Premium Eating Strategy - BankNifty Weekly Options

mycall

Well-Known Member
Hi Friends!

It was long I haven't posted anything here...

Due to scarcity of time I am often not able to sit at the terminal... So mainly focusing on cash using SIP guided system... market was down so it was good opportunity to buy some quality stocks at lucrative price... anyway... up and down it doesn't matter much when you are following a trend system in stock.... so I am continuing with it...

During this time I traded ratio spreads at put side which gave me some return... also took a put calendar in NF above 10500 which gave me good profit...

We currently researching on two specific strategies... one is short strangle in monthly option... weekly option strangle is too critical for me due to uncertainty of time and also it is too strenuous on my health to do so much adjustments so fast... but yes... if one can handle pressure it is most lucrative... our friend SarangSood is the master of this...

As per my opinion monthly option strangle is highly manageable due to higher time frame... however, I must say here that friends want to do strangle in option must have sufficient margin to handle pressure... management needs margin for selling multiple lots to cover difference in premium due to volatile move in BNF... the job here is sell additional options at far distance from ATM and wait it out for the market to settle down... which will trigger a drop in option premium... until profit target is reached... additional option selling is more desirable than rolling up initially as it helps keep the strikes farthest from the ATM... safe in case BNF retrace... one important thing is we must restrict max 2x (max holding 2 PE against 1 CE or vice versa)... if the trend continues then profit making options can be rolled up periodically to adjust premium as much as possible while being as far as possible from ATM... if price reaches within 200pts of the loss making option strike... then it needs some special treatment... I have a few different managements in the system... but these managements are all depend upon the risk profile of the person and current market perception... it is solely trader's call... 1) if the loss in the position is lower then we can exit the loss making option and wait for the market to settle down... reenter the position if market retrace back; 2) if the loss in the position is lower then roll up to a strike which covers the and wait... if that also get threatened then exit from it; 3) If the loss in the position is higher and it is getting difficult to manage by opposite options... form a Debit spread of 200-300 strike difference at the next strike of the loss making option strike... and service the debit by shorting additional PE of the same value... trader's mindset and present market perception and the premium position will determine which step should be taken... an experience trader can consider VIX, PCR, Delivery based OI of index stocks and option OI before taking appropriate decision...

Another strategy we are working on is put and call calendar... these are sideways or directional strategies... I will write about this at a later post...

I like my peers and friends here to throw their opinion and remarks on whatever strategy we have developed...

Thank you... happy trading journey to all my TJ friends :)
 

SarangSood

Well-Known Member
Hi Friends!

It was long I haven't posted anything here...

Due to scarcity of time I am often not able to sit at the terminal... So mainly focusing on cash using SIP guided system... market was down so it was good opportunity to buy some quality stocks at lucrative price... anyway... up and down it doesn't matter much when you are following a trend system in stock.... so I am continuing with it...

During this time I traded ratio spreads at put side which gave me some return... also took a put calendar in NF above 10500 which gave me good profit...

We currently researching on two specific strategies... one is short strangle in monthly option... weekly option strangle is too critical for me due to uncertainty of time and also it is too strenuous on my health to do so much adjustments so fast... but yes... if one can handle pressure it is most lucrative... our friend SarangSood is the master of this...

As per my opinion monthly option strangle is highly manageable due to higher time frame... however, I must say here that friends want to do strangle in option must have sufficient margin to handle pressure... management needs margin for selling multiple lots to cover difference in premium due to volatile move in BNF... the job here is sell additional options at far distance from ATM and wait it out for the market to settle down... which will trigger a drop in option premium... until profit target is reached... additional option selling is more desirable than rolling up initially as it helps keep the strikes farthest from the ATM... safe in case BNF retrace... one important thing is we must restrict max 2x (max holding 2 PE against 1 CE or vice versa)... if the trend continues then profit making options can be rolled up periodically to adjust premium as much as possible while being as far as possible from ATM... if price reaches within 200pts of the loss making option strike... then it needs some special treatment... I have a few different managements in the system... but these managements are all depend upon the risk profile of the person and current market perception... it is solely trader's call... 1) if the loss in the position is lower then we can exit the loss making option and wait for the market to settle down... reenter the position if market retrace back; 2) if the loss in the position is lower then roll up to a strike which covers the and wait... if that also get threatened then exit from it; 3) If the loss in the position is higher and it is getting difficult to manage by opposite options... form a Debit spread of 200-300 strike difference at the next strike of the loss making option strike... and service the debit by shorting additional PE of the same value... trader's mindset and present market perception and the premium position will determine which step should be taken... an experience trader can consider VIX, PCR, Delivery based OI of index stocks and option OI before taking appropriate decision...

