Help with Options Strategy on Writing OTM Puts and Calls on Nifty

#1
Hi guys,

I'm trying to understand a strategy that revolves around writing puts and calls on Nifty for a 3 month period at various strikes..

Here is what I would like to do and want to get some input on what the major issues with this strategy would be:

Let's use the example of NIFTY at 8600 and construct the following example:

1) Write 8800 CE and 8400 PE July Expiry
2) Write 9000 CE and 8200 PE August Expiry
3) Write 9100 CE and 8100 PE September Expiry

Overall my hope would be to gain the premium and close out position at expiry, but of course would be OK with selling position if value increases.

One question I have is around mark to market losses or gains, do I need to do anything with those?

Another question is around square off and brokerage fees - if I get to expiry and positions are worthless, do I still pay brokerage fee on square off? Reason I am asking is, I believe if I buy back the position I would pay the brokerage fees and want to understand if the square off has the same impact. I'm thinking of taking relatively small positions (no more than 50 lots) so I think the brokerage fees can be significant relative to total and if I pay twice versus once it impacts my analysis.
 

gunsho

Well-Known Member
#2
One question I have is around mark to market losses or gains, do I need to do anything with those?
Most cases you don't have to . If in loss, and not enough margin, broker will square off.

Another question is around square off and brokerage fees - if I get to expiry and positions are worthless, do I still pay brokerage fee on square off?
If you do trade (square off) there will be brokerage for sure. Whether it is worthless or anything is left.

Reason I am asking is, I believe if I buy back the position I would pay the brokerage fees and want to understand if the square off has the same impact. I'm thinking of taking relatively small positions (no more than 50 lots) so I think the brokerage fees can be significant relative to total and if I pay twice versus once it impacts my analysis.
Really? Can you give an example of your analysis, why this would be significant relative to total? (unless of course you receive only 5/10 points by selling options, which I believe is not the case.).
 
#3
Example:
Wrote 8800CE July expiry 1 lot @ 14.25 brokerage is 4.00 so net gain is 10.25

Bought 8800CE july expiry 1 lot @ 4.10 brokerage is 4.00 so have to pay 8.10

Overall gain is 2.15

If there was no brokerage fee on square off, gain would have been 6.15.

HDFC charges Rs4 per lot no matter number of lots so that has something to do with this.. I assume that HDFC is terrible for doing these kind of trades...
 

rkkarnani

Well-Known Member
#4
Example:
Wrote 8800CE July expiry 1 lot @ 14.25 brokerage is 4.00 so net gain is 10.25

Bought 8800CE july expiry 1 lot @ 4.10 brokerage is 4.00 so have to pay 8.10

Overall gain is 2.15

If there was no brokerage fee on square off, gain would have been 6.15.

HDFC charges Rs4 per lot no matter number of lots so that has something to do with this.. I assume that HDFC is terrible for doing these kind of trades...
Something wrong in your calculation if the HDFC brokerage is Rs.4/- per lot !
Rs.4/- per lot might be the lowest brokerage I have come across in options!
 

comm4300

Well-Known Member
#5
Something wrong in your calculation if the HDFC brokerage is Rs.4/- per lot !
Rs.4/- per lot might be the lowest brokerage I have come across in options!
Example:
Wrote 8800CE July expiry 1 lot @ 14.25 brokerage is 4.00 so net gain is 10.25

Bought 8800CE july expiry 1 lot @ 4.10 brokerage is 4.00 so have to pay 8.10

Overall gain is 2.15

If there was no brokerage fee on square off, gain would have been 6.15.

HDFC charges Rs4 per lot no matter number of lots so that has something to do with this.. I assume that HDFC is terrible for doing these kind of trades...
-----------------incorrect answer deleted-----------------
 
Last edited:

mastermind007

Well-Known Member
#7
HDFC charges 100 rs per lot; Given that NIFTY lot size is currently 25, it works out at 4 rs per constituent.

Having said that, the wordings on the hdfc site are not very clear on whether they will charge 100 rs once or twice. To see it for yourself, go the site and search for phrase "OPTION MARKET"

For now, I am assuming that they will charge 100 rs only once.

The calculation of abehdfc in his post # 3 is reasonably accurate but he still needs to consider the statutory and other Govt. body charges.

For this, he needs to allocate another 0.50 paisa to 1 rupee for all other charges.

If we assume 1 rs for such charges, he stands to make 0.15 paisa (3.75 rs per lot) in the example given by him in post # 3.
 
#8
Thanks for the responses.. Indeed you guys are correct it is Rs 100 per lot..

They do charge on the sell and the buy unfortunately - I can see from the detailed transaction log.

So basically for out of the money items, make sure you see a path to make more than Rs200 per lot or it is impossible to be profitable.
 

rkkarnani

Well-Known Member
#9
Thanks for the responses.. Indeed you guys are correct it is Rs 100 per lot..

They do charge on the sell and the buy unfortunately - I can see from the detailed transaction log.

So basically for out of the money items, make sure you see a path to make more than Rs200 per lot or it is impossible to be profitable.
Solution is very simple : Change the broker ! :D
 
#10
Most cases you don't have to . If in loss, and not enough margin, broker will square off.

Yes you will need to take care of M2M margin everytime...with increase in voilatility, so many times it will happen that your short straqngles will increase in value so be prepared to have sufficient cushion in terms of cash at all times.

If you do trade (square off) there will be brokerage for sure. Whether it is worthless or anything is left.

if you let your short options expire worthless...you may not be charged any brokerage as no trade takes place. but do confirm it with broker but logically there is no charges on "expiring worthless" options from exchange side

Really? Can you give an example of your analysis, why this would be significant relative to total? (unless of course you receive only 5/10 points by selling options, which I believe is not the case.).
Short strangles needs to be well managed from so many aspects like capital, trade size, trade management etc
Wish you luck
 

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