Option Strategy for Election results day

#11
Bro this is reshuffling they are booking stocks in which they had good profit and chosing stocks which are for years are not rising as Congress govt was looting instead of working to make there plan work they are buying power stocks which are down to earth and would jump once Modi govt come in power with infra stocks :)
Pure tukka view lose on your own view my view is for my loss only:rofl::rofl::rofl:
I dont think FIIs are booking profit. That could be due to quarterly results. Do you think power stocks like NTPC would make a rally if NDA gets majority?
 
#12
I think on election day fundamentals may not play much role rather all stocks will move in same direction so better to have stocks with less premium... just my guess not sure abt othrr views..
 
#14
Bro elections are very close to call as majority are fence sitters.Hence exit polls are also a bet not a reality.Anyway FII's have also lightened their positions and are waiting for the big day,they aren't buying heavily due to which market has had a minor normal correction.IMHO option strategies will not work this time as counting is on a trading day,hence market will trend along with the result trend real time.IV are very high as all buyers are buying protection and option writers are demanding hefty premiums for the risk involved.
 

TradeOptions

Well-Known Member
#15
A request to all those members who are thinking about playing the Nifty Options in the current environment. Please read this article carefully. Because of the big jump in the IV, the option premiums have sky rocketed and therefor it might be extremely risky to jump in into the options from either side at the moment. Please take this high IV risk factor in your mind before jumping the gun.

This article was posted on 27 April 2014
http://investorsareidiots.com/2014/...ated-costs-no-option-strategy-until-16th-may/

The month of May has seen a significant rise in the volatility for the index and stock based options. The Nifty index options have implied volatility to the level of 31% for at the money Put options and 28% for at the money Call options. There has been a rise in the implied volatility by 234% from the levels of 9.27% for at the money put options and by 97% from the levels of 14% for at the money call options that were seen for the Nifty index April 2014 series. The implied volatility for out of the money put and call options are not much below at 29% and 27% respectively.

The rise in the implied volatility has significantly increased the option premiums for the Nifty index May series. The costs have dramatically increased for the purchase of Nifty index options in the month of May 2014 as compared to the previous month.

For e.g. April 2014 out of the money put and call options of 6300 and 7100 were costing Rs.615 for one lot of 50 for the Nifty index at the beginning of the month of April and the May 2014 Nifty out of the money 6300 put and 7100 call option have a combined cost of Rs.9550 at the beginning of the month of May that shows a 15 times rise in cost of purchase. High expectations have already increased premiums of the May option series to abnormal levels.
The cost for the same pair has risen from Rs 615 to Rs 9550, compared with the previous month. It is an extremely dangerous scenario, do not take it lightly. Pay some attention to it for sure. I would like to quote praveen taneja bhai again -

Roller coaster pe baithne ke chakkar mein Bhai Road Roller ke neeche mat aa jana:rofl::rofl:
If someone thinks that the risks have been blown out of proportion in the above article and it is not as risky as it is being stated, then please share your views here.

All other views are welcome as well.
 
#16
One can go for spread if IV is the only concern.
7000-7200 bull call spread was available for 50 something , just a few days back.
1:4 risk return was good enough considering upcoming big event.
IV drop after the event will hurt the spread but price movement should compensate for it (provided trader gets the direction right)
 

pakatil

Well-Known Member
#17
Call Spread can become profitable if each leg gain at diff speeds. Surprisingly all CEs are moving at same speed......

How will profit come.....unless one waits till expiry....:confused:
 

TradeOptions

Well-Known Member
#18
Please share Elections related trading strategies that you find on the net, in this thread. So that we all can then discuss about the important points and use it for our own trading.

http://www.fiis.in/trading-strategy-election-2014-india/
Trading Strategy for Election 2014 India – Things to Remember

Not only you, almost all Indian traders are awaiting for the Big Event - Indian Election Results 2014. Why?

During the last general election in 2009, Indian stock markets rose over 17% on the election result day. In general election in 2004, the markets fell over 16% on the election result day. There is no harm in traders are looking for an exciting ride on 2014 election result which is due on 16th May 2014. They buy/sell stocks, options and planning their own strategies to gain maximum profit while limiting the risk.

But you should remember, market rallied in 2009 and corrected in 2004 due to the unexpected result. Indian voters tend to change their mind at the last moment. Since things are uncertain, you should be prepared to handle the market movement in both sides.

