Analysis of Thoughts and Trades on Options by munde

The thread trades on options 2 is in close relation to Thoughts and Trades on Options. http://www.traderji.com/options/91666-thoughts-trades-options.html#post917766

I wish to analyse thoughts and trades on options because trade on options 2 is a different version of the same technique . And also I didnt have the good fortune nor requisite knowledge then to participate in that thread. Adding here since that is a read only thread and further wish to expound and discuss on that idea.

Going by that technique for november series.

Sell 8000 CE 163 - 50
Sell 8000 PE 80 - 100

Not buying any cover downside or upside (condor) as that would move just like the above leg providing a cover for max loss on both sides and can be visualised.

Why 1:2 for neutrality sake.

I would slowly add as time permits how I percieve the whole idea.

Using this pic as reference for data http://i.imgur.com/4B9CxmK.png

Assuming hypothetically vega and theta remain constant let us check scenarios.

a) nifty moves straight towards north.
We see Nifty moves, CE values , Pe values, Adjustment

Nifty moves +100 from 8027 to 8127
8000 CE 233 (-70)
8000 PE 52 (28)(28) = (+56)

Adjustment

Sell 8200 PE 120 - 100
Buy back and take profit = +56 on 8000 PE

Nifty 8227

8000 CE 312 (-149)
8200 PE 80 (+80)

Sell PE 171 and buy back +80. Total profit = 136

Nifty 8427
8000 CE 490 (-327)
PE 80 (+182)
BUY BACK 182 tOTAL 318. sELL pe 242

NIFTY 8627
8000 ce 680 (-520)
PE 120 (+244)
BUYBACK =+244 TOTAL +560. sELL PE 330

A 600 point upmove will ensure that we are still in profits assuming theta profit is 0 and vega remains the same. Hence the upside is completely protected by 1:2 ratio.

From the above if nifty closes above 8027 till end of series then we get whole a lot of that premiums.

I wish life would be so simple!

You think it would work in some other way. Feel free to share since you do something this kind. Please limit all ideas to nifty going up....
Assume nifty can never go down .

I mean nifty would move up and down in the positive territory , so it would not be so easy to adjust.

600 point upmove would give 280 points if it had been 1 lot nifty. Intrinsic value of 8000 CE = 627. Intrinsic value of PE would be 373. 1000 point intrinsic value on settlement. A profit of 280+ 240 doesnt make sense. The intrinsic gap between the selling pairs cannot increase beyond the total premium that can be earned.

Eg With 7800 CE value 312, 8300 PE value 240. Total premium 552. Total intrinsic value 500. IF nift reaches either of these point. If i sell lower or higher than that then I risk paying the entire intrinsic value if nifty reverses. Hence adjustments to be done only till the point where intrinsic value = sum of premium that will be earned + that which is earned by adjustment. In that case you run the risk of loosing not more than what you have earned. Beyond that it is better to square off as loss.

This technique works in short condors as well. Shorts with protections.
For example
Nifty: 8000
Short 8500CE long 8600 CE
Short 7500CE Long 7400 CE

As nifty moves in one direction. We can leg in in the other direction. Nifty moves to 8100. Book profits in PE and rollover. The thing we do here is as nifty moves 200 points towards one end we get the other end also 200 points closer. So a reversal to back to mid point would still involve rolling up the other end.

Hence 500 point move in one direction would take us to ATM in both points.
Also 200 point upmove and 300 point downmove or vice versa would take us ATM at both the points.

The regular condor gives losses only when nifty moves above 500 points in 1 direction up or down while it gives less returns and huge losses when it does.

The adjusted condor now will give more returns if nifty doesnt show movement of 500+ in either direction or a whipsaw summing 500. Losses would be less if it does.