Options Adjustments

[toughard]

Adverse Scenario
1) Nifty reaches 7180 and we are on loss. Threatens to break 7300.
Solution:
a) We can use munde_77 technique which he explained in his threads http://www.traderji.com/options/91666-thoughts-trades-options.html. A variation of that

Buy back 7000 put at profit. Sell 7100 put.
=> If nifty comes back to 7100 from 7180 we gain in 7000 call. We loose in 7100 put. But delta is in our favour as ITM delta > otm delta. We close all positions in profit.

=> If nifty further moves away to 7210 we can again buy back 7100 put sell 7150 put. Tried to balance such that the gains if nifty reverses is always more than losses. Assuming no event days and nifty max moves around 70-80 points a day.

We go on doing that this till nifty reaches 7300 after which we close the position.

b) We can also do a small variation of technique a) by selling 7150 put and simultaneously buying 6850 call. So downside is protected. We can do this till nifty reaches 7300.

Any other adjustments you think for adverse scenarios in iron butterfly please explain.

Dear lemondew,
can I request you to produce the pay out diagram with your explanations?
So that we can mark the the areas of adjustments and other related studies.

Thanks

 

[toughard]

This Thread is regarding how we can manage all adverse/worse scenarios in our strategy through adjustments. Just giving tips no real examples. Request all seniors to give their inputs.

Assumptions
1) We do non directional trade and donot understand technical analysis.
2) We calculate theta, vega and act accordingly.

We go through various strategies 1 by 1
Strategy 1: Iron butterfly

Nifty at 7000
Sell call 1 lot 7000
Sell put 1 lot 7000

buy call 1 lot 7300
buy put 1 lot 6700

Dear lemondew,
At the out set, if you can tell us more about the situation that IRON Butterfly is used?
When it to be deployed?
Based on what Studies?
How to select the right strike Prices?
Should be in the beginning/middle or the near end of the contract cycle?

so that the right structure is placed rightly in right time:thumb:

 

[lemondew]

So the position is itself created through adjustments

@Lemondew

If you implement an Iron Butterfly at once with no directional leg in plays, your adjustments on the break even side is fine. Nothing to ad to this. Option trading can be quit simple and should be kept simple. So nothing wrong with your method. Even then: But this does not mean that other ways of option trading, specially leg in and leg out, are much more complicated. Leg in and leg out is a bit more related to directional trading and it is a bit more dynamic then the all at once implementing approach. As simple as that and nothing new to you. Even you use the leg in and leg out approach in your shown adjustments, which are directional trades at those moments.

Now if you still want to go/test some other ways of implementing an Iron Butterfly, which also include directional plays, then it is to recommend to test this ways in advance before doing them live in the market. This will give you a certain idea about what you can expect from it. For this testing it is of help to have some kind of software (This at least counts for me, but must of course not count for others. Some are happy with some simple paper trades and others want to see there risk graphs, the exact price moves in all used strike levels, all the greeks and the daily price movement of the whole trade on each side. Individual choice with individual trading styles. Nothing to value about it). A good help for this testing comes with software which varies from a simple excel sheet to very advanced option trading software. This just to clear this part of my post, as this may gave some confusion.

Moving on with the Iron Butterfly and using the same technique, but doing instead an Iron Condor: Let;s assume you have a swing market in your traded time frame. You have an approximate support and you have an approximate resistance level. Now what would be the problem to implement a put credit spread around support, then wait until the market moves up to resistance and there you implement your call credit spread. This just to give just one simple, other way compare to the all at once approach, to implement an Iron Condor, even in your market and having a bit a better risk profile after doing so. If you have to adjust this Iron Condor, you can do it the way you posted with your Iron Butterfly and you still do it in a very simple and clear way.

I mentioned the Iron Condor, as the risk with leg in through credit spreads is lower compare to leg in through naked, directional put and calls. This is also a simple way to do so, as you can leg in any Iron Butterfly by using even this more risky approach. Any way: You know by your self what you want and this post was just a little add to all what is possible in what ever way options are traded. Dear mean:

Take care and have a nice day

@Amit44

Your confusion, if it was build on my post, should be cleared now. If it was build on some thing else, then read once my signatures and you would find the following link: http://www.traderji.com/futures/93308-nifty-bnf-trend-some-super-genius-member-tj-4.html#post955261

Have a nice weekend

 

[Somatung]

So the position is itself created through adjustments

You got some PM's.

 

[lemondew]

I use zerodha. They dont provide any diagrams. Please suggest any software for pay out diagrams against strategies. I tried options oracle. They graph it produce is way different from calculations using scholes calculator. Didnt understand options volatility it uses and somehow generates different calculations from my manual calculations. so i dont use it

Dear lemondew,
can I request you to produce the pay out diagram with your explanations?
So that we can mark the the areas of adjustments and other related studies.

Thanks

Feel free to suggest your observations.

Dear lemondew,
At the out set, if you can tell us more about the situation that IRON Butterfly is used?
When it to be deployed?
Based on what Studies?
How to select the right strike Prices?
Should be in the beginning/middle or the near end of the contract cycle?
so that the right structure is placed rightly in right time

__________________

 

[gmt900]

I have entered broken wing BF for May on 21 May.

