Experiments with Strategies

[simplebuthard]

HealthRaj posted a very useful article on understanding the option chain. On Wednesday, there was a sudden increase in 7500PE OI which should have alerted every trader about an impending fall in the market. Reminding myself to be more vigilant and not ignore obvious signals

In my opinion, on Wednesday, before long holidays, there was reason to afraid of market falls, so bulls showed much interest to protect their capital in longs, bought 7500 PE as hedging. Short writers used that opportunity to write such big number of contracts.

 

[badarivt]

Rising volatility wiped out five day time decay. Maybe, creating a short strangle today will be profitable. Closed my position at 9.50AM earning only Rs 1.2 per NIFTY (after deducting brokerage and taxes)

 

[badarivt]

At 01.15PM, the volatility was high (above 14.4). Created a short strangle with 8200CE and 7600 PE. Hoping to capture a good part of the Rs 41 premium in a few days when volatility subsides.

Addendum: No strategy is execute and forget. Since market fell significantly and increased the volatility, had to hedge the rising puts by buying 7700 PE which I closed at profit today itself. Unless there is a gap up / down, I can profitably keep doing this.

 

[gmt900]

At 01.15PM, the volatility was high (above 14.4). Created a short strangle with 8200CE and 7600 PE. Hoping to capture a good part of the Rs 41 premium in a few days when volatility subsides.

Addendum: No strategy is execute and forget. Since market fell significantly and increased the volatility, had to hedge the rising puts by buying 7700 PE which I closed at profit today itself. Unless there is a gap up / down, I can profitably keep doing this.

Did not understand this. I think you have to buy 7500PE to hedge sold 7600PE.

 

[badarivt]

@gmt900, Thanks for your response. I did not use the term 'hedge' in a literal sense. I temporarily convert the short strangle into a naked short call + a bear spread with long 7700PE and a short 7600PE.

 

[badarivt]

'Hedging' is naked trading in addition to strategy. A wrong or unlucky move can potentially wipe out much more profits than what can be earned from the strategy (as it happened to me today). There are no easy ways to earn in the market.

 

[simplebuthard]

'Hedging' is naked trading in addition to strategy. A wrong or unlucky move can potentially wipe out much more profits than what can be earned from the strategy (as it happened to me today). There are no easy ways to earn in the market.

Still not enough big movements happened in the market!!!

what happened for your trade?

 

[badarivt]

Morning, saw the market falling and decided to buy puts expecting a big fall. Did not happen and ended up buying costly and selling cheap. Hard luck because of lack of patience and discipline. Short strangle had 8200CE and 7600PE. Closed the PE at Rs 3 loss and instead sold 7500PE since market is falling a lot. Now, will wait till CE loses say Rs 15 and then will shift to other strikes as necessary.

 

[badarivt]

Today (09 Oct, 2014) option chain is very interesting. There is a massive reduction in 7500 to 7700 PE and in 8000CE and 8100CE. Also, there is an increase in 7900 PE and buildup in 8300CE. Possibly, short covering is driving the market up. Let us see if the market holds 7900 today which is likely considering the high change in open interest (COI) in 7900PE

 

[badarivt]

Friday morning saw addition in open interest (OI) in 8000CE and 7700PE, which suggested that the market would move towards 7850. This prediction seemed false till the end of the day when the market closed at 7860. Currently, change in OI is significant in 7900CE, 8000CE and 7700PE. Taking volume weighted average, we get 7858. Once again, I am betting on time decay and have created a short strangle with 7500PE and 8200CE. It is advantageous to create a strangle when volatility is high so that when it drops, it adds to the profit. Let us see the situation on Monday