Low Risk Options Trading Strategy - Option Spreads

[prashyrao]

, my broker (india infoline) do not demands extra margin for hedge positions , for example ,if u have writed (shorted ) call option and if for its protection u take long position in nifty , nifty margin would not be applicable because position is hedged and with little risk , but u need to pay only mtm loss (if any), and it is available to all retailer clients u will need full margin only when u r making hedged positions by buying two options i.e., one call and one put , also maximum brokers provides such facilities but u need to call ur rm and discuss such position ,and that order is directly put on neat terminal .

Hi Abhiwhy,

Please help me here: Does this mean with India Infoline, if I create a Box Spread position, I do not need to pay ANY margin money at all (since both the shorts are covered with no risk).

Thanks a lot.

 

[DanPickUp]

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[AW10]

Thanks Dan for sharing the PDF. I chked it out. sorry to say, did not find it much useful.
Onlly useful stuff was on 1 page of 15 page book. That is the info about iron condor strategy. Remaining pages talk about more generic stuff about stock mkt, mutual fund, option etc.
We can goto site like investopedia / 888options and get to the point info about Iron Condor strategy.
I do like this strategy under Income Generation category. Though have not been used it much. It is nice combination of creating 2, OTM, credit spreads and collecting premium.
Ideally, we want that both credit spreads expire worthless and we keep whole premium. Even if that doesn't happen, then we are guranteed that one of the spread will expire worthless cause Market can be only at one place at a time.

Limitation in Indian mkt is that the brokers charge high margin for spreads. They don't extend the benefit of limited risk created by Long leg. So the return risk reward does not justify for the amount of huge margin money blocked.
Even if we go 5% away strike (which is quite risky when 1 std dev range is 8%), we are getting reward risk ratio of 30 to 100 (i.e. collect 30 points for spreads of 100 points), it does not tempt me much. My margin requirement will easily be 60k INR i.e. 1200 points.

That is my view on it. Hope this helps. I welcome any other view on it.
Happy Trading

 

[prashyrao]

Thanks Dan for sharing the PDF. I chked it out. sorry to say, did not find it much useful.
Onlly useful stuff was on 1 page of 15 page book. That is the info about iron condor strategy. Remaining pages talk about more generic stuff about stock mkt, mutual fund, option etc.
We can goto site like investopedia / 888options and get to the point info about Iron Condor strategy.
I do like this strategy under Income Generation category. Though have not been used it much. It is nice combination of creating 2, OTM, credit spreads and collecting premium.
Ideally, we want that both credit spreads expire worthless and we keep whole premium. Even if that doesn't happen, then we are guranteed that one of the spread will expire worthless cause Market can be only at one place at a time.

Limitation in Indian mkt is that the brokers charge high margin for spreads. They don't extend the benefit of limited risk created by Long leg. So the return risk reward does not justify for the amount of huge margin money blocked.
Even if we go 5% away strike (which is quite risky when 1 std dev range is 8%), we are getting reward risk ratio of 30 to 100 (i.e. collect 30 points for spreads of 100 points), it does not tempt me much. My margin requirement will easily be 60k INR i.e. 1200 points.

That is my view on it. Hope this helps. I welcome any other view on it.
Happy Trading

Exactly. To get risk free four bucks on an investment of 196 OR ten bucks on 390 is all good, but throw in a margin of 60-70k, things look really bleak!

 

[AW10]

Exactly. To get risk free four bucks on an investment of 196 OR ten bucks on 390 is all good, but throw in a margin of 60-70k, things look really bleak!

Wait till the time margin rules gets changed for option spreads/ option strategies to charge margin based on real risk of the trade.. and then this will become attractive.
My max risk in 1 spread of 100 points is 50*100 = 5k i.e. for a short 5200 call, long 5300 call, my max risk is 5k [=(5300-5200)*50]. And today broker charges me margin of 25 to 30 k for the risk of 5k.
On the other hand for 1 NF position, where liabilty if 2.5 Lac, the margin is just 25k.
Bahut naainsafi hai hum option traders ke saath.

Once the rules of the game are changed, then this stratgy will certainly come back on my radar as income generation.

Happy Trading

 

[DanPickUp]

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[pasha]

Hi Abhiwhy,

Please help me here: Does this mean with India Infoline, if I create a Box Spread position, I do not need to pay ANY margin money at all (since both the shorts are covered with no risk).

Thanks a lot.

SEBI has rules with ref to margin reqmt, and I'm sure that the concept of net position margin has not started yet.
Would be nice if all brokers provided this facility.

 

[Chhagan]

To: AW10, and others.
Hi AW10, could you please post here complete understanding of CALL and PUT sell and buy at limit orders ending at perticular month say Feb 2010.

For example if some one say sell one lot of february call (say 5400) at some premium prize and sell one lot of PUT say 4900 at some pr. prize. What to understand here. In fact I do trading but never did any thing in derivative(index), whatever I do , do in stocks/scrips. Please do not take lightly. Thanks.

 

[AW10]

To: AW10, and others.
Hi AW10, could you please post here complete understanding of CALL and PUT sell and buy at limit orders ending at perticular month say Feb 2010.

For example if some one say sell one lot of february call (say 5400) at some premium prize and sell one lot of PUT say 4900 at some pr. prize. What to understand here. In fact I do trading but never did any thing in derivative(index), whatever I do , do in stocks/scrips. Please do not take lightly. Thanks.

Plz chk out this post in the start of this thread where I have updated some of the resources for self reading and watching.

Personally I think, it will be not right use of everybody's time in reproducing what is already available somewhere (and may be in lot more lucid way)..

http://www.traderji.com/options/305...ading-strategy-option-spreads.html#post333547

So, Plz complete your basic reading there and then comeback here with specific questions..

If you read about, how to identify an option contract (it contains expiry month, underlying stock, strike price etc), then u will understand clearly when some says to sell xyz strike of Feb.

Happy Learning and Trading

 

[prashyrao]

SEBI has rules with ref to margin reqmt, and I'm sure that the concept of net position margin has not started yet.
Would be nice if all brokers provided this facility.

I read to the contrary that NSE allows brokers the advantage of netting. And Abhiwhy informed that his broker allows him netting, which is great if it's true, and he is charged a reasonable Rs. 30 / Lot as brokerage, so not such a huge impact on break-even price. So, if you do get a box spread like 4-6% (which I have found out available in almost every series), it's fantastick to pocket that money without worrying about the margin money (which anyway of no use for a box-spread).