Low Risk Options Trading Strategy - Option Spreads

[Smart_trade]

Ratio Backspread Update....

Markets tanked too fast....our 40 minifutures were sold as the stoploss of 5150 was hit....

Now at 5100 we have to take care of our 5100 puts sold leg....I have purchased 50 ( 1 Lot) 5100 put @ 62.5 to restrict the damage in case it crashes further...if the market recovers we will sell this put which is purchased...

I will be waiting for the market to recover above 5100 and the time decay to act more on 5100 puts....

Smart_trade

 

[jaywings007]

ref: http://www.traderji.com/options/30597-low-risk-options-trading-strategy-option-spreads-47.html

Dear AW10,

here the straddle or strangle is just no a naked one. we have to have future lot at +/- 25 points either side of spot where we had short the options.

here there is no break-even any more. only we required to be careful and disciplined for future long and short.

Thanks.

 

[Smart_trade]

Re: Ratio Backspread....

Market opened with a large gap and our 5100 put 50 nos are exposed to losses....As market went below 4900....shorted 50 Nifty with a stoploss of 100 points with the idea that it either hits the stoploss or we will carry it till expiry.....I plan to keep it open provided nothing dramatic happens tomorrow. This is done to protect this leg from large losses in case mkt continues its southward journey....

Smart_trade

 

[nimish_rulz]

Thanks great thread

 

[AW10]

ref: http://www.traderji.com/options/30597-low-risk-options-trading-strategy-option-spreads-47.html

Dear AW10,

here the straddle or strangle is just no a naked one. we have to have future lot at +/- 25 points either side of spot where we had short the options.

here there is no break-even any more. only we required to be careful and disciplined for future long and short.

Thanks.

Jaywings, I think your comment is on following post of mine. (adding here for reference).

http://www.traderji.com/options/305...ng-strategy-option-spreads-24.html#post402050

In my view, you can use NF +/- 25 points, stuff only during mkt hours.
That doesn't mean that u will not be proven wrong on next days mkt open.
Say, you had this strategy yesterday when mkt was at 5000. And last signal in the evening was to go long NF. So your position delta is +0.5 (of short put), +1 of NF, and -0.5 (of Short Call).. i.e. +1.
So if mkt opened down at 4900, your position is already in loss by 100 points.
What is your action now ? If you squareoff the NF, and leave straddle as it is, then you have already lost 100 points of the 250 points of potential profit.
If this happens, couple of time where NF trade goes wrong, u would be running in loss.. cause by that time you accumulated losses on NF trades would have exceeded 250 rs of premium that straddle has given.

I think, it is false impression that the umbrella provided by the premium of short straddle will save u COMPLETELY. In most of the cases, it might.. but there are cases when it will not, and we need to understand that well.. Compare it to the umbrella and rainy season. When it is rain + wind, umbrealla is of no use. But in all other cases, umbrella does serve its purpose.

What I have highlighted here is the same scenario.

This strategy doesn't give u more then anything but being sloppy with NF trades upto 250 points. (as u have also mentioned in bold part of your msg) If monthly profit from strategy is less then 250 points at the end of the month, then your NF trading is having issues. Or if it is more then 250 points, then your NF trading is good and giving u profit. Using option trading's smartness, u can cover your losses upto 250 points but beyond that the you got to face the reality.

My approach of analysis such strategies is to disect them into small parts and try to understand how these pieces behave. It gives very different insight into all complex product of financial engineering.

Again, some additional views from my side.
(apologies for the use of word YOU in this post. It is just to explain the point. I have nothing against you personally so plz don't take personally)

Happy Trading

 

[Trader4242]

Re: Ratio Backspread....

Market opened with a large gap and our 5100 put 50 nos are exposed to losses....As market went below 4900....shorted 50 Nifty with a stoploss of 100 points with the idea that it either hits the stoploss or we will carry it till expiry.....I plan to keep it open provided nothing dramatic happens tomorrow. This is done to protect this leg from large losses in case mkt continues its southward journey....

Smart_trade

Hello

In this strat you also had a Long Put SP 5300 open so effective isn't the Short Put SP 5100 already covered?

 

[Smart_trade]

Hello

In this strat you also had a Long Put SP 5300 open so effective isn't the Short Put SP 5100 already covered?

Nope...initilly I had 100 long 5300 puts and 200 short 5100 puts...in between I had squared off 50 short 5100 puts leaving 150 short 5100 puts open....so 100 are coved ..50 are uncovered...did not expect market to go down this much but as it has gone down ,we have to protect this uncovered leg to prevent losses to run further....

