Low Risk Options Trading Strategy - Option Spreads

[ranger123]

Hello all,

Now because the vollatility is rise since 2 /3 days, I think that more beneift will be for Options strategy where time decaing will help should be taken positions. So I think, that selling puts and call of OTM must be good,

So far example, buy PE 5500 and sell PE 5600
or sell PE 5500 and sell CE 6200 etc
or sell PE 5700, sell CE 5800 and buy future

I think such postion will give good return of a 2 / 3 day period of holding positions.

Plseae share your view for benifit of all of us.

Thank you and best of luck.

 

[ranger123]

Hello all,

Now because the vollatility is rise since 2 /3 days, I think that more beneift will be for Options strategy where time decaing will help should be taken positions. So I think, that selling puts and call of OTM must be good,

So far example, buy PE 5500 and sell PE 5600
or sell PE 5500 and sell CE 6200 etc
or sell PE 5700, sell CE 5800 and buy future

I think such postion will give good return of a 2 / 3 day period of holding positions.

Plseae share your view for benifit of all of us.

Thank you and best of luck.

I think the volatiliy go down no onwards so the mention above startegy can beneift for today end or tomorrow end only.

Thank you.

 

[AW10]

Hello all,

Now because the vollatility is rise since 2 /3 days, I think that more beneift will be for Options strategy where time decaing will help should be taken positions. So I think, that selling puts and call of OTM must be good,

So far example, buy PE 5500 and sell PE 5600
or sell PE 5500 and sell CE 6200 etc
or sell PE 5700, sell CE 5800 and buy future

I think such postion will give good return of a 2 / 3 day period of holding positions.

Plseae share your view for benifit of all of us.

Thank you and best of luck.

I agree with you that when vix is high, i.e. volatility is high, option selling oriented strategies (short theta) are more rewarding. Just a few points that I will consider here are
1) Volatility has highest impact on the price of ATM or near strike options. Far OTM options will not be very sensitive to this.
2) Volatility has more impact on the near month contracts compared to far month contracts.
3) We need to give time for time decay to show the result. Daytrading or 1 or 2 days may not make much difference.
4) VIX can't remain in higher zone for long time (human nature that we can't be under stress for long period), hence timing is important.
5) not to mention, risk mgmt becomes more important during Volatile time.

Happy trading.

 

[nsriram27]

Dear AW 10,

Came across this ratio put spread in optiontradingpedia. Buy 4 ATM puts / sell 10 OTM puts. Profit calculation & BE calculation pasted from the site below:
**************
Maximum Possible Profit Calculation of Put Ratio Spread:
Maximum Possible Profit = (Total Credit From Short Put Options + [(Difference in strikes - Price of Long Put) x 10 times number of long put contracts])

Profit Calculation of Put Ratio Spread:

Assuming QQQQ at $44.

Buy To Open 4 contracts of QQQQ Jan44Put @ $1.05, Sell To Open 10 contracts of QQQQ Jan43Put @ $0.60

Max. Return = (0.6 x 1000) + ([(44 - 43) - 1.05] x 400) = $580
******************
Losing Point of Put Ratio Spread:
The losing point of a Put Ratio Spread is the price beyond which the position starts to go into a loss if the stock continues to go down.

Losing Point: Strike Price of Short Put Options - [Maximum Profit / (number of short Put Options - number of long Put Options)]

Losing Point of Put Ratio Spread:

Assuming QQQQ at $44.

Buy To Open 4 contracts of QQQQ Jan44Put @ $1.05, Sell To Open 10 contracts of QQQQ Jan43Put @ $0.60

Losing Point = 43 - [$5.80 / (10 - 4)] = $42.03

If the QQQQ falls below $42.03, the position will start making an unlimited loss as long as the QQQQ continues to go lower.
*****************
Am getting crazy numbers when 4 lots of 5700 nifty @60/- & 10 lots 5300 nifty @ 9/- were substitued. Am not able to put my finger on where I am going wrong. Thanks in advance for your help & apologies for such a long post.

Regards,
Sriram

 

[Smart_trade]

Dear AW 10,

Came across this ratio put spread in optiontradingpedia. Buy 4 ATM puts / sell 10 OTM puts. Profit calculation & BE calculation pasted from the site below:
**************
Maximum Possible Profit Calculation of Put Ratio Spread:
Maximum Possible Profit = (Total Credit From Short Put Options + [(Difference in strikes - Price of Long Put) x 10 times number of long put contracts])

Profit Calculation of Put Ratio Spread:

Assuming QQQQ at $44.

