Low Risk Options Trading Strategy - Option Spreads

[AW10]

Thanks AW10.
Today I bought a Bear Put Spread for the first time to try it out. I bought 4000 Put @ Rs. 142 and sold 3900 Put @ Rs. 92.
The brokerage is 2.5%. If market is below 3950 on 30 July I will be in profit.

In case the market goes against my expectation, and say, on 22 July I find the NIFTY trading at 4400 level (though unlikely) how should I protect some chunk of investment? The net premium won't be worth much then. Is there any strategy to protect a large part of the investment if such a situation arises?

Hi gsap. I am not in favour of trying out / Learning with real money. You could have very well done a paper trade on this. And lets see what happens.
Moreover, you have not planned for the exits, specially when ur position is in loss.
This is certainly not the way professional do the trading.

Anyway, thats one to lesson learned from current trade.
Certainly you don't have to wait for loosing complete 50Rs. that u paid for this position. You can cut your losses earlier as well.
Plz refer to my following post on putting stops for an option trade.

http://www.traderji.com/risk-money-...ble-stop-loss-options-trading.html#post293117

In addition to the 2 methods mentioned there, u can also think of adding Time based stop i.e if market is not moving in your favour till xx-July then lets not wait any further.

All the best.
Happy Trading.

 

[gsap]

Hi gsap. I am not in favour of trying out / Learning with real money. You could have very well done a paper trade on this. And lets see what happens.
Moreover, you have not planned for the exits, specially when ur position is in loss.
This is certainly not the way professional do the trading.

Anyway, thats one to lesson learned from current trade.
Certainly you don't have to wait for loosing complete 50Rs. that u paid for this position. You can cut your losses earlier as well.
Plz refer to my following post on putting stops for an option trade.

http://www.traderji.com/risk-money-...ble-stop-loss-options-trading.html#post293117

In addition to the 2 methods mentioned there, u can also think of adding Time based stop i.e if market is not moving in your favour till xx-July then lets not wait any further.

All the best.
Happy Trading.

The market has already started moving in the upward direction just after I bought the Put Spread. I won't say this is totally unexpected as markets looked oversold and a countertrend rally was due. I think I am safe as long as Nifty doesn't cross 4250 and stay up for 2-3 trading days. So I will just wait and watch for the time being. If I lose the small bit of money I have put in, I will take it as part of the learning curve.:lol:

However I do realise the importance of having a workable exit strategy when I start using Bear Spreads as a trading tool. Thanks for pointing out the mistakes.

 

[manjeet78]

resp sir.. i am very much new to this business and this website, as today i bought nifty july 4000 put @ 69.. what would the profit/loss in cases 1) nifty expires @ 4200 or 4000

 

[bandlab2]

resp sir.. i am very much new to this business and this website, as today i bought nifty july 4000 put @ 69.. what would the profit/loss in cases 1) nifty expires @ 4200 or 4000

in both cases you will lose yr entire 69 rs. options are not meant for newbies. u need to have some undestanding of the market and its movments

 

[AW10]

As Bandlab2 has correctly mentioned, you will be in loss as long as market stays above
4000-69 = 3931 level.
Above 4000 level u will loose complete 69,
between 4000-3931 level, u will still loose but not whole 69.
below 3931, u will be in profit ..

As market has just bounced back from 3920 level. So that is going to act as good support level when market reaches there.. Will market fall below 3920 by month end, is anybody guess (on intelligent guess). But if you look at probablity then odds are not in your favour.

Happy Trading

 

[manjeet78]

So,,Dear Sir as nifty spot closed at 4233,, what should Be my STOPLOSS for nifty 4000 put purchased @ 69..

 

[lazytrader]

So,,Dear Sir as nifty spot closed at 4233,, what should Be my STOPLOSS for nifty 4000 put purchased @ 69..

I assume by now you have already closed your position. If not then close it once nifty holds above 4515 for 5 mins tomorrow

 

[AW10]

We have seen 3 days of contraction in the market with extreamly tight range of 60/70 points. This gives unique opportunity to trade the forthcoming breakout.

Plz chk out following post in "beginners-way-trade-options" thread". In that I have mentioned about how I am trading this scenario with options.

Moreover, how we can use Spread strategy to reduce the risk.

Hope that gives you some more idea about the strength of Spread when it is used appropriately.

In short - I bought 4500-4600 strangle for july and august. Made some adjustment to July position to protect against the time decay and reducing the risk.
And getting ready for the next action..

http://www.traderji.com/options/28384-beginners-way-trade-options-12.html#post342479

Feel free to give your view/comment..

Happy Trading.

 

[sameer999]

once again thankyou AW10 for this valuable thread.

 

[linkon7]

My strong advice will be to close both legs at the same time.. (you might be tempted to close only the loosing leg and but that action will increase the risk of reaming open leg.
If you share my belief then as a trader we should be looking at reducing risk, not increasing it).

This is so true. very good lesson learnt....!
Surprisingly, the "thank you" button got disabled for the first few pages, so couldnt thank you for the valuable lesson...!