Option experiments...

[aimer]

As promised: Will be back today.

Now let me start with this questions:

What would be your favorite move in your mind on what you posted and why?

Any other idea/s in your back head which you just want to be confirmed or wanted to have an expanded mind about it or what ever else I do not see?

As more as I know as more precisely I can answer your question in a simple way.

Dan

Hello Dan,
Thanks for the reply....As u know I am learning and experimenting, thus i want ur views what else can be done to keep my position in profit.
Right now I am in profit but let this profit increase what else is required?

I was bearish on this initially but at the back of my mind a BO was anticipated...thus had gone for a straddle...and due to higher volatality gone for short straddle...

 

[Somatung]

Hello Dan,
Hope u are doing fine...

I have made few positions(demo account) and would like u to correct me and provide your valuable comments...

Had initiated a short straddle in TATASTEEL on 27th April.

Current, actual chart from TataSteel: http://i61.tinypic.com/oir5sh.png

Reasons being volatality on the maximum side and also observing some resistance at 380 levels in the chart...even the max open interest in CE was placed at 380.
Thought Process wanted to gain from the higher volatality and also holding the position for the series would help theta on my side...

Trade
TATASTEEL15MAY380CE 27/04/2015 10.00 500 SELL
TATASTEEL15MAY380PE 27/04/2015 21.00 500 SELL

Net premium gained was 31(excluding brokerage)

- Could you in the future kindly make a screen shot the day you toke the trade or thought of. A screen shot from the option matrix and from the chart. So I can compare the data from those day with the current, actual data from what ever script you talk about.

Now in todays scenario tatasteel has moved up and has broken 380 lvls(LTP 379.85) volatility being 37.16...
The following will be the conditions if it expires @ the following rates...
380-----31
390-----21
400-----11
410-----01

If I add one leg on the upper side by buying 390 call @ 18, now the scenario changes as follows...
380expiry----13
390-----------3
400-----------3
410-----------3

(I do not control the above numbers and so I take them as you posted)

Current, actual option matrix: http://i61.tinypic.com/e6tzdk.png

- By adding this leg you have a call credit spread (according to the matrix I posted) on the bull side, as you received 10 RS and you spend 6.40 RS. If you think market will move up and we stay with your idea to leg in on the call side, you do not implement a call credit spread instead a call debit spread. Would mean you buy the 370 call with 13.50)""

Now adding one leg reduces the profit but its limited.
So, would it be better to add one leg at this juncture or let the straddle work as theta would also work...

- There is not a NO and there is not a YES, as this depends on how you personally value the current situation in this script. According to this you can use the though process from above answer "" or you do nothing.

also if the scrip moves abv 410 which is not likely we can square off both calls and puts(scratch trade)...

- Again: There is not a NO and there is not a YES, as this depends which trading plan you want to follow. The trading plan includes your strategy as the strategy is not the trading plan. If you want to keep the trade with out leg in or leg out, without any adjustments but just keep it as it is, then you can square of the trade at any level you feel comfortable.

Dan, would like ur inputs on the abv thought...am I moving in the correct direction?
Thanks in advance...

Answers and comments are in blue. Hope it helps for the moment. Take care / Dan

 

[aimer]

Answers and comments are in blue. Hope it helps for the moment. Take care / Dan

Thanks Dan for ur valuable comments...
What I infer from abv is that its on the situation and my risk taking capacity which will decide the position...today as mkt came down and again that position is back to its initial situation...

I have three more position but not enough data on that...from next time would post the screen shot of the trades...

One more question on profit booking...
Do we need to set any target or book out on the prevailing situation?

 

[Somatung]

Hi

I will write a bit more compare to what you asked for, as I just could put a YES under your last line and that's it. Here we go:

Profit booking is a huge topic of itself and strongly depends on your believes, derivatives you use in trading, trading style, strategies you use and the trading plan you follow with.

