Based on the closing as on Friday 27th' March i had planned to do the following :
sell 2 lots of 3100 call april at 145
and
sell 2 lots of 3100 put april at 117
total premium collected = 262
our lower break even point is 2838
and
our upper break even point is 3362
strategy :
buy 2 lot of nifty futures above 3100 and keep it till nifty falls below 3100, where i intend to reverse my position. i.e. I hold on to 2 lots of nifty long above 3100 and 2 lots of nifty shorts below 3100.
whichever direction nifty closes above or below 3100 till the expiry.... i get to keep the net premium collected.
total investment :
1,25,000 /- assuming 16% margin is charged the broker for holding nifty positions
target profit : 26,000 /-
time frame : till end of expiry of April series.
how it works :
on expiry above 3100, the profit i make by going long on nifty will be nullified by the loss i make on selling the 3100 call.
on expiry below 3100, the profit i make on going short on nifty will be nullified by the loss i make on selling the 3100 put.
Shortcomings of this strategy :
1. if the nifty becomes directionless at 3100 and continues to trade plus minus 20 or 30 points pivoting 3100.
then,
we just let the premium decay and watch out for a break down or break out.... above or below 3100.
2. if there is a massive gap down or gap up around 3100.
then we have to cut some amount of net targeted profit we intend to collect. and continue to hold nifty position in the desired direction.
3. worst case scenario : nifty gaps down or up 200 points from above 3100 to below 3100
then,
we order a pizza and curse the dilevery boy for our misfortunes. :
happy trading...
linkon7