Buy To Open 4 contracts of QQQQ Jan44Put @ $1.05, Sell To Open 10 contracts of QQQQ Jan43Put @ $0.60

Max. Return = (0.6 x 1000) + ([(44 - 43) - 1.05] x 400) = $580
******************
Losing Point of Put Ratio Spread:
The losing point of a Put Ratio Spread is the price beyond which the position starts to go into a loss if the stock continues to go down.

Losing Point: Strike Price of Short Put Options - [Maximum Profit / (number of short Put Options - number of long Put Options)]

Losing Point of Put Ratio Spread:

Assuming QQQQ at $44.

Buy To Open 4 contracts of QQQQ Jan44Put @ $1.05, Sell To Open 10 contracts of QQQQ Jan43Put @ $0.60

Losing Point = 43 - [$5.80 / (10 - 4)] = $42.03

If the QQQQ falls below $42.03, the position will start making an unlimited loss as long as the QQQQ continues to go lower.
*****************
Am getting crazy numbers when 4 lots of 5700 nifty @60/- & 10 lots 5300 nifty @ 9/- were substitued. Am not able to put my finger on where I am going wrong. Thanks in advance for your help & apologies for such a long post.

Regards,
Sriram

Your difference in strike price is too large...also doing ratio spread in more than 1:2 with smaller strike price differential is dangerous.

Try the calculation on Buy 4 lots 5700 Puts and sell 8 lots of 5500 puts to see whether it makes sense.

Smart_trade

 

[AW10]

Dear AW 10,

Came across this ratio put spread in optiontradingpedia. Buy 4 ATM puts / sell 10 OTM puts. Profit calculation & BE calculation pasted from the site below:
**************
Maximum Possible Profit Calculation of Put Ratio Spread:
Maximum Possible Profit = (Total Credit From Short Put Options + [(Difference in strikes - Price of Long Put) x 10 times number of long put contracts])

Profit Calculation of Put Ratio Spread:

Assuming QQQQ at $44.

Buy To Open 4 contracts of QQQQ Jan44Put @ $1.05, Sell To Open 10 contracts of QQQQ Jan43Put @ $0.60

Max. Return = (0.6 x 1000) + ([(44 - 43) - 1.05] x 400) = $580
******************
Losing Point of Put Ratio Spread:
The losing point of a Put Ratio Spread is the price beyond which the position starts to go into a loss if the stock continues to go down.

Losing Point: Strike Price of Short Put Options - [Maximum Profit / (number of short Put Options - number of long Put Options)]

Losing Point of Put Ratio Spread:

Assuming QQQQ at $44.

Buy To Open 4 contracts of QQQQ Jan44Put @ $1.05, Sell To Open 10 contracts of QQQQ Jan43Put @ $0.60

Losing Point = 43 - [$5.80 / (10 - 4)] = $42.03

If the QQQQ falls below $42.03, the position will start making an unlimited loss as long as the QQQQ continues to go lower.
*****************
Am getting crazy numbers when 4 lots of 5700 nifty @60/- & 10 lots 5300 nifty @ 9/- were substitued. Am not able to put my finger on where I am going wrong. Thanks in advance for your help & apologies for such a long post.

Regards,
Sriram

Sriram,
Get a tool to do this calculation for you. Download option oracle from http://www.samoasky.com/download.html link.

As ST has suggested, you might like to look at closer strike price for this. Also don't forget to take care of brokerage etc.. On a 9 rs premium, if u pay brokerage of even 1 rs, it is almost 10%.

Happy Trading

 

[nsriram27]

Thanks to all. Will look at closer strike price. Will be dealing with Zerodha @ 20/- per trade.

 

[sumeetsj]

Has anybody ever thought of writing/shorting in the money optoins ? Only strategies and not naked options.

 

[sandy26jan]

could anyone please tell me how to use stop loss while writing options ?
eg: I want to write suzlon jan 11 series with strike of 65 @ premium of .50. what i have to enter in the stop loss. premium or stock price. (i am using icicidirect).

 

[sumeetsj]

could anyone please tell me how to use stop loss while writing options ?
eg: I want to write suzlon jan 11 series with strike of 65 @ premium of .50. what i have to enter in the stop loss. premium or stock price. (i am using icicidirect).

Instead of putting a stop loss on the trade why do u not go long in Suzlon futures of same expiry once the underlying goes above 65.50 to manage the trade. Futures have a beta of 1 and its movement will cover the m2m required for the written call option. If it stays above then u let it expire. And if not then u can square your future leg of the trade.