Nifty strangle

[AW10]

Hi,
I Have put my entire capital into this strangle.
After waiting for 10 days, Today Nifty touched 2850 levels.
Today I have sold 50% of my positions as follows:
NIFTY 27 Nov CE 3100 bought @ Rs.172 sold @ Rs.58.5
NIFTY 27 Nov PE 2900 bought @ Rs.154 sold @ Rs.177

as you can see , I have incurred 27% loss. But i have reduced my exposure by half.
Still holding on to other 50% of my position.
for my position to escape from loss the remaining half should produce 54% profit.
will it ever happen ?
DO YOU FEEL WHAT I HAVE DONE IS CORRECT ?


HERE IS HOW I STARTED THE TRADE :
On 3rd November 2008, I entered a Nifty strangle by buying an OTM PUT & OTM CALL.
Here is the trade:

NIFTY 27 Nov CE 3100 bought @ Rs.172
NIFTY 27 Nov PE 2900 bought @ Rs.154

Nifty was trading at 3000 Levels when I entered the strangle.
On 7th Nov, After 5 sessions NIFTY is again trading at 3000 levels only.
Now,
CE 3100 is trading @ Rs.145
PE 2900 is trading @ Rs.142
as you can see, both the options have depreciated in value.
I am experiencing 12% loss in the overall trade as on 7th November.

Thankyou,

warm regards,

VIJAY

you are making fundamental mistake on money management - by risking whole acct on 1 trade. You need to give small percentage of acct on one single trade as position size (not more then 5% of acct size.. but for small acct maybe 10%).
Also define the maximum risk that you will take on that position.. (say 2% of acct size).

First rule of trading is to SURVIVE. Second rule - Manage your Loss.. Consistent PROFIT comes lot later.. You got to be in the game long enough to see the profit..
Understand the animal (option strategy) that u are playing with..

All the best.

 

[vijayabv]

HI,

Yes, I made several fundamental mistakes while entering the trade.
1) I have put all the money in One trade
2) I entered the strangle when volatility was High i.e., 70%
3) I entered on Nov 3rd, with only 18 trading sessions remaining before expiry
4) After one week, nifty was trading exactly at the same level when I bought it. i.e., spot nifty at 3000 levels. even then i did not liquidate any portion of the trade in hopes of a breakout.

so, now it's time to minimize Losses:

Yesterday I liquidated half of the position with 25% loss
Today I sold all the remaining puts,
i.e., Nov Nifty 2900 puts @ Rs.201 (bought at 154)
but still holding on to
Nov Nifty 3100 calls currently trading @Rs.45 (bought at 172)
coz., the downside risk now is limited to 45, with 9 trading sessions remaining.
I am hoping for a trend reversal on monday.

I have regained 60% of investment so far
have made 25% overall Loss so far
If 3100 call touches a premium of Rs.172 before expiry I can regain 93% of my investment.
I will be very happy to lose 7% instead of 35%
Do you feel this can happen ?

 

[terminator_123]

Hope for a rate cut buddy even 550+ dow + inflation drop were not enough to make +ve impression on markets

 

[TFL]

HI,

Yes, I made several fundamental mistakes while entering the trade.
1) I have put all the money in One trade
2) I entered the strangle when volatility was High i.e., 70%
3) I entered on Nov 3rd, with only 18 trading sessions remaining before expiry
4) After one week, nifty was trading exactly at the same level when I bought it. i.e., spot nifty at 3000 levels. even then i did not liquidate any portion of the trade in hopes of a breakout.

so, now it's time to minimize Losses:

Yesterday I liquidated half of the position with 25% loss
Today I sold all the remaining puts,
i.e., Nov Nifty 2900 puts @ Rs.201 (bought at 154)
but still holding on to
Nov Nifty 3100 calls currently trading @Rs.45 (bought at 172)
coz., the downside risk now is limited to 45, with 9 trading sessions remaining.
I am hoping for a trend reversal on monday.

I have regained 60% of investment so far
have made 25% overall Loss so far
If 3100 call touches a premium of Rs.172 before expiry I can regain 93% of my investment.
I will be very happy to lose 7% instead of 35%
Do you feel this can happen ?

Vijayabv,

My friend, congrats.

Its a big think to sort out the mistake one did. You did it!
The next step is to never repeat it again.

Hari.

