Delta Netural Strategy (short Strangle)

[[email protected]]

Friday, August 19, 2005.

FUTURE INDEX NIFTY LTP (LAST TRADED PRICE) Rs.2384

We are now Long 500 future index Nifty at Rs.2384.40 and short the following options.

5 Calls SP2380 SOLD LTD Rs.27.75
5 Put SP2340 SOLD LTP Rs.11.50
5 Put SP2380 SOLD LTP Rs.22.00

Total: 61.25 x 500(5 Contracts)=30625.00

Total Premium Collected for the above contract was Rs.31425.00 (23475.00+7950)

Despite we have been wrong again; still we do not suffer any loss. More over from this point the time decay on the short option contracts is going to be largest and thus will provide us extra cushion.

At this stage trade does not need any adjustment. We will be selling some calls if Nifty starts drifting apart, which will not be necessary as the Nifty is still in the bullish mode.

We will see how the Nifty acts.

Wastej

 

[Saint]

Superb thread!!!Great education,wastej.........Thanx!!

Saint

 

[gvnarendra]

Very good strategy. Please explain all other strategies in Options like this so that we can learn fast. This is the best learning thread for me.
gvnaredra

 

[[email protected]]

Hi gvnarendra,

The trade in progress will end on August 25, 2005. I will start new trade which will also be Delta netural Strategy (Long Stock and Long Put) I think It will be easy to learn as compare to short strangle. I need feed back, the choice of stock on which I should put a trade on. All I am looking for is highly volatile and liquid stock. It should also have options (Active and High Volume).

Please do provide your input.

Thanks,

Wastej

 

[gvnarendra]

Hi gvnarendra,

The trade in progress will end on August 25, 2005. I will start new trade which will also be Delta netural Strategy (Long Stock and Long Put) I think It will be easy to learn as compare to short strangle. I need feed back, the choice of stock on which I should put a trade on. All I am looking for is highly volatile and liquid stock. It should also have options (Active and High Volume).

Please do provide your input.

Thanks,

Wastej

Hi [email protected]
In Indian stock market the options are not traded in high vloumes because of lack of knowledge about it. However it may improve exponetially in the coming years. In the options category Nifty is traded with considrable volume. Therefore it is best to trade in Nifty because of the liquidity. So please explain all the different strategies which you are going to tell using the Nifty only. It is my opinion. However if other forum members want different stock to be considered you please consider that also. I thank you for the beautiful learing process you have initiated.
gvnarendra

 

[lokanathpai]

Excellant writeup wastej... I never came across like this running commentary in trades..
really it is opening a new way 2 gain.. please keep up writing write-ups like this.. thanks a lot for teaching this stuff with real time example...

 

[lokanathpai]

Hi [email protected]
In Indian stock market the options are not traded in high vloumes because of lack of knowledge about it. However it may improve exponetially in the coming years. In the options category Nifty is traded with considrable volume. Therefore it is best to trade in Nifty because of the liquidity. So please explain all the different strategies which you are going to tell using the Nifty only. It is my opinion. However if other forum members want different stock to be considered you please consider that also. I thank you for the beautiful learing process you have initiated.
gvnarendra

Dear narndra,

Just stick to NIFTY inIndian market. it provides you good trades in futures as well as options... it is always trending and rarely will be in trading range..

 

[[email protected]]

gvnarendra & Lokanathpai,

Thanks for your input. One more thing I need to know, so please help me. When we talk about Nifty index, do we mean its future or the index itself, does it trade? I never see any volume when I see the quotes of Nifty but with future it is different story. Usually their quote are not same either.

Thanks in anticipation of getting good explanation.

WasteJ

 

[gvnarendra]

gvnarendra & Lokanathpai,

Thanks for your input. One more thing I need to know, so please help me. When we talk about Nifty index, do we mean its future or the index itself, does it trade? I never see any volume when I see the quotes of Nifty but with future it is different story. Usually their quote are not same either.

Thanks in anticipation of getting good explanation.

WasteJ

Hi [email protected],
"Nifty Index" is the index itself . It does not have any volume since it can not be traded. "Nifty Future" is nifty index future which can be traded in which you see the volume. Usually there will be difference in quotes of the two. The difference is called basis. It may be +ve or -ve as the investors sentiment goes. If it is +ve it is called premium and if it is -ve it is called discount.
gvnarendra

 

[[email protected]]

What a move by Nifty! Nifty has been all over. We are again wrong. I think we have been more wrong than right. Despite being wrong several times, let us see where do we stand now in terms of our trade.

Nifty futures LTP (Expires 25th August, 2005.) Rs.2365.50

Short 5 Calls SP2380 Rs.14.00
Short 5 Puts SP2340 Rs.8.55
Short 5 Puts SP2380 Rs.25.60

Since we were stopped out on our Long 500 future at a stop loss price of 2374.40 therefore we suffered a loss of Rs.5000.00, as the stop loss was 10 points from the entry position.(10x500=5000)

The market value of the trade, if we were to close, we will be buying what we sold. By adding all the three outstanding trades total 48.15 x 500 = 24.075.00

We never invested our money in the trade all we did was collected premiums by selling calls and puts with one exception i.e., Going Long on the Nifty futures. Which gave us loss of Rs.5000.00.

Now we will deduct this loss out of the total premium sold which was 31425.00-5000=26425.00
If we have to close the position as of now it will cost 24075.00 thus leaving some money as profit.

Despite all that Nifty has done to us, we have not accepted any losses.

So far we have remaining premium of Rs.26425.00 and the nifty is standing at 2365.50 levels. The only option, which is in the money, is the 5 puts with SP of 2380.00. First we have to plug in the loss this position can give us (If Nifty keep going South). So we will go short on Nifty futures obviously with stop loss at the strike price, which is 2380 and thus will risk Rs.7250.00 (14.50x500) 14.50 being the distance from where the Nifty is now and the stop loss of 2380.00

Action short 500 Nifty futures at 2365.50 with stop loss of 2380.00

Buy taking above action we are risking additional 7250 out of total premium we have collected and left with us, by now which is 26425.00. Now let us see how can we collect this premium back by selling additional calls.

Let us be little aggressive and sell 10 Calls SP 2400 of Nifty futures at Rs.8.00 by doing this we will collect Rs.8000.00 in premium and will bring our balance of premium collected to Rs 26424+8000= Rs.34424.00.

Action: We will place two buy stop orders first To buy Nifty futures (500) at stop order limit of 2380.00 and the second order will be for additional 1000 Nifty futures at a stop order limit of 2400.00 Buy doing this we will plug in our loss if Nifty starts going back North.( Buy stop order Limit means that the order will mature only if it hits limit, in this case, it is 2380 and 2400.)

Note: If any order is executed than stop loss order must be placed (Say Rs.5.00 to Rs.10.00 Lower than the entry point).

Let us see how Nifty plays.

WasteJ