A new strategy, need opinions

[OptionQuant]

Administrator, Please Delete this thread. It was a stupid idea

 

[travi]

I don't know whether this is already a famous strategy or not.

BN is at 25000 or so.

Suppose one believes that BN is pretty near the top, and can have only a limited rise, say by no more than 5000 points over the next 6 months to a year. That is the belief. Then you do this -
a) Sell one lot of future BN
b) Sell one lot of BN puts (weekly) at ATM (approx price = 200 per put)

At end of period, if BN falls, you are covered by future. Settle it and eat the premium.

If BN rises, the premium is got for free, but future loses. Rise can be certainly more than 200 Rs premium and you could be in a loss. At expiry, sell a put of next week. Just continue like this. Since we assumed BN rise is limited, it will drop below the original price of 25000. Exit then. Basically you are just eating 200 Rs premium free per week as BN yoyos up and down.

But you have to pay out week after week if BN rises, You need liquid capital for that. That is 5000 x 40 = Rs 2 lacs. We add another Rs 2 lacs for safety. So capital = Rs 4 lacs.

Every week you make 200 x 40 = 8000. Every year it works out to 8000 x 52 weeks = 4 lacs approx.

Is there a fallacy here

There are a more viable variations of this and you can find them in the forum.

With this specific idea of yours, it starts of with a suicidal thought of capping upside.

Short of time but
When upside is unlimited and downside is limited, i'd rather be long in the spot and sell calls,
so buy bankbees and sell calls

and the dumbest part is to leverage this type of thing (using futures although its theoretically possible)
so its better to pay up 100% in cash when initiating the strategy (bankbees), or have 100% Futures capital in the a/c
ultimately however deep the correction, you can always recover in rebound with patience.

Imagine for example you started what you did in Jan 2017, where would you be now ?

 

[newtrader101]

Administrator, Please Delete this thread. It was a stupid idea

No idea is stupid. You can't learn without making mistakes.