Premium Eating Strategy - BankNifty Weekly Options

mycall

Well-Known Member
#1
Hi Friends...

I am quite old member in Traderji... but due to my other engagements find much lesser time to read threads... a few days back while going through new posts @amrutham's post encouraged me a lot... and I posted about my trading experience in his thread...

As I have decided to start my own thread to share with my fellow traders old and new about my strategies I am rewriting for readers reference...

I am also an option premium eater for last several years... I use spreads in BN weekly options... and my current strategy is working well... I am not a full time trader... currently with minimum capital to get a habit in this... will think of scaling up when this strategy becomes my habit... my monthly ROI is about 2% with yearly target is 20-25%...

I am trading since 2009... started with stocks... got hit during 2009... initial years... then lured into premium eating... used to trade in currency, USDINR Fut and Option combined... but during Rajan's time... suddenly currency margin got doubled (with notification) and then got quadrupled (without notification) and broker closed positions... got severely hit

then came back to NF option Iron Condor... worked well for a few months... but after BN got its weekly options shifted to BN...

This is my trading history in short... but I am quite sure and confident that at least with control and discipline it is not much hard to make at least 20% ROI by option premium eating...

Lastly I am also having the desire of becoming full time trader one day... and threads like @amrutham's are the biggest inspiration...

In my following posts I will start sharing the strategies.

Thank you all.
 

mycall

Well-Known Member
#2
I employ 2 strategies...

one of those is a simple Strangle (delta neutral)... which I generally take around 800-900-1000 (valuing 15-20) from spot on Thursday. Exit policy is either when my profit target is reached or spot reaches 100pts near the short strike... Management policy is shifting the winning strike maintaining the original distance... This strategy can give hefty returns but overstepping the management steps can get you... specially novice traders in serious trouble.... believe me once out of greed I haven't exited the position and got busted.

Since then I shifted to Credit Spread (Vertical Spreads) at safe distance (derived from traditional or EOD or Hourly chart S/R levels) which I generally enter on Tuesday or Wednesday or even on Thursday whenever there is sizeable move... exit policy is expiry or spot touching the buy strike...

Currently I used both the strategies as per market condition. Primary entry is spread and on opportunities use strangles or even naked shorts.

I am working one more beneficial management policies for stressed positions.

All suggestions or criticisms are most welcome.
 
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mycall

Well-Known Member
#3
Good Morning Friends...

This week trades:

I took a Credit Spread (CS) yesterday morning
26500CE/26600CE @ 11.6 credit points

Today it is under stress.

I have employed stress management system by trading ITM CS twice

Sold 26600PE/26500PE CS @ 75 credit points
Booked @ 58 credit points

Re-entered same CS @ 63 credit points
Booked @ 49 credit points

BN resistance is 26550... expecting it to hold and give me a chance to exit

Let's see what happens.
 

govindheg

Active Member
#5
Hi Sir,
Appreciate your time in sharing your thoughts & strategies with us. I too closely follow @amrutham’s thread.

Wednesday & Thursday Butterfly strategy normally works. What about Friday, Monday & Tuesday? Do you have any suggestions for us?

Regards
Govind
 

mycall

Well-Known Member
#6
Hello Govind,

I can't suggest, but I can obviously share what I am doing or done. Friday and Monday entry... wait the expiry or the target.

Short main series options and buy suitable current series options just as an insurance against natural/news/event calamities and hold till expiry... first 2 series of the month works well

3rd series you can reverse... buy main and short current ATM options... You may have to adjust this a bit intraday.

Please do paper trade or observe for few weeks and get a feel on this before taking trade.

Regards.
 
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mycall

Well-Known Member
#7
I feel what I posted yesterday about shorting main series options and buying current series option may confuse some fellow traders... hence I like to elaborate here... whatever I say here are for educational purposes :)

I just want to make the walk down the path a bit easier for relatively new traders

Okay so lets start with the data:

Main series (26th July expiry)

As on today in option chain ATM options price
26500 PE+CE = 676
Means we are covered upto 676 pts both sides of the ATM.

Lets see what is at a distance from ATM

ATM+- 400 strikes options price
26100PE + 26900CE = 352
Means we are covered upto 752 pts from both sides of ATM.

We can take any strike... ATM or +-100, 200, 300, 400, 500

Once we short these options... both PE+CE we get credit points.

But this is market... unpredictable... it dances with any tune... hence we need protection...

So for protection we buy current series (12th July) option at 700-800 strikes from ATM which cost us about 30-35-40 max and just wait

Now there is some maths here.

First let's look at ATM
676pts
On any Friday Current Series ATM option will cost us about 400+pts MAX.
676-400 = 276 pts
This is 2nd series of the month. Hence, we got 276 pts to decay within 2 wks, considering ATM remains same. In case of premium will drop irrespective of 26500 become ITM or OTM. We are just taking ATM as a reference point getting value of 276 pts which is up for grab during next 2 series.

Means there is about 130 pts per series.

We are investing 40 pts max a series... so there is still 90 pts

One line I like to add here is nothing is easy... but once we put a system in place we should have patience...

I hope you got the drift by now and request you to observe this... do paper trade for a few weeks...

I wrote a long post... may be there are some mistakes, typos...

Thank you.
 