The general prediction and opinion polls suggests that NDA can form a stable government and we have witnessed market reacting to it. If you trade based on this opinion polls, predictions and Mr.Modi wave, you are exposing yourself to a huge risk. Since Indian voters might change their mind at the last moment, we can’t rule out the possibility of 3rd party gaining majority and forming a minority government. Let’s take a close look at how market would react on these two cases:
NDA forms government with Majority

This is expected and market already reacted to this. There won’t be a drastic rally in single day as like 2004 & 2009. But long term growth is very much possible after a small correction in market. There could be a 5-8% movement in the market.
Who will make profit?

Buyers of stocks in equity segment.
Who went long in stocks and index futures.
In the Money and At the Money call option buyers.
All Put option sellers and Deep Out of the Money call option sellers.

Who lose money?

Who shorted stocks and index futures.
All Put option buyers and Deep Out of the Money call option buyers.
In the Money and At the Money call option sellers.
Straddle and Strangle players in options.

If you have planned straddle/strangle, should be careful as option premiums are so high now due to high implied volatility.
Third front gains Majority

This would be a surprise for market and fall would be unstoppable. At least 30% correction is expected. Third front has a list of PM candidates. Mulayam Singh Yadav, Jayalalitha, Mayavathi, Nitesh Kumar and so on. First of all, they would not form a government at least for 2 weeks as every one wants to be PM. Even if they form government, no one knows how long it would sustain. Do you remember 1996, Vajpayee government lasted only for 13 days?
Who will make profit?

Who shorted the stocks and index futures.
All Put option buyers.
All Call option sellers.

Who lose money?

Buyers of stocks in equity segment.
Who went long in stocks and index futures.
All Put option sellers.
All Call option buyers.
So keep these two scenarios in mind and plan your strategy accordingly.
If you have any views about the points mentioned in the above article, then please share them. Your views are welcome.

Thanks
 

TradeOptions

Well-Known Member
#19
Please share Elections related trading strategies that you find on the net, in this thread. So that we all can then discuss about the important points and use it for our own trading.

www.fiis.in/trading-strategy-election-2014-india-strategy/


Trading Strategy for Election 2014 India – My Strategy

I hope you would have read Trading Strategy for Election 2014 India – Things to Remember. I have explained 2 scenarios:

1. If NDA forms government with Majority (70%).
2. If Third front gains Majority (30%).

Personally I feel there are 70% chances for scenario 1 and 30% chances for scenario 2. hence I would plan my strategy accordingly. I would invest 70% of my capital in long side and 30% in short side. Before I plan my strategy, I decided below things:

1. I will buy stocks in cash segment.
2. I will not write (sell) any options.
3. I will not expect more than 10% move in either side.
4. If market moves above 10% move in either side, it should add more in my profit.
5. I will not expect this high implied volatility to sustain till end of May contract.
6. I will loose money in option premium due to time decay and range bounded trading. So I would setup my strategy somewhere in 7th or 8th May 2014.
7. I will not trade on Futures. Since election result will be announced during market hours, market will be extremely volatile and it could trigger stop loss and some contracts might be closed automatically by brokers due to increased margin requirements.
8. I will not play Straddle/Strangle when Implied Volatility is so high.
9. I will not trade only on one stock.
10. I should create a option portfolio.

Keeping all this in mind, I selected below options to buy:

1. At the Money(ATM) call options and nearby Out of the Money(OTM) call options of stocks.
2. Deep Out of the Money(OTM) put options of Index.
Why am I buying Stock call options and Index put options?

As I said earlier, if NDA forms government, NIFTY might move between 5-10%. This move might not be sufficient to make profit. But stocks from particular segments like Infra, Bank, PSU and Power would make a rally due to the reform plans.

On the other hand, if third party gains majority, market fall will be unstoppable. I am expecting 30% downwards movement and that is sufficient for me to make profit.

I would buy ATM and nearest OTM calls of below stocks for which Option Premiums are comparatively low and has a good potential to rally if NDA forms the government:

NTPC
Coal India
IDFC
Bharti Airtel
Hindalco
BHEL
SBI
If you have any views about the points mentioned in the above article, then please share them. Your views are welcome.

Thanks
 

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