Earning 25% per month using Option strangle strategy

[summasumma]

Hi Frnds,

Just wanted to share my options trading strategy which has the potential to earn 25% per month. I am personally doing this for past 4 months only, got consistently 25% every month. However still my testing timeframe is small, i would like to share with you people and get ur feedback on this.

Please give ur suggestion/improvement after your review.
Investment required will be higher as we wont get much profit with 1-2 lots.

This trading strategy is completely based on LUCK.
So Old people/Heart patients and particularly 'PPL who dont want to take risk to get reward', stay away from this thread :lol:

Now coming to this strategy:
1. This strategy works well only when NIFTY is trading above 5200(jus my view). So when you see Nifty below 5200, dont try this strategy. (however if nifty is going to go up up up... the profit potential of this strategy will also go up up up).

2. This is based on option strangles. Means, we are going to buy one CALL option and also one PUT option at the same time.

3. Wait for 4-6 trading sessions from the beginning of every month(calender beginning, not the contract beginning).

4. Now see the nifty level.
-> check the price of CALL options for the strike above(and near) to the current NIFTY value.
-> check the price of PUT options for the strike below(and near) to the current NIFTY value.
For example, if nifty is at 5980, check 6000 call and 5900 put.

5. Add both the prices and ENTER the trade for the total of <=150 points.

6. Wait for 6 to 7 days of trading session for a bigger movement on either side on nifty. Once your total nifty points raise to 190 range, exit the trade and you get 25% profit on investment. :clapping:

Now we will discuss the most important points of this trading method, which for most of the traders is the NEGATIVES:
1. What happens if Nifty was in range-bound for those 6-7 days after you enter the trade and you sell your options?
Simple. You will loose money upto 25% of ur investment.
My view: This happens very very rarely in our market. Atleast not every month. To see for yourself, check the past data. Because for 40 points raise in option(call/put), you will need 150 point movement in 1 direction in nifty which most likely wil happen OR in otherwords, this wont happen every month :thumb:

2. What happens if Nifty was in range-bound for those 6-7 days after you enter the trade and you DONT sell your options?
You are taking more risk and naturally the reward will be much more than 25% ....even 80-100% sometimes. This is because nifty is in rangebound for more than 6-7 days and bulls-bears are fighting hard to pull. When one of them succeed, you will see a big movement in nifty.

3. Why is that this strategy wont work well when nifty was trading in < 5200 range?
Because, the movement of 150 points when nifty around 6000 is 2.5%(approx) ... whereas the same 150 points movement in nifty when it is @4500(say) can be acheived only by 3.3% which is significant when compared to 2.5% (approx 30% more movement expected). And if nifty is trading @ 10000, with just 1-1.5% movement we can get profit.

Note: This discussion purely for sharing ideas and not recommending anyone to do trade based on this.

 

[NiftyFantasy]

Hi Frnds,

Just wanted to share my options trading strategy which has the potential to earn 25% per month. I am personally doing this for past 4 months only, got consistently 25% every month. However still my testing timeframe is small, i would like to share with you people and get ur feedback on this.

Please give ur suggestion/improvement after your review.
Investment required will be higher as we wont get much profit with 1-2 lots.

This trading strategy is completely based on LUCK.
So Old people/Heart patients and particularly 'PPL who dont want to take risk to get reward', stay away from this thread :lol:

Now coming to this strategy:
1. This strategy works well only when NIFTY is trading above 5200(jus my view). So when you see Nifty below 5200, dont try this strategy. (however if nifty is going to go up up up... the profit potential of this strategy will also go up up up).

2. This is based on option strangles. Means, we are going to buy one CALL option and also one PUT option at the same time.

3. Wait for 4-6 trading sessions from the beginning of every month(calender beginning, not the contract beginning).

4. Now see the nifty level.
-> check the price of CALL options for the strike above(and near) to the current NIFTY value.
-> check the price of PUT options for the strike below(and near) to the current NIFTY value.
For example, if nifty is at 5980, check 6000 call and 5900 put.

5. Add both the prices and ENTER the trade for the total of <=150 points.

6. Wait for 6 to 7 days of trading session for a bigger movement on either side on nifty. Once your total nifty points raise to 190 range, exit the trade and you get 25% profit on investment. :clapping:

Now we will discuss the most important points of this trading method, which for most of the traders is the NEGATIVES:
1. What happens if Nifty was in range-bound for those 6-7 days after you enter the trade and you sell your options?
Simple. You will loose money upto 25% of ur investment.
My view: This happens very very rarely in our market. Atleast not every month. To see for yourself, check the past data. Because for 40 points raise in option(call/put), you will need 150 point movement in 1 direction in nifty which most likely wil happen OR in otherwords, this wont happen every month :thumb:

2. What happens if Nifty was in range-bound for those 6-7 days after you enter the trade and you DONT sell your options?
You are taking more risk and naturally the reward will be much more than 25% ....even 80-100% sometimes. This is because nifty is in rangebound for more than 6-7 days and bulls-bears are fighting hard to pull. When one of them succeed, you will see a big movement in nifty.

3. Why is that this strategy wont work well when nifty was trading in < 5200 range?
Because, the movement of 150 points when nifty around 6000 is 2.5%(approx) ... whereas the same 150 points movement in nifty when it is @4500(say) can be acheived only by 3.3% which is significant when compared to 2.5% (approx 30% more movement expected). And if nifty is trading @ 10000, with just 1-1.5% movement we can get profit.

