Modified Strategy to earn 15%-20% a month (Strategy inspired by Linkon7's strategy)

#1
First off - It's been a very long journey for me here on TJ, though I've not posted much. My experiments with F&O started back in 2010 and I've probably made every mistake more than once prior to discovering that the only way to make money is to have hedges on anything one trades - as the pros say "Naked punting is for idiots". Tried many hedging strategies with limited success. Sometimes the returns were too low 3% a month and sometimes even with hedging there was a loss. And after many years I stumbled upon Linkon7's strategy (http://www.traderji.com/futures/41903-target-500-nifty-points-per-month.html)

I've slightly further engineered the strategy to suit my mental make-up and I wanted to share it with everyone.

As you know (Anyone who has followed Linkon7's strategy given in the link above) the basic premise of the strategy is to short a straddle and cover the losing leg with NF there by nullifying the opposite movement and at best making even more profit by converting the strategy into a directional strategy.

I faced 2 challenges with this strategy and those were.

1. NF inherently increases the turnover value of trades too much resulting in too high taxes, especially when you trade multiple lots.

2. Gap up/gap down still hounded me so I need to find a solution , a hedge within a hedge if you will.

So this is what I did :

1: Short next month ITM straddle and receive 275-300 points in premium. As you will notice premiums have shrunken over past 5-6 years as our F&O market is slightly more matured so excesses in the system are getting eroded slowly. So my target is to short a straddle that gives a combined premium of at-least 300 points with the target of keeping at-least 250 points (15% profit) and if I am lucky I make more, as will be explained further.

2 : Consider the 8600 SEP straddle shorted last week, premium received approximately 320 points.

3. Here is my 1st change : Instead of using NF as the directional instrument, I buy deep ITM call or put. In this case either 8500 CE or 8700 PE. So below 8600 NF, I buy 8700 PE and above 8600 NF I buy 8500 CE. To get a delta slightly more than 1, I buy in multiple of 2 lots. So if I write 1 lot of 8600 CE and 1 lot of 8600 PE, then in the directional leg I buy 2 lots of PE or CE. This is a strictly intra-day management of the straddle to start with, and if there is enough profit on the CE or PE by end of day, I hold it. My only target is to at-least neutralize the losing leg there by keeping the premium received. Since VIX is key , it has almost a neutralizing effect on straddle and the directional option - so VIX risk is taken care of. Since it is also a deep ITM option I get atleast 0.5 - 0.6 delta. 2 lots means my directional strategy earns more than the loss on that leg.

4. Now there is still the gap up , gap down issue. For this (only if there is decent profit on the intra day option) I buy hedge on the intra-day option if I wanted to carry it overnight. So if I bought 8700 PE and that is showing a profit of 20% and I feel market will still go down more, then I hedge it by buying 8800 CE as insurance. In case market gaps up against me, I still get a decent exit and my original premium is still with me.

So point 3 and point 4 are the changes I've made to this strategy in the interest of paying less taxes (as might be in case of NF) and to have a hedge over the directional leg. Sometimes I buy 3 even 4 lots multiples of the intra day directional strategy.

It has so far delivered a minimum of 15% returns and if market is trending a lot (like it did in july) returns can easily be 20%-25%.

I'm sure there is a weak-link in this strategy as there is in every strategy and that weak link is buying deep ITM options instead of NF. This means I cannot hold the options for too long , not more than 3 days ideally. So I need to keep taking fresh positions every 2- 3 days to protect the straddle.

Would love to have someone critique this.

Cheers,
TJ
 
#3
Re: Modified Strategy to earn 15%-20% a month (Strategy inspired by Linkon7's strateg

I mean like Linkin used to post

Sent from my Lenovo A2010-a using Tapatalk
 
#4
Re: Modified Strategy to earn 15%-20% a month (Strategy inspired by Linkon7's strateg

One doubt .. what if the market goes against our directional leg

Sent from my Lenovo A2010-a using Tapatalk
 
#6
Re: Modified Strategy to earn 15%-20% a month (Strategy inspired by Linkon7's strateg

Hi

You say due to selecting in money strikes, you have to trade them often.