 

[praveen taneja]

niether there is money in banks of world nor there any buyer or willingness to enter for long instead of booking loss in puts u had booked calls or should had wait for a major event of g20 meet which i think even if positive then too give a short rally to b sold for god bless u n ur trade

 

[vijayabv]

Hi,

This week I have created 2 more strangles and sold them today.
Full details of my trade is attached as an excel file.

Here is the jist
OPTION bought sold
Dec PE 2600 203 170
Dec CE 2700 181 213
total profit : -0.26 %
OPTION bought sold
Dec PE 2500 194 135.9
Dec CE 2600 180 270
total profit : 8.52 %

The first strangle was bought on 19th nov when spot nifty was at 2635
(not quite delta nuetral)
the market went down but bounced back today.
so I sold the strangle without any profit/loss. (excluding commissions)

The second strangle was bought on 20th nov when spot nifty was at 2550
(delta neutral)
the market went in one direction and reached 2700 today.
so I sold the strangle with 8.52% profit. (excluding commissions)
I did not held on to the strangle coz., option's time value will depreciate over the weekend.

the market is so volatile and uncertain, that it's difficult to make a directional call.
I am planning to create multiple strangles whenever nifty touches 2550,2650,2750 etc.,
& sell them whenever I see 10% profit or more.

if it doesn't produce profit within 1 week, I would plan for an exit.
It gives atleast one chance to get out without loss.
Even if i hold on to the strangle for 2 weeks & the market does not move
it would produce 10% loss.
the strangles should be created with 60-35 days before expiry.
the strangles should be sold with atleast 30 days before expiry.
coz., time value depreciation is more during the last 30 days.

from october onwards, I have created 6 strangles.
some of which have produced 50% profit, some 25% profit etc.,
only one strangle went for a loss.
Unfortunately I have put all my money on that strangle.
the irony is that, even that strangle gave me one chance to exit without profit/loss, but I did not respect it .
Paid the ultimate price 30% loss. But I could have easily exited with very less loss.

ofcourse, it's of the assumption that volatility will continue to be high for next 6 months.

any suggestions about this strategy is welcome.

warm regards,

VIJAY

 

[addycool]

I will quote my personal knowledge and experience here.

Strangle is especially useful when you expect a strong up or down move in the underlying. For example I created a strangle when confidence vote was pending of of Manmohan's Govt.
Market was expect to up or down by good number at that point. So I created a far out of money strangle( as it is much cheeper and ROI is much higher) say 300 pt up and 300 pt down. Now if market moves even 250 pts one way you can sell profitable leg recovering ur investment and some profit and keep second leg to sell it when market returns back(if ever)
But u dont worry as u have already recovered ur investment and profit in one leg only. and whatever u get in second one is added profit.

In normal scenarios, strangles are pretty expensive due to time decay. In my view, we should buy strangle when volatility is low (as option prices are lower) and sell later.
But I havent used this strategy as I never tracked volatility.

comments welcome from all and please post if u find any profiable opportunity.

 

[AW10]

I will quote my personal knowledge and experience here.

Strangle is especially useful when you expect a strong up or down move in the underlying. For example I created a strangle when confidence vote was pending of of Manmohan's Govt.
Market was expect to up or down by good number at that point. So I created a far out of money strangle( as it is much cheeper and ROI is much higher) say 300 pt up and 300 pt down. Now if market moves even 250 pts one way you can sell profitable leg recovering ur investment and some profit and keep second leg to sell it when market returns back(if ever)
But u dont worry as u have already recovered ur investment and profit in one leg only. and whatever u get in second one is added profit.

In normal scenarios, strangles are pretty expensive due to time decay. In my view, we should buy strangle when volatility is low (as option prices are lower) and sell later.
But I havent used this strategy as I never tracked volatility.

comments welcome from all and please post if u find any profiable opportunity.

You are right in explaining the mkt conditions that are required for Strangle to work.
In reality, we rarely get those situations, maybe 10 to 15% of the time. In all other other mkt conditions strangle is looser becuse 1) time decay is hitting on 2 option positions and 2) even if mkt moves, one of the leg (i.e. 50% of position) will always be loosing.
Any smart trader can very well see the odds are against strangle buyer by more then 85 to 90% of the time.
Infact it is great to be strangle seller and get these big odds favouring your trade.

The event that u have mentioned are publicly known events and option seller knows that there will be people who would like to use options to play these event..In such case, the options start getting costly due to uncertainly and high demand. This high premium gives more protection to option seller.

Happy Trading