Annual Tryst of NIFTY with the Union Budget

[Sunil]

Nifty recorded a low of around 3910 (11% down from the close of the day prior to the Budget speech), and and has re-entered the congestion zone of 4250-4350, which only time will tell whether it's a corrective upmove or not.

4300 zone is 62% of budget's fall AND 50% from 2009 high

 

[Sunil]

WANTED TO ADD FEW THINGS ABOUT OPTION STRATEGIES AHEAD OF THE BUDGET DAY:

Buying Option Straddles a couple of days before the event. and letting it run for 1-2 weeks - IS it worth???

Found two very oldthreads on the same matter:
http://www.traderji.com/options/1614-will-straddle-nifty-option-budget-period-suitable.html
http://www.traderji.com/equities/1504-budget-market.html

[B][U]Year[/U][/B]                                       [B][U]Cumulative Nifty Movement[/U][/B]

2000                                                  12%
2001                                                  14%
2002                                                 (sideways) :mad:
2003                                                  6%
2004                                                  3% :mad:
2005                                                  5%  :(
2006                                                  6%
2007                                                  8%
2008                                                  15%

We see that ATM Straddles could juice out decent returns on 6 out of 9 occasions in the current decade.

Coincidentally, 2000, 2001 & 2008 (all 3 considered as bearish years) gave a double-digit return.

Budget speech's date (last working day of February) coincides with the start of the new series in the F&O segment, and thus, the option preimiums tend to quote at a higher than normal rates, due to high IVs because of the important market-moving & upcoming Budget day.
Thus, it may not be necessary that ATM Straddles or even Strangles result in decent profit, as the breakeven levels may be too far.

An ATM straddle (4400 strike price) was worth around Rs 400/- a couple of days before the budget on 6-July-09. After 5 trading sessions and even after a 9%+ uni-directional move, it barely managed to give some profit... Adding to the woes, the corrective counter-trend move results in eating of profits as expiry day nears. As of today, the straddle is quoting below cost.


Looked around the forum, and I found few gem of a post by members AW10 and Arnav_rulz - who are well-admired for their options trading & practical knowledge.
I am quoting their posts here, so that they can help in future budget/big news events.

my strategy was to benefit from high premium - so sold 4300 straddle (@430rs) on thursday (2 days prior to budget speech). Protected the downside by 3800 put in 45 rs. Upper beven was beyond 4700 which was recent high so did not expect that mkt will stay above that level. So took calculated risk on upside.

On thursday, also took covered futures position at long nf @4333 and sold double 4500 call @131. This is to benefit from any bullish pull till 4500/4600 level. Delta neutral position as long nf had delta of +1, when 2 short call gave delta of -1.. So net delta very close to 0.

On monday (the budget speech day - which started on a sour note of high fiscal deficit), closed nf covered future trade. I looking the big weakness, decided to break this trade and exited nf first by 11.15 am and closed short 4500 call in the evening.
My short straddle is still open, will close it as market comes near 4300. Till that time, i am happy to collect time decay. Today mkt did not make new low gives me comfort that
it is not falling further. Closed the 3800 put (and cut the loss), that i bought to hedge the straddle as market has become lot more reasonable after the event.

On monday, near the close, also built up covered nf position @4146 level and selling double 4300 call. My stop for covered position is at 4000 and the risk money is collected by short call
premium. Again delta neutral on market now.

In short the strategy has been - 1) exploit high premium by collecting it 2) don't predict the direction and remain delta neutral 3) keep risk within reasonable limit

aur boss, i am not yet master so please don't embarrass me with such titles. More i know about the subject, more i feel how ignorant i am..

Happy trading.

these sentences are my notes for guiding the dates

--------------------------------------------------------------------------------------------------------------------------------

Ohk.. trying a Completely different type of Options Strategy...

Strangle + Calender Spread !!

Selling 4000 July Pe @ 80 And buying Aug 4000 Pe @ 140
Selling 4800 July CE @ 55 And buying Aug 4800 CE @ 105

Total Investment = 110 points.. Looking to hold till Expiry.. Lets see

Not sure, if this is correct approach, but on checking the prices of
Call 4800 @ 60/-
&
Put 4000 @ 72/-
(the two equidistant strikes),

it gives a mild signal of 4000 more likely....

