Directional credit spread
- Thread starter lokanathpai
- Start date
CAPITAL 2359561
RISK AMOUNT 10% 235956
INVESTIBLE AMOUNT 2123605
AS NIFTY DID NOT BREACH 10000 UPTREND IS MAINTAINED
MAX OPEN INT FOR DEC SERIES FOR PUT IS FOR STRIKE 10000
PUT 10000 39.50 A
HEDGE 9900 29.50 B
INCOME
A-B) 10.00
MAX LOSS (100-INCOME) 90.00
TRADEABLE POSITIONS LOTS(RISK AMT/MAX LOSS) 35
TRADE ON 24/11/2017
DEC10000P SELL 2625 39.5 103687.50
DEC9900P BUY 2625 29.5 -77437.50
MAX PROFIT 26250.00
RISK AMOUNT 10% 235956
INVESTIBLE AMOUNT 2123605
AS NIFTY DID NOT BREACH 10000 UPTREND IS MAINTAINED
MAX OPEN INT FOR DEC SERIES FOR PUT IS FOR STRIKE 10000
PUT 10000 39.50 A
HEDGE 9900 29.50 B
INCOME
A-B) 10.00MAX LOSS (100-INCOME) 90.00
TRADEABLE POSITIONS LOTS(RISK AMT/MAX LOSS) 35
TRADE ON 24/11/2017
DEC10000P SELL 2625 39.5 103687.50
DEC9900P BUY 2625 29.5 -77437.50
MAX PROFIT 26250.00
POSITION ON 01/12/17
DEC10000P BUY 2625 98.50 -258562.50
DEC9900P SELL 2625 71.70 188212.50
-70350.00
RESULT -44100.00 BOOKED LOSS
AS POSITIONAL LOSS EXCEEDED MY INITIAL INCOME I CLOSED THIS POSITION BOOKING LOSS
MAX OPEN INT FOR PUT STILL CONTINUES AT 10000
HENCE OPENED NEW POSITION WITH 10000/9900
DEC10000P BUY 2625 98.50 -258562.50
DEC9900P SELL 2625 71.70 188212.50
-70350.00
RESULT -44100.00 BOOKED LOSS
AS POSITIONAL LOSS EXCEEDED MY INITIAL INCOME I CLOSED THIS POSITION BOOKING LOSS
MAX OPEN INT FOR PUT STILL CONTINUES AT 10000
HENCE OPENED NEW POSITION WITH 10000/9900
I am attempting to evolve a strategy for trading options.
Option selling gives more successes than option buying.
Option buying is lucrative, but Probability of Profit (POP) is less.
I have no profit target. My aim is growing my capital.
I am successful in this type of trade.
Let me refresh this strategy.
What to trade? Calls or Puts?
I am following Directional credit Spread.
Credit Spread is selling an option(Call/Put), for earning from Premium on that Option Strike.
Buying an further away option(Call/Put) for hedging.
What is meant by directional?
This strategy is trend following strategy.
If trend is up sell PUT and if trend is down sell CALL, so that POP is more.
Which Strike to sell?
When selling an option, we have to select a strike, where underlying will not reach, within the expiry of the contract. (i.e. Resistance/support) Maximum open interest in option chain denotes such Resistance/ support as per option traders. So selection of strike will be at that stage.
Trend?
Consecutive higher low denotes UPTREND, and consecutive lower high denotes DOWNTREND.
How many?
I will arrive at Max Loss per lot. On my Capital I am treating 10% as RISK money. Risk money divided by the Max Loss gives me the number lots I can trade.
Adjustments
As Max open interest undergoes change in that month, I am replacing the options, so that I can earn still more profit. I am booking loss, when positional loss exceeds the income on that credit spread. If there is no change in the Max open interest, replacing of options need not be done.
When the retention of income exceeds 60% of the Max profits, and options for next series days to expiry is between 50 to 30, I am switching to next series.
Presently my strategy is as above.
Option selling gives more successes than option buying.
Option buying is lucrative, but Probability of Profit (POP) is less.
I have no profit target. My aim is growing my capital.
I am successful in this type of trade.
Let me refresh this strategy.
What to trade? Calls or Puts?
I am following Directional credit Spread.
Credit Spread is selling an option(Call/Put), for earning from Premium on that Option Strike.
Buying an further away option(Call/Put) for hedging.
What is meant by directional?
This strategy is trend following strategy.
If trend is up sell PUT and if trend is down sell CALL, so that POP is more.
Which Strike to sell?
When selling an option, we have to select a strike, where underlying will not reach, within the expiry of the contract. (i.e. Resistance/support) Maximum open interest in option chain denotes such Resistance/ support as per option traders. So selection of strike will be at that stage.
Trend?
Consecutive higher low denotes UPTREND, and consecutive lower high denotes DOWNTREND.
How many?
I will arrive at Max Loss per lot. On my Capital I am treating 10% as RISK money. Risk money divided by the Max Loss gives me the number lots I can trade.
Adjustments
As Max open interest undergoes change in that month, I am replacing the options, so that I can earn still more profit. I am booking loss, when positional loss exceeds the income on that credit spread. If there is no change in the Max open interest, replacing of options need not be done.
When the retention of income exceeds 60% of the Max profits, and options for next series days to expiry is between 50 to 30, I am switching to next series.
Presently my strategy is as above.
I'm using Straddle price to arrive at the Strike price:
Straddle Price: ATM Call Premium + ATM Put Premium
If Bearish trend: I write Calls at Strike price: ATM+Straddle Price
If Bullish trend: I write Puts at Strike price: ATM - Straddle Price
If Neutral trend: I write Strangles at above strikes
ATM +- Straddle Price roughly gives us 16 Delta Puts and Calls...and theoretically 16 delta puts are 1 standard deviation away from ATM price i.e. they have 68% chance of staying OTM.
As Puts are generally overpriced compared to Calls, I sometimes use a Put Strike that has same premium as Call of [ATM+Straddle]. This will roughly give me a Put with 10 Delta. Lower the delta lesser the chances of whipsaws.
Straddle Price: ATM Call Premium + ATM Put Premium
If Bearish trend: I write Calls at Strike price: ATM+Straddle Price
If Bullish trend: I write Puts at Strike price: ATM - Straddle Price
If Neutral trend: I write Strangles at above strikes
ATM +- Straddle Price roughly gives us 16 Delta Puts and Calls...and theoretically 16 delta puts are 1 standard deviation away from ATM price i.e. they have 68% chance of staying OTM.
As Puts are generally overpriced compared to Calls, I sometimes use a Put Strike that has same premium as Call of [ATM+Straddle]. This will roughly give me a Put with 10 Delta. Lower the delta lesser the chances of whipsaws.
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