#8
I feel what I posted yesterday about shorting main series options and buying current series option may confuse some fellow traders... hence I like to elaborate here... whatever I say here are for educational purposes :)

I just want to make the walk down the path a bit easier for relatively new traders

Okay so lets start with the data:

Main series (26th July expiry)

As on today in option chain ATM options price
26500 PE+CE = 676
Means we are covered upto 676 pts both sides of the ATM.

Lets see what is at a distance from ATM

ATM+- 400 strikes options price
26100PE + 26900CE = 352
Means we are covered upto 752 pts from both sides of ATM.

We can take any strike... ATM or +-100, 200, 300, 400, 500

Once we short these options... both PE+CE we get credit points.

But this is market... unpredictable... it dances with any tune... hence we need protection...

So for protection we buy current series (12th July) option at 700-800 strikes from ATM which cost us about 30-35-40 max and just wait

Now there is some maths here.

First let's look at ATM
676pts
On any Friday Current Series ATM option will cost us about 400+pts MAX.
676-400 = 276 pts
This is 2nd series of the month. Hence, we got 276 pts to decay within 2 wks, considering ATM remains same. In case of premium will drop irrespective of 26500 become ITM or OTM. We are just taking ATM as a reference point getting value of 276 pts which is up for grab during next 2 series.

Means there is about 130 pts per series.

We are investing 40 pts max a series... so there is still 90 pts

One line I like to add here is nothing is easy... but once we put a system in place we should have patience...

I hope you got the drift by now and request you to observe this... do paper trade for a few weeks...

I wrote a long post... may be there are some mistakes, typos...

Thank you.
Interesting, thanks for this. Though I couldn’t comprehend it completely.

I’ll have to sit down, open in my laptop and understand it clearly. Will get back to you with questions after that.


Cheers
AK
 

SarangSood

Well-Known Member
#9
I feel what I posted yesterday about shorting main series options and buying current series option may confuse some fellow traders... hence I like to elaborate here... whatever I say here are for educational purposes :)

I just want to make the walk down the path a bit easier for relatively new traders

Okay so lets start with the data:

Main series (26th July expiry)

As on today in option chain ATM options price
26500 PE+CE = 676
Means we are covered upto 676 pts both sides of the ATM.

Lets see what is at a distance from ATM

ATM+- 400 strikes options price
26100PE + 26900CE = 352
Means we are covered upto 752 pts from both sides of ATM.

We can take any strike... ATM or +-100, 200, 300, 400, 500

Once we short these options... both PE+CE we get credit points.

But this is market... unpredictable... it dances with any tune... hence we need protection...

So for protection we buy current series (12th July) option at 700-800 strikes from ATM which cost us about 30-35-40 max and just wait

Now there is some maths here.

First let's look at ATM
676pts
On any Friday Current Series ATM option will cost us about 400+pts MAX.
676-400 = 276 pts
This is 2nd series of the month. Hence, we got 276 pts to decay within 2 wks, considering ATM remains same. In case of premium will drop irrespective of 26500 become ITM or OTM. We are just taking ATM as a reference point getting value of 276 pts which is up for grab during next 2 series.

Means there is about 130 pts per series.

We are investing 40 pts max a series... so there is still 90 pts

One line I like to add here is nothing is easy... but once we put a system in place we should have patience...

I hope you got the drift by now and request you to observe this... do paper trade for a few weeks...

I wrote a long post... may be there are some mistakes, typos...

Thank you.
So basically it's a calendar spread?

I used to employ this strategy in Nifty but insead of buying the current series i used to write them with buying the next series only if required. I didn't use to receive credit but because the current series will expire soon i used to write comfortably.

I'm also writing since 2009 and have shifted to bnf since last 1 year. But i have never used calendar spreads in bnf because since delta management is so aggressive in bnf and due to the difference in ask/bid price in the subsequent or the main series is so high that it is nearly impossible to neutral your delta in fast moves.

Since i trade in good quantity and it's my only profession i monitor my delta every half a minute and mostly shift or add my positions keeping in view of my gamma as well.

So because of my above problem (gap in ask/bid), insead of calender spread i convert my strangle (when I'm in doubt) to an iron condor with ATM bought and OTMs sold.
 

mycall

Well-Known Member
#10
Hi,

If you work with ATM options specially highly volatile items like BN... you have to monitor delta.

What I have described is somewhat delta neutral... main delta is countered by the current delta. And this is just for any bad thing happen in market... I am squarely protected if anything miraculous happen and BNF closes say 900-1000 pts away.

Regarding gap in ask/bid... yes... it is a PIA (pain in ass :p) for all option traders... well as it is delta neutral there is no hurry in this... I find high bid/ask spread during 9.15-10am and after 3.15 only... if you monitor mid hours... you will possibly get about 3-5... of course not beyond +-500 strikes from ATM.

Basically this is an waiting game... buys are for security reasons only.

I have traded this and price moved 700pts the very day of entry and this ATM shorts showed max loss of 170 pts... which settled to 121 pts loss after BN closed 540pts away from ATM... next day price closed 549 pts away from ATM and the loss in ATM dropped to 55... next day (third day of entry)... price closed 422 pts from ATM and my position showed 48 pts profit...

Okay... my entry date was 4th June and ATM was 26800... hope you can dig this out

Friends... I am not playing any macho here... I am sharing what I did... now you can imagine if I have a 700-800OTM buy... that itself would have compensated any of my losses comfortably...

I will try to answer queries that falls withing my limited knowledge and experience...
 

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