So have you compared . . .

Taxes on 2 lots of options trades 3 times v/s one lot of future traded once


Happy :)
 
#7
Re: Modified Strategy to earn 15%-20% a month (Strategy inspired by Linkon7's strateg

Hi

You say due to selecting in money strikes, you have to trade them often.

So have you compared . . .

Taxes on 2 lots of options trades 3 times v/s one lot of future traded once


Happy :)
So, in reality on the NF leg as well - you will end up trading it a lot many times than just once, SL will get hit or you will make a huge gain like yesterday when NF gained 130 points and exit knowing that you have additional 130 points protection locked in. That said - the breakeven on 1 NF is approximately 2 points, the breaken on 1 CE/PE bought is typically 0.2 points. Delta adjusted the cost paid for 2 lots of CE in terms of fees and commission is less.

That said - as of last writing I've slightly modified the strategy further. I now do the following in addition.

1. I do buy the NF and hold it overnight (with a hedge on NF by buying OTM CE/PE).

2. And I also buy 2 lots of Nifty options but only intra-day !

Hope this clarifies !
 
#8
Re: Modified Strategy to earn 15%-20% a month (Strategy inspired by Linkon7's strateg

One doubt... What if the market goes against our directional leg.
Two ways to mange that.

1. I buy yet another hedge on the directional leg by buying OTM CE/PE. This is for those cases where market gaps against me by a huge margin. In that case I am still protected. I buy 2 OTM PE/CE giving combined delta of .65 - .7

2. The NF would also be carrying some profit points. So the aim is to make the NF directional leg neutral again at 3:15 pm and take the next day as it comes.

Daily management is the only name of this game and I love it :) I'm not focused on making profit anymore but just protecting my fortress - the straddle !
 
#9
Re: Modified Strategy to earn 15%-20% a month (Strategy inspired by Linkon7's strateg

Two ways to mange that.

1. I buy yet another hedge on the directional leg by buying OTM CE/PE. This is for those cases where market gaps against me by a huge margin. In that case I am still protected. I buy 2 OTM PE/CE giving combined delta of .65 - .7

2. The NF would also be carrying some profit points. So the aim is to make the NF directional leg neutral again at 3:15 pm and take the next day as it comes.

Daily management is the only name of this game and I love it :) I'm not focused on making profit anymore but just protecting my fortress - the straddle !
Approx how many times do you shift the Strike Price of the Straddle typically during an expiry,

Also if you start the trade say, 5 weeks to expiry when would you close the trade

Thanks

Happy :)



EDIT: I trade futures on swing time frame i.e. carry position overnight,
used to buy a hedge with options, tried many different variations . . .
but finally have settled down to adjusting the delta,
when feel like hedging with 0.5 delta, just reduce the trade carry size by 35-40%
When you include slippage/spread cost to the brokerage/taxes
cost of trading options is not 10%, it works out to be in band of 25-50%


Best :thumb:
 
Last edited:
#10
Re: Modified Strategy to earn 15%-20% a month (Strategy inspired by Linkon7's strateg

Approx how many times do you shift the Strike Price of the Straddle typically during an expiry,

Also if you start the trade say, 5 weeks to expiry when would you close the trade

Thanks

Happy :)
This is just my 2nd month of this :) but I closed last month 2 days prior to expiry and I aim to do the same this month.

I do not adjust the strike price of the straddle, I adjust the strike price of my intra-day PE/CE buying. As I said I also keep the NF leg forever now until it hits SL or we get to expiry. This is accompanied by an OTM hedge of ce/pe. The money made intraday on CE/PE is used at EOD to buy the hedge.

So my goals are these.

1. Generate enough points intra-day over 20 days to pay for the OTM hedge on NF so taht I can hold it overnight forever or till SL hits or even if market gaps down or up against me.

2. Use the NF to just cover the losing leg - NF will give some profit as delta of NF is 1 always but delta of ITM will not be more than 0.5 to start with.
 

Similar threads

Broker Special Offers

Intraday Higher Leverage

Save up to 90% in brokerage and get higher leverage for intraday trades.

Name:Phone:
Email:City:
State:
Are you a day trader?