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

[Karanm]

Expecting more or less 30% earnings per month. That I purchased 8550 CE (DEC)@96 & 8500 PE (DEC) @92, when Nifty Futures was on 8525-8530 27.11.14, that mines total premium I spend 188. If Nifty crosses 8750 (higher probability) or down below 8300 you get your profit starting. But you need expertise to do that if you need more significant profit. I already sold my PE Option contract @65 because market is surely in uptrend, purchase PE again if it sleeps below 8475. Disclaimer- Obviously risk associate with it as you trading in stock market. But I get 9/10 times profit of 12 months.

What Stop Loss do you keep because in case you win 9 out of 12 Trades but without a Stop loss it can be NO PROFIT NO LOSS STRATEGY.

 

[Karanm]

Expecting more or less 30% earnings per month. That I purchased 8550 CE (DEC)@96 & 8500 PE (DEC) @92, when Nifty Futures was on 8525-8530 27.11.14, that mines total premium I spend 188. If Nifty crosses 8750 (higher probability) or down below 8300 you get your profit starting. But you need expertise to do that if you need more significant profit. I already sold my PE Option contract @65 because market is surely in uptrend, purchase PE again if it sleeps below 8475. Disclaimer- Obviously risk associate with it as you trading in stock market. But I get 9/10 times profit of 12 months.

Sir, I just want to know what Stop Loss due you keep because if you win 9 out 12 Trades @ 30%, you will earn 270% and if there is no Stop Loss then you may loose 300% in remaining 3 Trades.

Kindly update regarding the Stop Loss you keep and till how long you stay in the Trade as Time Decay will make you loose your Investment day after day if Nifty stays range bound.

Hope you will reply this time at the earliest possible.

Thanks & Regards

 

[rajputz]

Strategy may sound good on paper. But consider the two things: -

1. Where will you consider taking profit. Exit Strategy in profit. Thats the most tricky part. You may exit at 10 20 or 30 percent. Or may wait for more when actually it drags down again and you still hoping for it to recover and watching premium burn.

2. What if it may stay range bound for the whole trading month. It has happened many times. Still the outcome will be close to 0 or a huge loss in percentage terms.

Regards

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?

 

[amitdesai]

Hi,
I have been working on an Excel VBA code to test my option hypothesis. My hypothesis was writing short strangle every month and backtest on Nofty and BankNifty.

Ofcourse this test was far from real-world becasue of following restrictions -

• 
  My close prices were taken from index data

• option prices were calculated using assumed volatility (18% for Nifty, 22% for BankNifty)

• assumed interest of 10%

• assumed dividend of 1%

• i used strikes as a parameter. e.g 1% means i will use put, call stike that is 1% away from current price. it will be rounded to nearest actual strike (e.g 7887 will be rounded to 7900)

The result was that I was getting consistent losses. So I reversed my logic to keep going long on the strangle and I got good results. Although I cannot share the code, I want to show my dashboard page. Ofcourse as I dont need to tell, this result is using a lot of assumptions (I have tried to make them realistic but some just may not be).

Results

• 
  Trade is taken on expiry date for the next expiry

• Strike 1 is 3% away from current close price on trade day. I have tested using 0% to 5%

• ADX Param is not being used

• Option Step is to set the strike price closest to nearest actual strike

• Volatility used to calcualte option price

• Long Volatility Diff is not used - I had used to see what happens if call options is calculated with different volatility as in real world. Results were not much different, so I am not using it

• Interest, Dividend - used to calculate option price

• NPER - # of yrs of testing

• PV - initial capital used

• drawdown, CAGR - actual results

• Risk level - 20% of capital (20% of 55K = 11K) is used to buy whatever options I can. as the capital increases/decreases, so is the # of lots. sometimes capital can increase but option may cost more, so we get less lots. min 1 lot, max 500

• rest - self-explanatory

 

[babusamuel]

Dear friend...

Thanks for Very good trading idea... but pl inform me the idle time to buy options bcos when at opening 9.15 most of the OTM options price are higher side, according to you 9.30am 10 am or 11 am which is the most suitable time to enter ……

Regards
Babu

 

[umeshmandal]

Please name 5 (five) Stock Options that are most liquid on NSE ! The BUY / SELL spread should not be big!

 

[intime]

Never underestimate impact of time decay on options...most evil thing like boiling frog syndrome

 

[intime]

Moreover difficult to put stop loss

 

[amitdesai]

Dear friend...

Thanks for Very good trading idea... but pl inform me the idle time to buy options bcos when at opening 9.15 most of the OTM options price are higher side, according to you 9.30am 10 am or 11 am which is the most suitable time to enter ……

Regards
Babu

I am not a full time trader, so I buy around 9:30-10 AM due to my restrictions. This strategy will not dent your profits that much because it involves infrequent trading and larger profits. 1 trade typically lasts for 1 month.

 

[amitdesai]

Never underestimate impact of time decay on options...most evil thing like boiling frog syndrome

Time decay *only* helps if the price of the security does not move and/or the IV is higher than actual volatility. But in case of Nifty, this has not been the case for past 18 years (see my dashboard above). So buying strangles seems to be more profitable prima facie.