Could you kindly make an example from a trade with real numbers from Nifty and the strike levels from the options you would take in that so called: Super attractive strategy? Are the options atm, otm or itm?
An other point: In one post you talk about long future and short options and in the above post you talk about buying options and also talk about long future. About what options do you talk: Put or call? Would kindly request you to be in that specific points a bit more clear, as the name of the strategy then is clear to name.
Take care / DanPickUp
Hi Dan,
take a huge position in futures and double the size reverse position in options market, that's what I meant.
Since am only guessing a strategy without any empirical evidence or sound knowledge you should treat the following as a blind guess work but
am just stretching my imagination muscles
!
Lets take today's example: NIFTY gaped up 100 pts 5950 and slipped down to 5800 by 2pm.
Assumptions:
a) you have 300 million $ to trade per day.
b) a 100 million $ long position can move the opening price 100pts up.
with out your 100 m$ markets won't gap up.
c) for every one lot of futures contract traded more than one lot (say 5 lots) of options worth the same price are traded, it could ATM or OTM call or puts.
d) with remaining 200 m$ you easily buy 10 times negative delta in options market.
as we have 1:5 options volume with 200m$ you can control 10 times bigger short position
than your original long position in futures. (it could ATM/OTM CE PE doesn't matter
you take short position of NIFTY in options market).
opening bell rings
e) market gaps up 100+ pts becoz of your long position but at the same time
you easily gain 10 times cheaper short position in options market.
This is possible because of condition (c) options volume is assumed to be more than futures volume.
d) now with an evil smile you start to liquidate your 100 m$ long position slowly
you even succeed liquidating your futures long position for 65m$ by after-noon!
you even plan to drag the price much lower when volumes are thin during noon.
(damn look at today's chart by 12:00, a sharp drop happened after 12!)
e) you have your short positions ready for covering at 5800 level.
within 2 hrs after 12 market touches 5800 you start covering your short positions
for say 360 m$ (i.e 80% profit!)
----------
at eod
your investment for the down move: (100-65) = 35 m$
your reward from options volatility : (360-200) = 160 m$
Net profit for the day: 125 m$ and you appear as pure genius
-------------
wow... i ve started writing economics fiction stories or did I stumble on an awesome strategy for big money!
The assumptions from a-c should hold true for this story to work.
The numbers are just example hope you get the essence of the argument.
