Delta Neutral Strategy (Long Nifty @ Long Puts)

[SGM]

Hello

Current Position (Day end May 10, 2006)
- 500 Long Nifty Futures (25th May, 2006) @ 3600
- 1400 Long Nifty SP3600 Puts (25th May, 2006) @ 81.00

Delta Calc

NF = + 1 * 500 = 500
Puts = -0.3574 * 1600 = -571.84

Total Delta = -71.84

Regards
Sanjay

 

[SGM]

Hello,

We started with this trade of Long Puts and Long Nifty Futures on May 3, 2006, i.e. 10 days back.

Yesterday (Friday, May 12) I was busy with other things and we missed out on a chance of selling NF at 3690-95 which would have been a logical point as per our statergy of delta neutral trading and then we could have bot it back at 3630-35 nifty futures.

The markets gave us a chance but we did not take it. (Its so tempting to go back and modify things in mock trading ). Anyway we won't do that, instead we will consider this as a missed opportunity of adding Rs 6000/- to realized gains.

Today I happened to visit my brokers office, and persuaded the reluctant staff of risk management department to allow me to use the NSE SPAN software to check out VaR, for the trades we are taking.

I was more than surprised to find that for a folio of 200 Long Nifty Puts @ 3600 and 100 Long Nifty Futures, the margin required was just Rs 7300/- . Which is fair enough because the folio has minimum risk (being delta neutral).

Now if we can trade with the margin according to NSE SPAN, then the ROI will become more attractive. With this knowledge in hand we will rework the investments to be made for this trade

From previous Post 4/5/6

Margin requirement:
10% for Nifty Futures: 2, 88,000/-
100% for options: 1, 29,600/-
Cost of trade (brokerage etl): 4,400/-

Total Investment so far: 4,22,000/-

Capital: 10,00,000/-

Margin requirements as per SPAN

800 Long Nifty Futures and 1600 Long Nifty Puts SP3600: 58,400/-
Premium for buying 1600 Puts @ Rs 81 : 1,29,600/-

Cost of trade (brokerage etl): 4,400/-

Total Investment so far: 1,92,400/-

We will require additional capital for margin if we are to sell calls and also provision for M2M difference. I personally thing a Capital of Rs 3,00,000/- will be sufficient but to be on the safer side lets make it Rs 5,00,000/-

Capital Required Rs 5,00,000/-

In the light of the above we could have closed the entire trade yesterday itself with our target of 5% ROI.

Have a nice Week end

Regards
Sanjay

 

[SGM]

Hello,

There is one more thread on this forum with a different type of Delta Neutral Trade, using short strangle. I was thinking of taking up a mock trade with that strategy. Boarders intrested to view/review it can check out

http://www.traderji.com/derivatives/3347-delta-netural-strategy-short-strangle.html

Regards
Sanjay

 

[SGM]

Hello (Opening),


Nifty Put SP3600 @ 75-76-78
Nifty Futures @ 3593-97

Will be squaring the entire position

Will post the maths after mrkts


Hi again (10:30 AM)

Sold 500 NF @3595.50
Sold 1400 Puts @ 77.25

Regards
Sanjay

 

[SGM]

Hello,

What a day.

We can do, what if analysis, what would have been the impact if we had not closed the position in the morning.

But first we will do the maths for the trade.


Regards
Sanjay

 

[SGM]

Hello,

Sold 500 NF @3595.50 booked loss of Rs 3000/-
3600 – 3595.5 = Rs 4.50 + 1.5 = Rs 6.0 * 500

Sold 1400 Puts @ 77.25 booked loss of Rs 5950/-
81 – 77.25 = Rs 2.75 + 1.5 = Rs 4.25 * 1400

The ticker was showing all sorts of prices, also saw 3605 for NF and 83 for the put at the same time but have selected the prices that seemed easily available at that time.

