Trading options with one month view

Hi, I am learning to trade options with one month view. I have paper traded options strategies like, straddle, strangle, covered call and credit spreads. These I have done with 2 to 3 days investment frame. Now I have taken a real trade of Call debit spread with one month view.

Buy 2 lots Call 6200 Nifty Option and Sell 2 lots Call 6300 Nifty option for a total debit of 2245 rupees. My view is bulllish for one month till expiry on 31 october. Initially I had planned to hold this trade till last week of October as I am willing to lose the entire 2245 to learn trade management.

I had irrationally taken this trade and hence there is no clear strategy of making adjustments till expiry. But after I took this trade with one month view, some questions came to my mind. Maybe people who are trading options strategy with this frame will know the answer.

How long does it take to enter the full strategies (i.e. all legs) if dealing with one month view. I have read that experts do not enter entire trade at one go but do leg by leg. Also after entering the entire strategy what is the monitoring frequency daily or weekly.

Reki

Hi, kindly ignore the trade I mentioned in my above post. What could be the ideal frequency of monitoring options strategy which is created with one month view in mind. i.e. all legs are entered on 1st of the month and expiry is on 30/31 of the month. Should it be daily or weekly.

Reki

First of all why do you keep one month view? You are trading for profit so suppose if the disired profit comes in a week's time still you will keep it for 1 month?
I'm not able to understand your question on "what could be the ideal frequency of monitoring the trade"...if you have traded anything in the market you must monitor it during market hours and do the adjustments if required on daily basis.

If your question is about adding legs to the existing spread or options position, it depends on the change in the market condition compared to the original view you had while entering the trade. Since you already know many option startegies, try to execute them! :thumb:

At that point, you will start seeing profit only if NIFTY_F1 crosses above 6223. I am not considering brokerage and trade expenses. Max profit
in this trade of yours will be approx 7700

What is your definition of "One month trade"?

I'd recommend Monitoring frequency of 15 minutes or less.

Hi Ananths, I will be moving to a new job and a new city shortly. Due to this I will not be in a position to monitor market activity on intraday basis, maybe I can do it daily basis. I really do not want to bother myself too much managing trades daily. Even at the cost of return. So maybe 3 or 4 trades in a month should be fine and these include adjustments trades. Every where I have seen here that mostly people are doing stuff for 1 day or 2 day view. Even I paper traded with less than a week frame. I am sure that there would be some way the institutions work with longer frame of one month or even higher involving next months options. I am CA by qualification so my inner belief more relies of fundamental rather than techincal stuff. For this purpose I was exporing if I could get some ideas of longer term options trading

Reki

Target must be profit not the time and secondly options are for ruining portfolio if one is not capable of controlling trade

for trading longer term options keep eyes on news flow instead of technical stuff:thumb:JaiRam Ji ki

Hi Mastermind007, you are right about the breakeven point but I feel nifty may go beyond this point. I may be wrong but this is my monthly view given the positive sentiments building up. It is more of a fundamental and little bit of techincal element too.

15 minitues monitoring will be just not possible for me.

Reki

Hi Praveen, absolutely correct, more of fundamental events, news, shift than technical.

Reki

I have learnt that when it comes to trading in options for relatively longer term (like one month), its best to take a neutral view of the markets. You might feel that markets will go up, and actually might. But it could go back down by the time options expire.

That's why, for one month trades, iron condors are the best because they have a higher probability of success. I do a "6% strikes wide" Iron condors when I'm trading with Nifty Options. This is what I do -

1) Look at the Nifty spot price. It is at 5907 right now.
2) 3% of 5907 is 177
3) Adding 177 to 5907, you get 6084.
4) Choose the strike closest to 6084 for writing the call option.
5) Sell 6100 Call option and pocket Rs. 90 per lot (90 x 50 = Rs. 4,500)
6) Ignore the newly introduced 6150 strike price.
7) Buy 6200 Call option by paying Rs. 55. (55 x 50 = Rs. 2,750)

You will receive a net credit of Rs. 1750 (4500 minus 2750) on the call side of the trade. Similarly, do it on the put side.

1) Subtract 177 from 5907. You get 5730
2) Choose strike closest to 5730 for writing put option.
3) Sell 5700 Put option and pocket Rs. 74 per lot (74 x 50 = Rs. 3,700)
4) Buy 5600 Put option by paying Rs. 55 per lot (55 x 50 = Rs. 2,750)

You will receive a net credit of Rs. 950 (3700 minus 2750) on the put side of the trade.

Max profit = 1750 + 950 = Rs. 2,700
Max loss = ((100 x 50) - 2700)) = Rs. 2,300

You will make money as long as Nifty stays in a wide 6% range of 5700 and 6100.

Do this every month and stay within the 6% strikes, and you will make a minimum of 20% returns per year on capital - even during volatile times. Your returns could be in the range of 30% plus, in a range bound market.