Smart_trade

 

[kalyanisalem]

Jaywings, I think your comment is on following post of mine. (adding here for reference).

http://www.traderji.com/options/305...ng-strategy-option-spreads-24.html#post402050

In my view, you can use NF +/- 25 points, stuff only during mkt hours.
That doesn't mean that u will not be proven wrong on next days mkt open.
Say, you had this strategy yesterday when mkt was at 5000. And last signal in the evening was to go long NF. So your position delta is +0.5 (of short put), +1 of NF, and -0.5 (of Short Call).. i.e. +1.
So if mkt opened down at 4900, your position is already in loss by 100 points.
What is your action now ? If you squareoff the NF, and leave straddle as it is, then you have already lost 100 points of the 250 points of potential profit.
If this happens, couple of time where NF trade goes wrong, u would be running in loss.. cause by that time you accumulated losses on NF trades would have exceeded 250 rs of premium that straddle has given.

I think, it is false impression that the umbrella provided by the premium of short straddle will save u COMPLETELY. In most of the cases, it might.. but there are cases when it will not, and we need to understand that well.. Compare it to the umbrella and rainy season. When it is rain + wind, umbrealla is of no use. But in all other cases, umbrella does serve its purpose.

What I have highlighted here is the same scenario.

This strategy doesn't give u more then anything but being sloppy with NF trades upto 250 points. (as u have also mentioned in bold part of your msg) If monthly profit from strategy is less then 250 points at the end of the month, then your NF trading is having issues. Or if it is more then 250 points, then your NF trading is good and giving u profit. Using option trading's smartness, u can cover your losses upto 250 points but beyond that the you got to face the reality.

My approach of analysis such strategies is to disect them into small parts and try to understand how these pieces behave. It gives very different insight into all complex product of financial engineering.

Again, some additional views from my side.
(apologies for the use of word YOU in this post. It is just to explain the point. I have nothing against you personally so plz don't take personally)

Happy Trading

Hi AW10,

can u explain how to utilize this stragegy in better way to
1.Minimize the loss(Very important)
2. Consistent Profit from the stragegy

 

[AW10]

Hi AW10,

can u explain how to utilize this stragegy in better way to
1.Minimize the loss(Very important)

In my view, following can be done to handle it

1) keep it simple - keep short straddle/strangle trade on its own and not to mix with NF trade.
2) Treat NF trade as separate independent and manage it in with its own rules
3) With proper trade planning you can define clear points where u would like to cut the short straddle /strangle position. Or would like to buy the protection when market reaches within few points near that zone.
If those decision points do not come, then don't take any action.
4) Address the profit taking points as part of your plan - will u hold the position till expiry ? Will u close it when got 50% profit ? Will u close half position on
30% profit and remaining half at 60% profit ? etc.. these are just some of the examples of exits.

For more on trade planning, plz chk initial posts of this thread where I have highlighted how to plan an option trade.
Once planning is done, it is just matter of executing the plan.

2. Consistent Profit from the stragegy

[/QUOTE]

Lets accept the fact, that each strategy has its own market condition when it works best and at the same time, each produces loss in different mkt conditions.
It is difficult to find a strategy that works in all market conditions.... But it is easy to find profitable strategy which works in a particular type of market.
I am not saying that this strategy is not profitable over long period.. Only thing is the trader who is trading it, needs to understand some other hidden parts of the strategy as well.
And then decide whether they can live with it or not.

If proper backtesting and analysis is done, you can find the situations in which this strategy will not work or underperform.
Short straddle/strangle strategy is meant for Range bound mkt (or where big move is not expected).
When mkt has been in narrow range from last 1 or 2 months, and breakout is just around the corner.. better to stay away from such strategy.
This approach with automatically knockoff few worst months from it.

These are some of my thoughts. I don't use this strategy and have not done any backtesting on it, so certainly will not recommend to use them straightway.
Better to pick up the clues from what I have mentioned above and draw your own ruleset and test it.

Hope this helps. I may not be able to draw detailed strategy around it.. but if someone else takes the initiative then I am happy to contribute with my suggestion.

Happy Trading.

 

[DanPickUp]

Hy

What was sayed in the last post :

"Lets accept the fact, that each strategy has its own market conditions when it works best and at the same time, each produces loss in different mkt conditions."

"It is difficult to find a strategy, that works in all market conditions.."

AW10, nicly spoken and hoppefully understud by all the readers and searchers for the ultimativ strategys.

Regards

DanPickUp