To sum up the entire trade

Realized Gains (net aftr brokerage)
Sold 100 NF @ 3600 at 3624.50 = Rs. 2,350
Sold 100 NF @ 3600 at 3655.00 = Rs. 5,400
Sold 100 NF @ 3618.50 at 3675.00 = Rs. 5,500
Sold 100 NF @ 3600 at 3692.00 = Rs. 9,100
Sold 100 NF @ 3645 at 3695.00 = Rs. 4,900
Sold 300 Nifty Calls SP3750 @ 69 Bot @ 43 = Rs. 7,500
Bot 300 Nifty Calls SP3750 @ 40 Sold @ 61 = Rs 5,850/-

Sold 200 Nifty Puts SP3600 @ 63 Bot @ 81 = Rs. - 4,200
Sold 500 NF @3595.50 bot @ 3600 = Rs -3000/-
Sold 1400 Puts @ 77.25 bot @ 81 = Rs -5950/-

Total = 40,600-9,370 =31,230/-


Now I would like to know what if we had not closed the trade and let it continue? It would be intresting to compare todays closing rates...., what if we had kept selling few Puts on ever gain (say 200 for every rs 10 gain on their price) many possibilities to consider.

If this trade was a success, it was because of the kind of the market we are in, very volatile, what if we were to face a flat market ?

Regards
Sanjay

 

[sandhuks]

Dear All,

I posted this to the other delta-neutral thread too ,-

could anyone clearly spell out the margin requirements for the foll -

1. Selling call/put options.
2. buying/selling futures.

Also I read somewhere calendar spread could attract margin as low as 1% -
Could anyone please elaborate or point to somewhere this info is availablel...

Lastly , these margins as the Var mentioned above - are these available to small retail traders like me- and how /where..

Any info greatly appreciated..

Thanks and regards,

 

[SGM]

could anyone clearly spell out the margin requirements for the foll -

1. Selling call/put options.
2. buying/selling futures.

Also I read somewhere calendar spread could attract margin as low as 1% -
Could anyone please elaborate or point to somewhere this info is availablel...

Lastly , these margins as the Var mentioned above - are these available to small retail traders like me- and how /where..

Hello,

Margin requirements will differ depending upon the broker, client and broker-client relationship.

Obvious HNI clients will be getting better deals than small cap guys like us.

Recomended margins by NSE are calculated based on the concept of VaR value at risk. NSE has a software called SPAN which all the brokers would have, to calculate the margin requirements.

The brokers normally add some % to the SPAN margin. All said and done for 1 lot of NF (long or short) should be possible with a margin of 50K.

Selling of an option (either put or call) is considered equivalent to taking up a position in futures.

There is no margin required for buying Put or Calls.

The SPAN Margin for 200 long Puts (at the market) and 100 Long Nifty Futures, is 7000 - 7500 only. My broker's office, confirmed this but said they will be taking 6% extra as special margin.

You should also consider that when you will be buying 200 puts, you account will be debited to approx Rs 17000/- (aprox Rs. 85 for at the mrkt put)

So it works out again to be aprox 50k, 7500 + 17000 + 22500 (6% Spl Margin)

Hope all this information is helpful, but remember, ultimatly your broker will have a final say in deciding the margin requirenments.

Regards
Sanjay

 

[sandhuks]

Thanks a ton Sanjay!

Things *are* clearer - one question on the "Special" margins fro brokers -

what is the case in case of online brokers - Indiabulls,sharekhan,icici et al ...

what is the margin here for again small traders - would be little more standard? ..and could you recommend any online ..need to start soon ;-)

Thanks again for yr detailed reply.

 

[SGM]

Hi again,

Online brokers are no different regarding margin requirements. You can go thru a thread on this forum where members have discussed brokers related issues. That will help you select a broker.

http://www.traderji.com/brokers-demat-matters/

Don't be in hurry to start trading, if you want to try out something new, do some paper trading, be sure about all the issues involved.

Regards
Sanjay