Delta Neutral Strategy (Long Nifty @ Long Puts)

[SGM]

Hello

Today the Market gave us 3 trades

1. Sold 100 NF @ 3692
2. Bot 100 NF @ 3645
3. Sold NF @ 3695

Current Position (Day end May 09, 2006)

- 500 Long Nifty Futures (25th May, 2006) @ 3600
- 1600 Long Nifty SP3600 Puts (25th May, 2006) @ 81.00

Realized Gains

Sold 100 NF @ 3600 at 3624.50 = Rs. 2,350 (net aftr brokerage)
Sold 100 NF @ 3600 at 3655.00 = Rs. 5,400 (net aftr brokerage)
Sold 100 NF @ 3618.50 at 3675.00 = Rs. 5,500 (net aftr brokerage)
Sold 100 NF @ 3600 at 3692.00 = Rs. 9,100 (net aftr brokerage)
Sold 100 NF @ 3645 at 3695.00 = Rs. 4,900 (net aftr brokerage)

Gain in Equity
500 Nifty Futures @ 3600 current 3715 = Rs. 57,500/-

Draw down in Equity
1600 Nifty SP3600 Puts (81 - 35.10) = Rs. – 73, 440/-

Notional Gain: Rs 11, 310/-

Delta Caclulation

Strike Price 3600
Spot Price 3719.60
% Volatility 27.5%
Delta (Put) -0.2696

Total Delta = -0.2696 * 1600 + 500 (1 * 500 NF) = 68.64

Next Orders

1. Sell 200 Calls SP 3750 @ Rs. 75-90 (Spot around 3725-30)
2. Sell 200 Calls SP 3750 @ Rs. 90-110 (Spot around 3760-70)

3. Buy 100 NF @ 3665
4. Buy 100 NF @ 3625
5. Buy 100 NF @ 3590

Regards
Sanjay

 

[madhava36]

Buying FUTURES/selling FUTURES--both require heavy MARGIN.So also opening a position by selling CALLS/selling PUTS.Retailers may get stuckup at one stage and face losses.Opening positions by buying CALLS/buying PUTS and using selling only to square-off positions appears to be a solution.Is it possible to start a separate Thread accordingly?Thanks.

 

[SGM]

Buying FUTURES/selling FUTURES--both require heavy MARGIN.So also opening a position by selling CALLS/selling PUTS.Retailers may get stuckup at one stage and face losses.Opening positions by buying CALLS/buying PUTS and using selling only to square-off positions appears to be a solution.Is it possible to start a separate Thread accordingly?Thanks.

Hello Madhava36,

This thread is about using "Delta Neutral Strategy" specifically Long Nifty @ Long Puts which requires us to buy puts and go long on nifty futures.

You are right in pointing out that this Strategy is not for people like us (yes, plz do include me also) with smallish risk capital. The margin requirements are heavy and are mentioned in earlier posts.

This thread was started about a year back by an expert. I am a novice to these concepts.

What I am trying to do here is follow up on the thread, by doing live paper trading and reporting the results so as in the first place, to understand myself how to use this strategy and also to get inputs/help from the seniors on the forum.

My personal view about buying options (either naked puts or calls) is that it is a loosers game. The risk reward ratio is skewed in the favour of the seller. To make profit by buying naked puts and/or calls you not only have to be an expert in predicting the trend of the market but also do so in specific time frame. The entire cost of "at the money" options consists of "Time Value" and as the clock ticks, you keep loosing it!

Regards
Sanjay

 

[ravi1967]

hai all
i agree with you with those who say buying options is a loss. selling a call and a put at different strikes is profitable.( i have lost around 1.5 lakhs in sathyam last month [futures 2 lots]).so always buy a future and a put to safeguard your investment. also you can sell a call on the upper limit .
bye
ravi

 

[SGM]

Hello,

Delta Calculation

500 Long NF i.e Delta = 500 * 1 = 500
1600 Long Puts @ SP3600 Delta = -0.2425 * 1600 = -388

Delta = 118

Instead of selling more NFs we will sale Calls @ SP 3750

Delta for Calls @ SP 3750 = 0.4624
118/0.4624 = 255.2

So we sell 300 SP @ SP 3750 at Rs 61

Regards
Sanjay

 

[SGM]

hai all
i agree with you with those who say buying options is a loss. selling a call and a put at different strikes is profitable.( i have lost around 1.5 lakhs in sathyam last month [futures 2 lots]).so always buy a future and a put to safeguard your investment. also you can sell a call on the upper limit .
bye
ravi

Hello Ravi,

Its is really painful to loose money, it destructs more than our bank balance.

I don't intend to preach, but buddy isn't there a lesson here for all of us to learn.

