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

[osho343]

This is how Leeson blew up the centuries old Barrings bank, and then called himself the rogue trader.

thanks for his name read the wikipedia...

 

[amitdesai]

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

As a trader, you need to understand the importance of stoploss. SL is used to prevent any one trade from creating a serious dent in your trading capital. SL in long options does not work the same way it works in long/short futures.

I do not know the details of this trader. But if you look at my post, I have done backtesting on long strangles. In my study, I use only a small percentage of my capital to go long on a strangle. e.g 5%

to put this in perspective, you need to have 5 consecutive months where Nifty is rangebound AND this will create a 25% drawdown. In my backtesting, I have seen much less drawdown for 5% risk.

One more point, long options has an automatic SL meaning your losses are limited to the buy price. So it really does not need a SL. You need to make sure that you only buy options worth your risk level. Eg -
if you have 2 lac as your trading capital and your risk level on a single trade is 5%. Then your risk level is Rs. 10,000. Now on a single trade you have to buy options only worth 10K. If Nifty stays rangebound, you will lose all 10K and that is your SL. if you have 5 rangebound months, that will put a 25% dent in your capital. I dont think this has happened in the history of Nifty that it has stayed in a range for 5 straight months.

Hope, you have understood the idea of SL and how it works in long options. Then you can design your own trades and manage it accordingly. Make sure you stick to your design no matter what. This strategy gives you many small losses and few big profits but as per my study, profits have trumped the losses in the past. As you know, past performance does not guarantee future performance but that is true for anything you do in the market.

 

[prakash.thakor]

Hell Cubt,

1. I request you to Please Explain When or How to EXIT both position of CE and PE
Please Explain with Example.


2. How you come to know Resistance and Support level.
Please Explain with Example.




Thanks,

 

[faizan26]

Thanks ... But Nifty move to Up . than how strategy work ?

 

[mmohanar]

Good strategy

 

[himanshu06]

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.

Looks like nice strategy considering that you have been making profit since 2005. I have seen very few people who make consistent profit. If you are making even 20% per month than it is really awesome return provided it is consistent.
By the way, how much loss do you bear when you make exit? Till what date you wait and make exit decision. You have clearly mentioned your entry point but want to know about exit too.

 

[himanshu06]

Dear Cubt,

I was going through your post and found it interesting. Would it possible for you to tell how it is going now and the past performance of it? Is this strategy giving good and consistent profit?
Do let me know if you have done any changes/fine tuning of this strategy?

 

[sg_pappu25]

Hello, this strategy works only when u are sure there will be a big move in either direction. But what if it doesnot move and go up a little and stays there, or falls from that point. IF we know it will go up why not buy a naked call and make our money double and triple. Bcoz most of the time it doesnot move in a big way,..and money cannot be based on assumptions. :rofl:

 

[sokkikumar]

Thanks brother!!!

 

[karthickOxygen2]

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.

Hi,

What if it is done intraday? If "Time decay and theta impact" were the problems, then no one should ever buy an option right?
In which way, "Time decay and theta impact" plays a vital role in long straddle and lesser impact in usual "option buying"?
I know, things could not be that simple. I am curious to know from experienced traders, what stops the below strategy?

If done intraday, I think the break even point has the following things to consider,
1. Spread/(AskBid price difference)

2. Brokerage
3. Volatility