Never observed this before - let' see same time, next week
BTW, it's also the cheapest strangle

PS: Arnav - please pitch in your views

Well, coincidentally or what, Nifty went towards & below 4000

Ahh Sunil Bhai 4000 & 4800 Maybe equidistant but generally what ive seen.. Thr is always a difference btw equidistant Strike price Call/Put and it is generally in favor of Puts..

I dont know the reason behind.. This is one thing in Options i dont get...

Ive tried many logics but none seem to convince me.. the only one that looks a bit satisfactory to me is..

Say Nifty nifty is at 5000.

Equidistant Put are 4500 & 5500

Now if market goes up down 10%.. Then to reach 5500 it has to increase by more than 20%.. Whereas if maket initially goes up by 10% then to reach 4500 it has to fall by less than 20%..

I dont know if you get what im trying to say.. But i feel this is the reason Puts of equidistant prices are generally higher.. I maybe totally wrong as well..

And as for a strangle i would prefer 4100 and 4700 !! i generally feel Options of Known/important Strike Prices **00's/Key Prices(like4800) trade a bit higher and tend to fall very quickly.. But that may just be an assumption.. Risk Factor is the most important factor !!

----------------------------------------------------------------------------------------------------------------------------

My 2nd options strategy for the Budget..

Buy 3900 Put @ 60
Sell 3 3700 Put @ 30 (90)

Buy 4700 Call @ 80
Sell 3 4900 Call @ 40 (120)

Received a total of 70 Points...

G E N I U S
:thumb: :clapping:

If u have taken this, I would pray it settles at 3800 or 4800 (4900 icing, but coming back to ground)

this is called sleeping profit strategy -
only issue - for 6 "sell" options, one needs that much margin, as it would be MTM

Thanks Sunil Bhai..

Luckily Margin not that big a deal for me.. Thanks to my Pledged long term stocks

I too am in love with this strategy right now..

1)Helps me In case of No-directional move.
2)Even in case of heavy (not very heavy) Move say downward.. My 4000 Puts would cover Most of the Losses Of the gain in 3800 Put
3) While the Downward move is covered.. The Strategy in Calls would become very profitable..

Just a wait and watch situation now.. Lets Hope it works out well

since i have this options excel calculator ready:
if, on 30-July-09, Nifty settles ANYWHERE between 3600 & 5000, you will end in profit (the same 70 pts of initial credit).
Cake = 3800 / 4800
Icing on cake = 4900

Infact, if u wanna increase your profit, sell 1 more lot of the same put & call (instead of 3, sell 4) and so on

I agree.. Above 5000 or below 3600 (though unlikely it will reach thr) The risk is toooo high..

In Both the strategies i have taken.. I play to square off trades before the expiry or If i feel prices are coming nearer to my break even point..
Cant take a lot of risk man..

Boond boond se samundar banana chahta hoon !!

 

[Sunil]

Target of rectangle 4450-4250 ie 4050 attained today.
Nifty came down 8% from Friday's (a day prior to Budget speech) close.

There was a brief failed breakout above 4480 on Budget day - although it did not sustain too long, I reckon it deserves 3850 for such failed upmove.
Break of H&S on EOD chart can give some push down...


(PS: after one week, I will close this thread until 15-Feb-2010 - no need to ask why this date!!!)

(on a lighter tone as a parting note):

Investors want the market to go up...
Traders want the market to go anywhere but not sideways...
BUT THE HAMMER LIES IN THE HANDS OF THE JUDGE/MY LORD = MARKET

THE COURT IS ADJOURNED TILL 15-FEB-2010



God willing, I will be there to plan & trade the Feb 2010 scenario...

 

[AW10]

Sunil, one of the best thread of recent time. You just made it more valuable by collecting some good posts on how to trade situations.

Sad, that we have to wait for another 6 months for next event.

Happy Trading

 

[WOD]

(on a lighter tone as a parting note):

Investors want the market to go up...
Traders want the market to go anywhere but not sideways...
BUT THE HAMMER LIES IN THE HANDS OF THE JUDGE/MY LORD = MARKET

THE COURT IS ADJOURNED TILL 15-FEB-2010



God willing, I will be there to plan & trade the Feb 2010 scenario...

Sunil, I am confused if you are saying that market gonna touch new heights in Feb 2010 then gonnna collapse or something else....anyways wanna figure out this myself...

Though I am still not able to get underlying message behind this; will continue trying hard to understand what this entire messages means in minute details....but know one thing for sure, If I could get this message right then I could hit a jackpot in time to come.......