Another strategy we are working on is put and call calendar... these are sideways or directional strategies... I will write about this at a later post...

I like my peers and friends here to throw their opinion and remarks on whatever strategy we have developed...

Thank you... happy trading journey to all my TJ friends :)
Hi mycall sir,

When i short BNF strangle i only 'roll up' or shift and not sell extra option to maintain my position.The reason i do that is to neutral my Gamma. If both ce&pe are not of the same delta or in your case value then it can be tricky if the index picks up a direction and continues with it. It would only be profitable if your expecting the market to retrace back.

The greatest secret in options is that 90% of the time it is the leg which is increasing in value which is losing it's premium. For example if a cal increases than the subsequent put will naturally decrease. But 90% of the time the cal doesn't increase that much according to it's delta. And the put doesn't decrease that much as well. So it is the cal not increasing that is giving you profit not the put which is decreasing less. So shifting option is always profitable.

For example if you have sold the following combo: 11200 - 60 ,10400 - 60. After 100 point upward movement : 11200 - 90 ,10400 - 45. Now you will add on to the profit giving option which is put. If market moves 100 points more the options will be following: 11200 - 150 , 10400 - 30.

As the loss giving leg keeps on increasing it would become more and more difficult to control it even if you have enough fund to sell extra options. It is because of the put not falling that is giving you loss. If initially we would have shifted the cal it would have been better as we would have booked profit in cal because it did not increase in value as it should have.
 

mycall

Well-Known Member
Hi mycall sir,

When i short BNF strangle i only 'roll up' or shift and not sell extra option to maintain my position.The reason i do that is to neutral my Gamma. If both ce&pe are not of the same delta or in your case value then it can be tricky if the index picks up a direction and continues with it. It would only be profitable if your expecting the market to retrace back.

The greatest secret in options is that 90% of the time it is the leg which is increasing in value which is losing it's premium. For example if a cal increases than the subsequent put will naturally decrease. But 90% of the time the cal doesn't increase that much according to it's delta. And the put doesn't decrease that much as well. So it is the cal not increasing that is giving you profit not the put which is decreasing less. So shifting option is always profitable.

For example if you have sold the following combo: 11200 - 60 ,10400 - 60. After 100 point upward movement : 11200 - 90 ,10400 - 45. Now you will add on to the profit giving option which is put. If market moves 100 points more the options will be following: 11200 - 150 , 10400 - 30.

As the loss giving leg keeps on increasing it would become more and more difficult to control it even if you have enough fund to sell extra options. It is because of the put not falling that is giving you loss. If initially we would have shifted the cal it would have been better as we would have booked profit in cal because it did not increase in value as it should have.
Thanks SarangSood bhai for sharing deep insight of your trading policy. What I understand from your explanation and accept with certainty that this is possible and highly effective... but the catch is you (the trader) must be available full time at the terminal to follow. I am not able to do that primarily.

Now let me put my observations and logics behind the trading and management plans. And surely expect your evaluation and remarks on these factors.

I already told that I don't have much time to follow price so have to go with something that is slow and have much room (rather time) for adjustments.

Firstly... these are monthly options... irrespective of position, every day every week option are loosing value... slower than the weekly option though... and the opposite is also true... means the rise is also slower than weekly options.

Secondly, my shorts are minimum 1500pts far from the ATM... if BNF moves and settles 1500+ pts in a 1wk's time then not only me most people will get the boot... even if moves and closes in 2 wk's time nearly same thing will happen... which is very very rare in the history... I know from my trading experience monthly options lose about 10-15% of their premium value each week automatically... the job is to hang on to facilitate this decay

Here what is being done is balancing the loss in premium due to movement... we must take into account that when price moves... three factors affect option pricing... delta, gamma and vega... within these 3, gamma and vega are situational and the most sensitive greeks to the volatility... these are demon during the move and die immediately the move is dead...