Note: This discussion purely for sharing ideas and not recommending anyone to do trade based on this.

Some corrections from my side :

1. Instead of going neutral, take some bet on any side ... i.e. if nifty is at 5980 and it is recovering vertically from 5700-5800 levels...then go for 5900 put & 6100 call but if it is at 5980 and comming down straight from 6300 then 6000 call and 5800 put to get more profit.

2. Try to take position in a sideways session or two to get both at cheaper cost.

regards
Abhi

 

[gin.of.da.game]

Add both the prices and ENTER the trade for the total of <=150 points.

Are you talking about the sum of the premium of both call and put ??
Eg.
Premium of 6000 call + Premium of 5900 put should be < = 150 points...

Once your total nifty points raise to 190 range, exit the trade and you get 25% profit on investment.

In this case, I believe ur talking about the total NIFTY points as per direction.
Am i right ?

Pretty new to this, please don't mind my naive questions !!

 

[summasumma]

Are you talking about the sum of the premium of both call and put ??
Eg.
Premium of 6000 call + Premium of 5900 put should be < = 150 points...

Yes. i am talking about the total premium you spent for both.
This month if you check this strategy from 6th dec to 11th dec... it went from 150 to 200... total 50 pts profit.
Thing is that, you can repeat this strategy when the market is in range-bound for continuous 3 days. If you get call+put for lesser premium as the day progress towards expiry. So your risk money is also getting reduced when you do this @ the mid of the month or so. In that case, the probability of NIFTY going in one direction is very high. You can enter the trade @ the 3rd day in that case.

But dont try this when the expiry is very near, say last week. As the chance of loosing everything is high

In this case, I believe ur talking about the total NIFTY points as per direction.
Am i right ?

Yes its the total nifty points, that is, sum of call+put premium.

Pretty new to this, please don't mind my naive questions !!

No problem. Try it in paper trade and suggest improvements if you find some.

 

[summasumma]

Some corrections from my side :

1. Instead of going neutral, take some bet on any side ... i.e. if nifty is at 5980 and it is recovering vertically from 5700-5800 levels...then go for 5900 put & 6100 call but if it is at 5980 and comming down straight from 6300 then 6000 call and 5800 put to get more profit.

Have you try this correction in paper trade once. IMO, if you bet for nearest call(6000) in first case, you get chance to make more profit than buying 6100 call. This is because the market is going up and you are actually lossing you money in PUT, the call should be strong enough to compensate that loss. Which is possible only in 6000 call when u compared with 6100 call.

2. Try to take position in a sideways session or two to get both at cheaper cost.

Touchwood!

regards
Abhi

Thanks for the suggestions abhi.

 

[gin.of.da.game]

Yes. i am talking about the total premium you spent for both.
This month if you check this strategy from 6th dec to 11th dec... it went from 150 to 200... total 50 pts profit.
Thing is that, you can repeat this strategy when the market is in range-bound for continuous 3 days. If you get call+put for lesser premium as the day progress towards expiry. So your risk money is also getting reduced when you do this @ the mid of the month or so. In that case, the probability of NIFTY going in one direction is very high. You can enter the trade @ the 3rd day in that case.

But dont try this when the expiry is very near, say last week. As the chance of loosing everything is high


Yes its the total nifty points, that is, sum of call+put premium.


No problem. Try it in paper trade and suggest improvements if you find some.

Thanks for the detailed clarification.

2. What happens if Nifty was in range-bound for those 6-7 days after you enter the trade and you DONT sell your options?
You are taking more risk and naturally the reward will be much more than 25% ....even 80-100% sometimes. This is because nifty is in rangebound for more than 6-7 days and bulls-bears are fighting hard to pull. When one of them succeed, you will see a big movement in nifty.

In the above case, If i dont exercise my options even afer 6-7 days, you say that my profit making would increase as per the markets direction. But in that case, won't the time decay factor come into the picture for my premium.

In short,what i mean is... the more day i wait, the more I m exposed to TIME DECAY factor in this scenario (since I m nearing my Options expiry). So won't it affect my profit.

 

[summasumma]

Thanks for the detailed clarification.



In the above case, If i dont exercise my options even afer 6-7 days, you say that my profit making would increase as per the markets direction. But in that case, won't the time decay factor come into the picture for my premium.

In short,what i mean is... the more day i wait, the more I m exposed to TIME DECAY factor in this scenario (since I m nearing my Options expiry). So won't it affect my profit.

You are rite.. the time-decay will eatup the premium as the days progresses.
But at the same time it also means that the nifty doesnt move any side for last 6-7 days or more...leading to high pressure in moving market in one direction.
So when that happens, the loss u incurred in time-decay can be recovered due BIG movement after that!

But Yes, even for 10-12 days nifty doesnt show any movement then u will endup in loss. In currect market, its rare IMO!

 

[manojsikar1]

one of my friend suggested me to sell nifty 5800 CA and 6100 PE and keep till expiry week.
what is the logic behind the above trading...anyone plz help to understand the same . is my friend correct in suggesting

 

[manojsikar1]

one of my friend suggested me to sell nifty 5800 CA and 6100 PE and keep till expiry week.
what is the logic behind the above trading...anyone plz help to understand the same . is my friend correct in suggesting

 

[munde_77]

http://www.investopedia.com/articles/optioninvestor/03/100103.asp