It is must for a trader to do Risk Reward analysis before entering a trade. Define the loss you are ready to take in rupees terms and see if you can keep your stop loss accordingly. Never go for 2 lots when 1 would do (know your position sizing).

A sucessful trader I know, calls stop loss as his sangeevani buti I think it a nice way of emphasizing the importance of having a Stop Loss for every trade.

Anyway, I am sure that it was a one off thing and now that you have learned your lesson, you will see many profitable trades, and recoup your drawdowns at earliest.

Best Wishes for your successful trading

Regards
Sanjay

 

[SGM]

Hello

Sorry for not posting the Maths yesterday

The Market gave us 1 trade
1. Sold 300 Nifty Calls SP3750 @ 61

Current Position (Day end May 10, 2006)
- 500 Long Nifty Futures (25th May, 2006) @ 3600
- 300 Short Nifty SP3750 Calls (25th May, 2006) @ 61.00
- 1600 Long Nifty SP3600 Puts (25th May, 2006) @ 81.00

Realized Gains
Sold 100 NF @ 3600 at 3624.50 = Rs. 2,350 (net aftr brokerage)
Sold 100 NF @ 3600 at 3655.00 = Rs. 5,400 (net aftr brokerage)
Sold 100 NF @ 3618.50 at 3675.00 = Rs. 5,500 (net aftr brokerage)
Sold 100 NF @ 3600 at 3692.00 = Rs. 9,100 (net aftr brokerage)
Sold 100 NF @ 3645 at 3695.00 = Rs. 4,900 (net aftr brokerage)

Gain in Equity
500 Nifty Futures @ 3600 current 3745.40 = Rs. 72,700/-

Draw down in Equity
1600 Nifty SP3600 Puts (81 - 29.80) = Rs. – 81, 920/-
300 Nifty SP3750 Calls (61 - 68.88) = Rs. – 2,355/-

Notional Gain: Rs 15,675 /-

The next order on the up side will be to sell more nifty calls (3775-3800)and on the down side we will buy back nifty futures (3650-75).


Regards
Sanjay

 

[SGM]

Hello,

Today the market gave us 2 trades

1. Bot 300 Nifty Calls SP3750 @ 43
2. Sold 300 Nifty Calls SP3750 @ 69

Current Position (Day end May 10, 2006)
- 500 Long Nifty Futures (25th May, 2006) @ 3600
- 300 Short Nifty SP3750 Calls (25th May, 2006) @ 61.00
- 1600 Long Nifty SP3600 Puts (25th May, 2006) @ 81.00

Realized Gains
Sold 100 NF @ 3600 at 3624.50 = Rs. 2,350 (net aftr brokerage)
Sold 100 NF @ 3600 at 3655.00 = Rs. 5,400 (net aftr brokerage)
Sold 100 NF @ 3618.50 at 3675.00 = Rs. 5,500 (net aftr brokerage)
Sold 100 NF @ 3600 at 3692.00 = Rs. 9,100 (net aftr brokerage)
Sold 100 NF @ 3645 at 3695.00 = Rs. 4,900 (net aftr brokerage)
Sold 300 Nifty Calls SP3750 @ 69 Bot @ 43 = Rs. 7,500 (net aftr brokerage)


Gain in Equity
500 Nifty Futures @ 3600 current 3687 = Rs. 43,500/-
300 Nifty SP3750 Calls (61 - 52) = Rs. 2,700/-

Draw down in Equity
1600 Nifty SP3600 Puts (81 - 44) = Rs. – 59, 200/-

Notional Gain: Rs 21,750 /-

The next order on the up side will be to sell more nifty calls (3775-3800)and on the down side, instead of buying back nifty futures (3650-75), I would prefer to sell the Puts SP3600 we have been carrying all these days. The reasons being, one, I would like to reduce the overall size of the trade, second at this time we may not have lost much of the time value, and third our target seems to be possible, so by reducing the position size of the Puts, we will be walking towards the end game, i.e closing out on entire position.

Will look for selling 600-800 Puts SP3600, above 65, and then if the Delta works out to be more than 100 will need to sell NF to make it Delta Neutral.

Wouldn't it be nice if we can get back our 81 rs that we spent buying the Puts SP3600 at higher levels.........

Regards
Sanjay

 

[SGM]

Hello,

Trade
Sold 200 Nifty Puts SP3600 @ 63

Orders
Bid for selling 200 Nifty Puts SP3600 @ 73
Bid for selling 400 Nifty Puts SP3600 @ 83

May sell NF to balance Delta after the above orders executed

Regards
Sanjay

 

[SGM]

Hello
Bot 300 Nifty Calls SP3750 @ 40 (cmp)
Regards
Sanjay