Help Required In Straddle

[OptionQuant]

I bought today an 8600 Call + 8600 put when Nifty was about 8580. I sold it when Nifty was about 8510. That is 70 points of Nifty. But I received profit of only 3 points.

To understand this, look at the scenario today at end of day

Nifty closed at 8508.

8500 straddle = 8500 Call (Rs 87) + 8500 Put (Rs 76) = Rs 163

8600 straddle = 8600 Call (Rs 42) + 8600 Put (Rs 129) = Rs 171

The difference is only 8 Rs. How is it possible. What is happening here? (The same thing is also happening in Aug series)

Any help is highly appreciated. This is screwing me up bigtime

 

[OptionQuant]

I'll frame my question another way. Suppose I KNOW that in the next thirty minutes, nifty will move by 100 points and come back to original position. However, I do not know whether the move will be up or down. How do I take advantage of this?

One answer is buy a straddle. But look at the Aug prices If you do buy a straddle, you will not get more than 10 points out of 100. Does anyone know how to create a scheme to take advantage of the volatility?

Help needed desperately

 

[mrktmstr]

I bought today an 8600 Call + 8600 put when Nifty was about 8580. I sold it when Nifty was about 8510. That is 70 points of Nifty. But I received profit of only 3 points.

To understand this, look at the scenario today at end of day

Nifty closed at 8508.

8500 straddle = 8500 Call (Rs 87) + 8500 Put (Rs 76) = Rs 163

8600 straddle = 8600 Call (Rs 42) + 8600 Put (Rs 129) = Rs 171

The difference is only 8 Rs. How is it possible. What is happening here? (The same thing is also happening in Aug series)

Any help is highly appreciated. This is screwing me up bigtime

since your premium cost of straddle is 171 rs,you should make a move of more than half the strddle points.ie for decent profits nifty should move till + or -85 points

 

[OptionQuant]

since your premium cost of straddle is 171 rs,you should make a move of more than half the strddle points.ie for decent profits nifty should move till + or -85 points

I am trying to develop a technique (TA) to forecast Nifty moves. I can do it a very large number of times. I can say, to some extent, that in next 2 hrs Nifty will move at least 75 points. That is good. But I cannot predict direction. What is the best method to use this knowledge?

 

[cinderblock]

I'll frame my question another way. Suppose I KNOW that in the next thirty minutes, nifty will move by 100 points and come back to original position. However, I do not know whether the move will be up or down. How do I take advantage of this?

One answer is buy a straddle. But look at the Aug prices If you do buy a straddle, you will not get more than 10 points out of 100. Does anyone know how to create a scheme to take advantage of the volatility?

Help needed desperately

1. Even when spot is close to straddle strike prices - the call and put deltas will start deviating significanly only @+-0.5% away from the strike. So, with NF @ 8500, deltas will start deviating only when NF moves up or down by ~40 points. Till that time for every 1 point rise in call price put prices will move ~ 1 point in the opposite direction.

2. Since you ask this question, you are one of the last few people to realize that NF will move 100 points either way. People have already positioned themselves in the straddle much before you. As a result before you enter the position the straddle price has already moved quite a bit in anticipation of the 100 point move (also reflected in increase in vega).

So, once the event is out of the way- volatility drops and the straddle prices drop too. A 100 point move (1.2%) in the NF will not yield much by way of straddle.

I wouldn't be surprised if the straddle prices drop even after a 100 point move.

 

[Charles07]

I am trying to develop a technique (TA) to forecast Nifty moves. I can do it a very large number of times. I can say, to some extent, that in next 2 hrs Nifty will move at least 75 points. That is good. But I cannot predict direction. What is the best method to use this knowledge?

Strangles/ Straddle is only i can think of at the moment.
Hope u r also considering Vix range when initiating those.

 

[OptionQuant]

2. Since you ask this question, you are one of the last few people to realize that NF will move 100 points either way. People have already positioned themselves in the straddle much before you. As a result before you enter the position the straddle price has already moved quite a bit in anticipation of the 100 point move (also reflected in increase in vega).

So, once the event is out of the way- volatility drops and the straddle prices drop too. A 100 point move (1.2%) in the NF will not yield much by way of straddle.

I wouldn't be surprised if the straddle prices drop even after a 100 point move.

Cinderblock,

You say most people are expecting a 100 point move. Why? Is something happenning/going to happen, an event or something?

 

[cinderblock]

Cinderblock,

You say most people are expecting a 100 point move. Why? Is something happenning/going to happen, an event or something?

I mean before an event or near S/R or a technical level or based on some data.

Just like you said "Suppose I KNOW that in the next thirty minutes, nifty will move by 100 points and come back to original position" - Other people also KNOW it but before you!

 

[OptionQuant]

cinderblock,

I do not get you. You say I am the last person to know a 100 point jump and everyone else knows it. How do they know it?

I know it because I have done some TA on the data.

You say straddle prices are high because everyone has bought. Is it a temperory phenomena or a permanent one.

 

[TraderJunkie]

I've not read through this whole post, just read the OP - one and only one thing is important when buying a straddle or strangle ! Vega (Volatility) Delta (change in option when there is 1 point change in underlying that is Nifty in this case) and Gamma (rate of change of Delta).

If you buy a strangle or a straddle when Vega is high and then even if there is a 100-150-200 points move and Vega falls 5%-10%, you lose on both sides of the spread.

Basic rule - Buy when IV is low.