book profit/loss at the end of the day. If i am at a loss.... then as a rule, i will book my losses and wont attempt a recovery using options. If i am in profit and am not convinced of the direction then i'll book my profit. If i am into good profit and the cost of the option is a part of the profit, only then i'll hedge it with ATM or ITM option and carry it for the next day. i'll close the option within 10:30 and usually dont expect the option to give me much profit. its there just as an insurance, so that in case the market proves me wrong, i get an exit.

there are many in this forum who are good at using options as an investment tool. I just use it as a hedging tool to prevent losses. and i'm still learning to use it as a tool to generate income.

CUES-

--Nifty April future premium converted to discount of 4 points so cost of carry decreased..
--Nifty open interest increased by 25 lacs suggests short addition. (Total OI now at 4.57 cr which is dangerous)
--3400 puts had open interest of 48 lacs and 3500 calls had open interest of 60 lacs, so 3400 and 3500 will be important levels to watch for.
--India VIX closed at 49.43, increased by 3% suggests instability.

with a long week end coming up, there will be a lot of long un-winding.
expecting the market to be very choppy and heavy selling to come at 3480 - 3495 levels...

scrip cost present diff profit/loss
3400 CE 230.00 158.00 72.00 7,200.00
3400 PE 215.00 189.00 26.00 2,600.00
Nifty Futures 3,680.00 3,362.00 318.00 31,800.00


Total = 41,600.00


The position of the nifty straddle as of end of 28th April’2009

Script
3400 CE bought at 230 has a current price of Rs. 158 is at a profit of Rs.7200
3400 PE bought at 215 has a current price of Rs. 189 is at a profit of Rs.2600
Nifty Futures short Innitiated at the averaged price of 3680 has a current price of Rs. 3362 is at a profit of Rs.31800

Total = profit of Rs. 41600

Statistics

Cost of the straddle = 445.00
present price of the straddle = 347.00
Actual value of the straddle = 38.00
profit on straddle = 98.00
Profit on nifty = 318.00

total profit = 416.00

Activity today :
Market expexted to go for profit booking
sold long at 3441
shorted at 3440
covered it at 3410.
placed a buy at 3422
sl at 3425… got triggered
sold at 3419
bulls will defend 3390 - 3400…. Bears want to break this…
placed buy at 3415… let the fight go on….
already 100 points on the straddle…. Wow
market went to 3390 and rebounded….
in tight range now…. Expecting a recovering….
it can crack as well depending on euoropean open….
europe opened in the red…. Our market didn’t react… reversal might be on the card
covered at 3395… placed a sell at 3385….
placed a buy at 3418….
3400 spot broken….
sold at 3392…
went to a low of 3375…. Buying support at every 10 points fall….
went to a low of 3345…. Placed a buy at 3350
SL got hit….placed a sell trigger at 3352…
sold it at 3360….

nifty calculation
bought at3210, covered at 3441, points gained 231, -2 as brokerage, net gain of 229 points
sold at3440, covered at 3410, points gained 30, -2 as brokerage, net gain of 28 points
bought at3422, covered at 3425, points gained 3, -2 as brokerage, net gain of 1 points
sold at3419, covered at 3395, points gained 24, -2 as brokerage, net gain of 22 points
sold at3392, covered at 3350, points gained 42, -2 as brokerage, net gain of 40 points

effective cost of nifty short = last place shorted, 3360 plus 320
3680