Option Buy Recomendations

[TraderJunkie]

Hi TJ

Here is, how we look at risk reward ratio compare to the way you look at. It is each personal choice, which model to use.

We accumulate the risk we take for each trade. If we make 12 trades with an average risk of 1'000 $, we than say, that we risked a total of 12'000 $ in all this trades.

If the outcome of this trades is a total of 24'000 $, we then say, that our risk reward ratio is 1:2.

You see the different ?

You risk in each trade a max amount of 40'000 R. In 12 trades you then risked 12 x 40'000 R which is a total of 480'000 R.

The outcome of all this 12 trades was a total of 43'000 R. In our view, the risk reward then is 0.1 : 1.

But as I say, it is each personal choice, which model he uses.

DanPickUp

But Dan - since all 12 trades are sequential - i.e (only 1 trade is open at one time) then the risk can't be multiplied right ? Because at any time I'm only risking that 40k. If I lose it in 2-3 trades, that won't mean i keep risking the same amount.

 

[DanPickUp]

But Dan - since all 12 trades are sequential - i.e (only 1 trade is open at one time) then the risk can't be multiplied right ? Because at any time I'm only risking that 40k. If I lose it in 2-3 trades, that won't mean i keep risking the same amount.

Hi Buddy

As I say, it is each personal choice, which model to use. What I posted, was a judgment or overlook of all trades. By the way, it is not 1:2 or 0.1 : 1. It is 2:1 and 1:10 as I wrote it the wrong way.

I will give you an example direct on the future, as I use the options mostly to hedge my strategies. The calculation with options and futures would even look different. But let it make me simple.

If I go in any detail in my market it looks like that :

Each point has a value of 31.25 $.
Each example is for one trade.
Each example is traded with one contract.

Initial risk : 5 point = 156.25 $ ( Which is the stop loss )
Initial profit target : 28 point = 875.-- $
Realized Gain/Loss : 15 point = 468.75 $

Risk reward 3:1
---------------

Initial risk : 5 point = 156.25 $ ( Which is the stop loss )
Initial profit target : 40 point = 1'250.-- $
Realized Gain/Loss : -5 point = -156.25-- $

Stopped out
--------------

Initial risk : 5 point = 156.25 $ ( Which is the stop loss )
Initial profit target : 22 point = 687.50 $
Realized Gain/Loss : -5 point = -156.25-- $

Stopped out
--------------

Initial risk : 5 point = 156.25 $ ( Which is the stop loss )
Initial profit target : 15 point = 468.75 $
Realized Gain/Loss : 15 point = 468.75 $

Risk Reward 3:1
---------------

Initial risk : 5 point = 156.25 $ ( Which is the stop loss )
Initial profit target : 40 point = 1'250.00 $
Realized Gain/Loss : 46 point = 1'437.50 $

Risk Reward 9:1
---------------

In five trades I have risked a total of 781.25 $ ( 5 x 156.25 $ )

I have made in five trades a total of 2'062.50 $

My total risk reward of all this trades have been 2.5 : 1.

As I not have made this 2062.50 $ in one trade, I also not can say, that I only risked 156.25 $. I had five times to risk 156.25 $ to make the 2'062 $

But as I say, that is our way to look at our risk reward ratio and we choose d that model.

DanPickUp

 

[TraderJunkie]

Hi Buddy

As I say, it is each personal choice, which model to use. What I posted, was a judgment or overlook of all trades. By the way, it is not 1:2 or 0.1 : 1. It is 2:1 and 1:10 as I wrote it the wrong way.

If I go in any detail in my market it looks like that :

Each point has a value of 31.25 $.
Each example is for one trade.
Each example is traded with one contract.