Reason : NS was at 7280. Max pain was at 7100. Expiry was 8 days away. VIX was at 18.

I felt nifty should not exceed 7300 at expiry.

short call 7200 @ 131
short put 7200 @ 35.5

long call 7400 @ 34
long put 7100 @ 15

Minimum profit would be 17 points below 7300 and max loss 82 points beyond 7400.


NS is at 7367. There is a loss of 63 points on short call and 26 points profit on short put.

If nifty does not correct on Monday, I will buy back 7200PE and sell 7250PE or 7300PE.

I am getting pictorial view on OptionsOracle.

This is the first time I am trying broken wing BF and trying to get the hang of adjustments of the trade.

 

[sanjeev258380]

current mkt conditions are not for short straddle..

 

[toughard]

I use zerodha. They dont provide any diagrams. Please suggest any software for pay out diagrams against strategies. I tried options oracle. They graph it produce is way different from calculations using scholes calculator. Didnt understand options volatility it uses and somehow generates different calculations from my manual calculations. so i dont use it



Feel free to suggest your observations.

Dear lemondew,
At the out set, if you can tell us more about the situation that IRON Butterfly is used?
When it to be deployed?
Based on what Studies?
How to select the right strike Prices?
Should be in the beginning/middle or the near end of the contract cycle?
so that the right structure is placed rightly in right time

__________________

---------------------------------------
One can read a good book -Options as a Strategic Investment by Lawrence G. McMillan- for basic option adjustment techniques its available free at-
http://www.allbookez.com/options-as-a-strategic-investment/
It will be a long basic read
------------------------------------------------------

Let me share some of my simple observation here...

At the out set, Forming a possible View on underlying using S/R, Trend, Momentum, MAX OI STAND, VIX RANGE, MAX PAIN or any other studies that one is comfortable with, is very important. Please note that the view may be right or wrong, here the Idea is to get good returns if one is right and lose small if wrong.

Before one take up any kind of option trade based on a formed view, s/he have to select these things first-

1st Choose between Directional Strategy OR Neutral Strategies OR Income Generating Strategies
2nd Static Strategy OR a Legging one (adjusting one) and
3rd Strategy with Highest Probability of Profit OR Probability of Highest Profits (the most important selection which determinate our option trading success)

If you are okay then what I think is - to keep this thread in tandem with market lets-

1- form a view at present market, duration, expiry
2- select the strategies according to that
3- run a paper trades for selected strategies on thread
4- all will learn hand in hand while doing adjustments, strategy conversions, changes ect on LIVE basis

 

[toughard]

My READ before any option trade as I run only 2-4 structures in a month-

1. All Indicators only Indicate, NOT Dictate.
2. Mind may be Mad while Market is a Index of Million Minds, anything can happen!
3. Hedge is the only edge
4. Minimum RR should be 1:3
5. Anything around 2-5% in month on invested capital is fine.
6. Portfolio Performance Check - Quarterly
7. These trades are for capital appreciation as it consists 70% 0f funds
8. 5% of funds for day trading options
9. Growth based on Compound % principle
10. Let the Rules Rule.

Regards
Toughard

 

[lemondew]

Sounds good. Glad I am part of this. Traderji has some amazing folks.
I know I can do better than that but just sharing. I generally follow my own estimate on how market will behave in the series. This is based more on the trend and news thats stacked up. I am not good in predicting direction of stock so I take neutral positions. If i feel it is going to be range bound I take up short strategies always a spread so that max profit and loss is defined. If i feel it is going to trend then I take up long positions at times straddle but again I quickly convert to a spread incase there is a chance of IV fall.

I spent little time in analysing open interest but could never come close to predicting anything. Not even sure open interest can indicate how delivery based buying can happen. So the predicting part is over to you guys. May be i should ve a look at VIX.

Thanks

---------------------------------------
One can read a good book -Options as a Strategic Investment by Lawrence G. McMillan- for basic option adjustment techniques its available free at-
http://www.allbookez.com/options-as-a-strategic-investment/
It will be a long basic read
------------------------------------------------------

Let me share some of my simple observation here...

At the out set, Forming a possible View on underlying using S/R, Trend, Momentum, MAX OI STAND, VIX RANGE, MAX PAIN or any other studies that one is comfortable with, is very important. Please note that the view may be right or wrong, here the Idea is to get good returns if one is right and lose small if wrong.

Before one take up any kind of option trade based on a formed view, s/he have to select these things first-

1st Choose between Directional Strategy OR Neutral Strategies OR Income Generating Strategies
2nd Static Strategy OR a Legging one (adjusting one) and
3rd Strategy with Highest Probability of Profit OR Probability of Highest Profits (the most important selection which determinate our option trading success)

If you are okay then what I think is - to keep this thread in tandem with market lets-

1- form a view at present market, duration, expiry
2- select the strategies according to that
3- run a paper trades for selected strategies on thread
4- all will learn hand in hand while doing adjustments, strategy conversions, changes ect on LIVE basis