If you want to trade pure targets, this you can do. But let me clearly tell you: This is only one view on trading and only one way to trade and it strongly depends on the derivative/s we use in trading. It also depends if you want to swing trade, positional trade or want to do intra day trading. Most call and tips givers are predictor of targets, as most people out in the wild do not have any idea about other ways of trading. But as told, you can trade on targets you decide by your self. No doubt about that.

Still: We have to make a clear different, as we talk here about options and option strategies and not about any script we trade purely with a naked future, naked share or naked options. With options and option strategies we trade a shewing gum. Never let forget about this fact and so our rules and possibilities do varies in different ways to future or pure share trading. That is the beauty of option trading and that is the burden of option trading if we leave the field of pure, naked directional option trading in short time frames.

In our case we have much more possibilities to create our own trading and trading styles, include our trading plans. The targets you must have in mind with the short "Straddle" you have, are the break even points. This is a must and this are your stop losses or your adjustment levels or your convert to some thing else levels.

Your play with this short straddle is "Theta and Vola". So setting a fix target here is not like setting a target on a future script and end of story. It very much depends on how you value the current situation in the script you trade on. Like today in TataSteel: Market did not show a BO to the upper side and if you would have calculated any level here and then executed the leg, you would have done your self a bad favor.

An other point to consider when probably want to use fix targets in such an option strategy: Can we follow the script through the day or is this not possible because you have other things to do?

If you have a job, you do not trade short option strategies. End of story. You would need to change to long option strategies to reduce your risk.

If you can watch the script, you will act with adjustments on your shorts around BE
- or you will move your targets according to market moves
- or you let your stop losses be hit (which is no profit booking instead loss booking)
- or you create a new strategy with the short leg you have in the market on the side you want to act on.

Take care / Dan

 

[aimer]

Hi

I will write a bit more compare to what you asked for, as I just could put a YES under your last line and that's it. Here we go:

Take care / Dan

Thanks a tonn Dan,
got the gist...but to be honest few lines of urs were nasty bouncers...but no probs, will go through it till I understand it properly...

In the mean time want to throw another situation where in suppose I get in another short straddle and seeing today's scenario after mkt breaking down all supports I get into another put to hedge my short side, but the mkt gives a V-shape reversal, in such case what to do...square off the put with some losses and keep the initial position or add one more leg(call) to counter this short leg...

let me put an example considering today's trade...
suppose the short straddle is for nifty 8200 strike and since mkt moves down to 8095lvls, I hedge it with buying 8000put...now mkt shows a V-shaped reversal and is back to 8300 lvls the same day...what should I do, do I square the 8000pe with some losses or do I add(buy) one more leg, ie., 8400ce as a counter measure....

Hope I am not bothering u too much, Dan!!!

 

[Somatung]

@Aimer

As far as I understand: You try to figure out how to trade a possible, specific chart pattern with an ongoing short straddle. Kindly correct me if I am wrong with this.

If I am on the right path, then let me ask you: How much premium did you get for your short straddle and where are the break even levels on this short straddle on each side? Further: How much would your put cost or how much would your call leg cost? And most important: Do you have any testing tool for your option strategy ideas?

If you have this numbers, kindly post it and other wise I will answer your above post as far as it makes sense during tomorrows day. The problem here: You ask a hypothetical question on one possible event of many possible occurring chart events.

But let's see what you may post as I kept back for the moment on your above post.

Dan

 

[aimer]

@Aimer

As far as I understand: You try to figure out how to trade a possible, specific chart pattern with an ongoing short straddle. Kindly correct me if I am wrong with this.

Dan

Dan, it was just a hypothetical situation created by me just to know how to tackle such situations which we often encounter...

I would just make few things clear so that u get the complete picture...

I assumed open interest to be between 8100-8800 and the IMV being near 20% for both CE and PE...now since vola is high I choose to go for a Short Straddle at 8300 strike...my premium collected is 203 in CE and 149 in PE, total premium being 352. Now since mkt crash down to 8095 lvls, i try to hedge it further with a buy 8000 PE at 100...now the mkt reverses back to 8300 lvls and in such case what should I do, do I square my PE at 8000 or do I go for a CE at 8400 CE...

