General Trading Chat

lemondew

Well-Known Member
Why unfavourable RR. Max loss 150. Max profit unlimited. At 8000 he would be making 400+ points :confused:

You missed the point: He was asking if some body could give an example with strike levels to get a bit a grip on the concept and not if some body could post a call with a perfect R:R he can take now. This any way would not be done from my side. Take care / Dan​
Max Loss @7300 and below: 150

You will make a profit of 150 and above only if NF =>7745

Sounds like unfavorable R:R
 
Dear St Da & Other senior traders.
As experience traders says, most of the traders gets entry right but exit is important..
we have discussed lot of entry points..but Exit is also as important even more important..so please put some light on exit plan..as when to hold & when to fold..how to decide our exit strategy..
suppose we have a method which can give 50% success rate..so can we take our exit at 1:2 reward & dont mind if market goes more ..if we wait,sometimes it gives more reward but most of the time , it takes our double reward also..both conditions are happened ..& when what happened, we can not say..even if we backtest it, we cant say exact percentage wise happening of both of events..
same happened if we decide, we will not exit till my 1:2 reward will not get..in that way, we escape lot of unneccesary exit & market noise..but again, sometimes, we can see trade fails but we wait to hit stop & doesnt do early exit..so here same problem...both events can heppened..
so what should be a good exit plan for discreationary price action trader..
thanks
Every trader is faced with these issues and it is exits and trade management which makes money for traders.Entries are relatively easy and most traders get entries right but they are terribly wrong in trade management. I can put some thoughts as I see it and how I manage it.

First take swing trading.Here we have bigger stops,risk of gap open against us but in swing we get gap open in our favour also. I will not even think of booking profits early in a swing trade and I am looking for min 3:1 or 4:1 or 5:1 Reward to risk ratio. Trading swing and feeling scared and booking 50 points profit in swing trades is wasting the opportunity. We are not in the game of making 50 points in swing trades. Here a trader has to understand difference between market giving reversal indication and market not giving any reversal sign but in our fear and eagerness of booking profits we book 50 points without giving chance to the market to expand .Markets don't go up or down in straight line and we will get counter trend corrective moves ans a swing trader should take them in his stride. Any trade giving less than 2:1 RR Ratio is a failed trade in my view .if we sense reversal then we may get out even at 20 points but every dip should not scare us else how will we make large profits ? But if a new trader decides to book part positions in 2,3 or 4 times the risk he is not wrong...he is putting some money in his pocket.we have to decide a balance between being too fearful and too greedy, that said a swing trader should always be prepared to loose 70-100 points from his profits accumulated.But at the time of entry he has to be extremely short term as here he is risking his own capital and when the trade moves 300 points in favour he is risking part of the profits that is he is risking market's money .He can take profits after sustained move, near earlier long term supports and resistance area,in case of steep and large move etc. I know that many are opposed to concept of RR ratio but that that's been a very important concept in my trading.

Now we come to day trading.Here we have to trade with different mindset. Here also profit booking methods are same but we will be more aggressive in booking profits.In day trades some traders book half positions in 20-25 points profits and trail the balance half. This gives comfort as some profits are booked and remaining is booked later. Here again profit booking will be more aggressive in sideways market but in trending markets we would like to make the best from the trend and not book out too early due to fear.

The above is what I follow and I don't insist that this is the only right way...everyone has to find what works for him and trade accordingly. In strong trends I take adds ,some may think adds are risky...so everybody's way of trading will be different.

Smart_trade
 
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Why unfavourable RR. Max loss 150. Max profit unlimited. At 8000 he would be making 400+ points :confused:
Correct but one has to also think what are the chances of market reaching 8000. If the market is likely to go to 7500-7600 then RR is not favourable...so it is a judgement call on where the market will go and when.

Smart_trade
 

lemondew

Well-Known Member
True. Its a bullish strategy and easier for trader to stand a downside and still wait if the market correct and resumes uptrend unlike futures with SL where a touch will take SL.
Correct but one has to also think what are the chances of market reaching 8000. If the market is likely to go to 7500-7600 then RR is not favourable...so it is a judgement call on where the market will go and when.

Smart_trade
 
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lemondew

Well-Known Member
You know you can loose only so much and still play till expiry giving a good deal of chance for your directions to come true

True. Its a bullish strategy and easier for trader to stand a downside and still wait if the market correct and resumes uptrend unlike futures with SL where a touch will take SL.
Correct but one has to also think what are the chances of market reaching 8000. If the market is likely to go to 7500-7600 then RR is not favourable...so it is a judgement call on where the market will go and when.

Smart_trade
 

arsh22g

Well-Known Member
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.
 
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wisp

Well-Known Member
Weekend trivia question :D

How many total hours (approx) of learning have each of you you put into trading so far? This excludes live trading hours... Learning could include reading, watching videos, backtesting, etc., but NOT live trading.
 

lemondew

Well-Known Member
Its a butterfly and works very well in second half of expiry and have tried it.
My observations
1. I used to add these sructures slightly OTM. The point is the sold OTMs loose their premiums faster than closer to the money strikes which are brought in second half as probability of going beyond the second strikes which are further OTM are remote.
2. I also used to break wings and buy 1 strike further OTM at times
3. Sometimes when I get confident I used to convert to ratio spreads.

Drawbacks
1. for a butterfly full margin is taken here unlike in US markets where only the initial debit and no margin is taken for the sells. Hence the return used to be very less.




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.
 

WaveSurfer

Well-Known Member
Here is a theoretical trade in Nifty options to invite others opinions.

Suppose Nifty is at 7500 ,
NIfty 7200 Call trading a 320
Nifty 7800 Put trading at 320
Buy Both. Net cost = 640

Now when Nifty goes to 7200 ,
7200 Call =120
7800 Put = 620
Sell both = 740

Net gain =100 points excluding commissions+stt

If NIFTY goes to 7800,
7200 Call=620
7800 Put=120
Net gain =100 excluding commission+stt

Only flaw is deep in the money options don't trade at fair value . They are priced 20 rs less than the spot value.:(
 

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