15% Guaranteed Returns - Buy both Call & Put options Strategy

Hi,

I have back tested this strategy & it worked perfectly. I have been trying out this strategy for couple of weeks. Its been giving consistent returns of around 15 to 20%, but am curious to know if any of the members have already tried this.


Strategy:

Investment needed: Rs.10,000
Suitable Trading days: 1st to 20th of every month (Better to avoid last week of expiry)

This strategy will give best returns when you expect Nifty or any stock to move either ways with big move.

Example: Nifty Spot (5700)
Trade: Buy Nifty Call 5800 & Nifty Put 5600.

Say Nifty CE 5800 is 50Rs. & Nifty PE 5600 50Rs. (Just a rough figure)

Buy 2 lots of Put & Call options, so total investment = 50*100+50*100=10,000Rs.

If Nifty breaks resistance and keeps moving higher, Nifty CE 5800 value (Rs.50) will increase.
If Nifty breaks support and keeps moving lower Nifty PE 5600 value (Rs.50) will decrease.

Say if Nifty SPOT is 5500 now, then your investment value will be Nifty CE 5800==Rs.9 & Nifty PE 5600 ==Rs.120

Total value = 9*100+120*100=Rs.12900

Total Profit=Rs.10,000-12,900= Rs.2,900.

Your Returns is 29%.

I tried this with high volatile stocks like DLF & Nifty, it worked fine.

Please do let me know if anyone already tried this strategy?

What is new in this Strategy?

Sai,

I dint claim its a new strategy. I know many beginners struggle to make profit in option trading. Even I was one of the victim when I started trading 5 years ago.

It is the strategy am following now and curious to know if anyone is already following it & making profit

Found this article in wiki- so actually my question is how many of us here are following long straddle strategy?

A long straddle involves going long, i.e., purchasing, both a call option and a put option on some stock, interest rate, index or other underlying. The two options are bought at the same strike price and expire at the same time. The owner of a long straddle makes a profit if the underlying price moves a long way from the strike price, either above or below. Thus, an investor may take a long straddle position if he thinks the market is highly volatile, but does not know in which direction it is going to move. This position is a limited risk, since the most a purchaser may lose is the cost of both options. At the same time, there is unlimited profit potential.[1]


For example, company XYZ is set to release its quarterly financial results in two weeks. A trader believes that the release of these results will cause a large movement in the price of XYZ's stock, but does not know whether the price will go up or down. He can enter into a long straddle, where he gets a profit no matter which way the price of XYZ stock moves, if the price changes enough either way. If the price goes up enough, he uses the call option and ignores the put option. If the price goes down, he uses the put option and ignores the call option. If the price does not change enough, he loses money, up to the total amount paid for the two options. The risk is limited by the total premium paid for the options, as opposed to the short straddle where the risk is virtually unlimited.

Time decay and theta impact.

You sure you did any back testing on it and so, what software did you use to do so?

By the way: Long strangle.

Yes, Time Decay matters when you hold it for a longer period.

Entry point is important here, We need to enter only at the Support or Resistance level. So that there is high chance the stock or index would move either ways.

So as soon as the resistance or support breaks, a huge move happens. With that, either Put or call option value increases. By exiting at this level, we could make returns of around 15%.

Appreciate your inputs!!

What do you want to discuss now: Long strangle or long straddle?

Dear Tcube.in

Long straddle and long strangle is and was discussed in my thread.

http://www.traderji.com/options/66266-option-trading-danpickup.html#post639903

If you want to play S&R levels with that strategies, which is surely not a bad idea, then consider where vola is low and where vola is high and you are on the right path.

Good trading / DanPickUp

Curious to know which one is better Long strangle or long straddle?

I have been following Long strangle and I was able to make profit because I enter the trade only when I expect certain volatility.

Thanks for your input, Dan.