Initial risk : 5 point = 156.25 $ ( Which is the stop loss )
Initial profit target : 28 point = 875.-- $
Realized Gain/Loss : 15 point = 468.75 $

Risk reward 3:1
---------------

Initial risk : 5 point = 156.25 $ ( Which is the stop loss )
Initial profit target : 40 point = 1'250.-- $
Realized Gain/Loss : -5 point = -156.25-- $

Stopped out
--------------

Initial risk : 5 point = 156.25 $ ( Which is the stop loss )
Initial profit target : 22 point = 687.50 $
Realized Gain/Loss : -5 point = -156.25-- $

Stopped out
--------------

Initial risk : 5 point = 156.25 $ ( Which is the stop loss )
Initial profit target : 15 point = 468.75 $
Realized Gain/Loss : 15 point = 468.75 $

Risk Reward 3:1
---------------

Initial risk : 5 point = 156.25 $ ( Which is the stop loss )
Initial profit target : 40 point = 1'250.00 $
Realized Gain/Loss : 46 point = 1'437.50 $

Risk Reward 9:1
---------------

In five trades I have risked a total of 781.25 $ ( 5 x 156.25 $ )

I have made in five trades a total of 2'062.50 $

My total risk reward of all this trades have been 2.5 : 1.

As I not have made this 2062.50 $ in one trade, I also not can say, that I only risked 156.25 $. I had five times to risk 156.25 $ to make the 2'062 $

But as I say, that is our way to look at our risk reward ratio and we choose d that model.

DanPickUp

Ah ! I see your point and agree with you :thumb:

 

[sriugdh]

Hold it - results from PNB, BHEL, ITC are good - markets should rally ..then you can decide what to do..put a SL of 13 maybe

Hi,

am carrying the lot over the weekend. Forgot to keep a SL

Y din't market move to green territory even when Europe was trading in green.
Is there still a fall left? Will there be rise on monday or could we expect a stagnation till the expiry date?

Regards,
Sriram

 

[TraderJunkie]

Hi,

am carrying the lot over the weekend. Forgot to keep a SL

Y din't market move to green territory even when Europe was trading in green.
Is there still a fall left? Will there be rise on monday or could we expect a stagnation till the expiry date?

Regards,
Sriram

Who knows what next week brings Sri ..plus as I said its a shortened expiry week so 3 days of no trade (weekend + 1 holiday) will kill the call due to time decay.

The markets were going higher but then, markets are such - that 45 points fall in 3 minutes must have stopped out many traders today. It did stop me out for sure and my winning position was closed at a stoploss. But no complaints, thats the market.

 

[TraderJunkie]

Hi,

am carrying the lot over the weekend. Forgot to keep a SL

Y din't market move to green territory even when Europe was trading in green.
Is there still a fall left? Will there be rise on monday or could we expect a stagnation till the expiry date?

Regards,
Sriram

Ok Sriram - lets look at your situation here.

1st - here is the option price calculation in the screen-shot.

Look at the chart above to understand what needs to happen on Monday.

The table shows various index targets and the price your call can trade at. The ROWS are volatility figures and the column are the NIFTY spot. Now that should help us understand what we are playing with.

The top part of the chart is the option price calculation - Today your call is approximately worth 13 - 13.5 , the PUT is approximately worth 120. Lets ignore the PUT since you have a CALL.

Hope this table and calculation gives you some comfort.

TJ

 

[amarsingh071]

how much success ratio does technical analysis have

 

[DanPickUp]

how much success ratio does technical analysis have

How many miles can you run ?

If you are trained and have a healthy condition, you will run many miles.

The same happens to success ratio in TA. If you trained in it and have a lot of experience, your success ratio will be high.

 

[TraderJunkie]

Dear Dan - After having seen your data, I would like to discuss a bit about risk reward with you. I think I can improve on that. Though I think the Indian markets are more volatile so risk to reward might be a bit skewed.

Maybe I will send you a PM this weekend and if you can help me a bit on that front, then that would be great

Thanks,
TJ

 

[VJAY]

Ok Sriram - lets look at your situation here.

1st - here is the option price calculation in the screen-shot.

Look at the chart above to understand what needs to happen on Monday.

The table shows various index targets and the price your call can trade at. The ROWS are volatility figures and the column are the NIFTY spot. Now that should help us understand what we are playing with.

The top part of the chart is the option price calculation - Today your call is approximately worth 13 - 13.5 , the PUT is approximately worth 120. Lets ignore the PUT since you have a CALL.

Hope this table and calculation gives you some comfort.

TJ

Dear TJ,
If you dont mind please share this excel file .....i have one but it not gives simulation figures.....