Wanted to bounce-off an options strategy, any critique is welcome :thumb:
Suppose Nifty is at 7500 today. We have ample number of trading days left in this series, so swings on both sides are likely. We build our position on both sides.
Call Side :
+1 CE 7500 = 112.4
-2 CE 7700 = -2 x 37.15
+1 CE 7900 = 10.10
Cost = 48.2
Put Side :
+1 PE 7500 = 135.9
-2 PE 7300 = -2 x 66.95
+PE 7100 = 33.10
Cost = 35.1
Total Cost = 83.3
Payoff at expiry :
7100 and below = 0
7200 = 100
7300 = 200
7400 = 100
7500 = 0
7600 = 100
7700 = 200
7800 = 100
7900 and above = 0
Profit is (Payoff - Total Cost)
Our best cases on expiry are 200 point swings on both sides, and no loss zones between 7183-7417 and 7583 - 7817, a range of 468 points on both sides. We can either wait till expiry or adjust our positions when highest pay-off targets are hit. E.g. if Nifty reaches 7700 before expiry, I will close my Call side fully. This will not give me the ideal 200 points but will certainly give enough to recover my cost and some profit. I can keep my put side open for some pay-off in case market reverses to that side, maybe not to the highest pay-off point of 7300, but something.
It's a very conservative strategy, with low risk and low return. In this particular example, max R:R is 1:2.40, but chance of losing the full initial cost is low as the range for break-even + profit is quite wide (468 points). Margin required where "1" = 1 Lot (75 Nifty shares) is INR 1.30 Lakhs. Return varies from -4.8% (losing 83 points) to 6.8% (gaining 117 points), but distribution is skewed towards >0% return.
What do members think of it? I am pitching it as an alternative to keeping money in stocks, not to trading (highest risk) and FD (lowest risk).
Addendum :
If we use next series options, initial cost is reduced to 65.25 with the same margin requirement, i.e. INR 1.30 Lakhs. This should make the strategy more attractive.
If we use next series option to sell, we get a credit of 117 instead of cost and margin is increased to INR 1.43 Lakhs, but are exposed to some delta risk as options delta for next series option might will not behave the same as this series one. It needs to be modeled for understanding fully.