Plz solve this hypothetical situation...Thanks

 

[Somatung]

Dan, it was just a hypothetical situation created by me just to know how to tackle such situations which we often encounter...

I would just make few things clear so that u get the complete picture...

I assumed open interest to be between 8100-8800 and the IMV being near 20% for both CE and PE...now since vola is high I choose to go for a Short Straddle at 8300 strike...my premium collected is 203 in CE and 149 in PE, total premium being 352. Now since mkt crash down to 8095 lvls, i try to hedge it further with a buy 8000 PE at 100...now the mkt reverses back to 8300 lvls and in such case what should I do, do I square my PE at 8000 or do I go for a CE at 8400 CE...

Plz solve this hypothetical situation...Thanks

Ok and as told: I will answer your above post during the day. This just to inform you so that you not will wait now for any post of mine.

Have a nice night / Dan

 

[Somatung]

Ok, here we go:

Depending where you entered the market, you will have a clear BE target on the up and down side of the trade. Here you act the way you decided to do so from your trading plan. Different ways to act
and to define that, but let's stay with your question.

1. Assume this BE on the down side is around 8095, you can square of the short 8300 put to take out the risk you face and can handle on this leg.
2. Or you also could square of the whole position. This then would be end of the story for this trade with this defined rule.

Next step what you want to do, you decide according to what market shows and what you have decided to fill your entry rules for what ever trade/system.

1. If you think that market will further move down for what ever reason and your entry rules for a long put are filled, you could buy the atm 8000 PE at 100. Risk is defined with 100.
2. The same for this: If your entry rule for a short straddle are filled again, you also could enter a new short straddle atm.
3. Or you could short a naked call with your defined risk profile and so on.

-----------------------------------------

Now next step according to your example:

You are now in the new trade and market goes up. In your mentioned case we would talk either about a situation with:

1. The long 8000 PE,
2. Or with the long 8000 PE and the current, old short straddle.

----------------------------------------

Now market moves up again. Depending on above first or second scenario:

1. You keep the long 8000 put and short the 7900 put = Put credit spread. No buy of call.
2. Or you square of the short 8300 call leg from your short current straddle and keep the current put credit spread. (Put credit spread as you got 149 for the 8300 put and spend 100 for the 8000 put) and no buy of call.
3. Or you keep any of the mentioned put credit spreads and buy the 8400 call leg if your entry rules for a long call leg are filled.
4. Or you keep the current short straddle, keep the new long put and add the long call.

That should do for the moment, as other wise it gets to complicated. Each of this four just mentioned above scenarios has its own value and risk profile. There is no just one way and all depends on:

- how deeply you understand your risks,
- how much risk are you willing to take,
- how deep pocket are you to fill the margin requests in your place,
- how flexible are you with your option strategy knowledge to act according to what market shows,

as what I just posted is related only to your question, mentioned legs and mentioned scenario and not to what else all could be done in this situation.

Take care / Dan

 

[aimer]

Ok, here we go:

There is no just one way and all depends on:

- how deeply you understand your risks,
- how much risk are you willing to take,
- how deep pocket are you to fill the margin requests in your place,
- how flexible are you with your option strategy knowledge to act according to what market shows,

Take care / Dan

Thanks a lot Dan,
Got to know one imp.thing that, there is no just one way and all depends on the situation...Its like containing your profits by taking minimum risk and doing various permutaion and combinations...

One more thing Dan, in ur last to last post u had mentioned abt not taking any short trade if u r not a FTT, just quoting that here "If you have a job, you do not trade short option strategies. End of story. You would need to change to long option strategies to reduce your risk. " Does this mean that since I am not in front of the system the whole day, I just watch 30mins in the morning and 30 mins before mkt closes, I should avoid any strategies where in writing is involved?

Secondly U were talking abt trading according to any system...I just trade watching the OI, sup and res, ranges on the charts...do I need to have any proper system or will this work?