So I feel effectively if option appreciates by 50 pts in one move... and if I compensate 25pts using means that should be near sufficient... because when market settles that appreciation will worth 25-30pts only... Market moves wildly only 2 of 10 trading days... rest of the days it moves in range.

The biggest threat is that BNF being a highly volatile index it can come back any moment... so if I roll up winning option to compensate actual premium (actual greeks... delta, gamma and vega of the losing premium)... and if BNF retraces or there is a good profit booking or a shake off... the wining one will be under threat... will start calling for management which will eventually turn messy for me... specially due to my non availability

In this case... though I have multiple shorts ... those are very very less sensitive to BNF's retracement and during retracement as I said earlier... loosing option will start shedding its premium (delta, gamma and vega) pretty fast... giving me a chance to exit with good profit when BNF takes support after retracement.

These are my reasons for not moving the winning option to match the premium of the losing option. Like to have your remarks, please.

Thank you.
 

mycall

Well-Known Member
Hi mycall sir,

When i short BNF strangle i only 'roll up' or shift and not sell extra option to maintain my position.The reason i do that is to neutral my Gamma. If both ce&pe are not of the same delta or in your case value then it can be tricky if the index picks up a direction and continues with it. It would only be profitable if your expecting the market to retrace back.

The greatest secret in options is that 90% of the time it is the leg which is increasing in value which is losing it's premium. For example if a cal increases than the subsequent put will naturally decrease. But 90% of the time the cal doesn't increase that much according to it's delta. And the put doesn't decrease that much as well. So it is the cal not increasing that is giving you profit not the put which is decreasing less. So shifting option is always profitable.

For example if you have sold the following combo: 11200 - 60 ,10400 - 60. After 100 point upward movement : 11200 - 90 ,10400 - 45. Now you will add on to the profit giving option which is put. If market moves 100 points more the options will be following: 11200 - 150 , 10400 - 30.

As the loss giving leg keeps on increasing it would become more and more difficult to control it even if you have enough fund to sell extra options. It is because of the put not falling that is giving you loss. If initially we would have shifted the cal it would have been better as we would have booked profit in cal because it did not increase in value as it should have.
Hi @SarangSood ! One thing I make out from your statement is that your strategy is to follow the price with the winning leg through its journey intraday... and take benefit of the premium decay whenever price becomes stagnant... please correct if me I am wrong.

If so, do you close positions intraday or carry forward? Because in case of a gap the balance gets disturbed...

Another thing is as per your statement you balance the delta by rolling up the wining leg... there must be a limit to it... because due to this action the range is getting narrow gradually... what happens if BNF or NF retraces to its original position?... as per your strategy then the loosing option will start recovering loss but the other leg (moved up leg) will start giving loss as its delta is getting increased... in that case a point will come when the previous leg to be rolled down to balance delta... resulting further narrowing of the range...

I agree that NF is not so volatile index like BNF... so for NF it is somewhat easy to follow price every 100pts move... but for BNF... it's too difficult and hectic.

But I agree that this strategy will show profit frequently during the course of management and if there is a predetermined exit policy... it can and will be achieved most of the time...

Thank you in advance.
 
Last edited:

SarangSood

Well-Known Member
Hi @SarangSood ! One thing I make out from your statement is that your strategy is to follow the price with the winning leg through its journey intraday... and take benefit of the premium decay whenever price becomes stagnant... please correct if me I am wrong.

If so, do you close positions intraday or carry forward? Because in case of a gap the balance gets disturbed...

Another thing is as per your statement you balance the delta by rolling up the wining leg... there must be a limit to it... because due to this action the range is getting narrow gradually... what happens if BNF or NF retraces to its original position?... as per your strategy then the loosing option will start recovering loss but the other leg (moved up leg) will start giving loss as its delta is getting increased... in that case a point will come when the previous leg to be rolled down to balance delta... resulting further narrowing of the range...

I agree that NF is not so volatile index like BNF... so for NF it is somewhat easy to follow price every 100pts move... but for BNF... it's too difficult and hectic.

But I agree that this strategy will show profit frequently during the course of management and if there is a predetermined exit policy... it can and will be achieved most of the time...

Thank you in advance.
Hi @mycall. Yes i follow price and my M2M very closely. I only add on winning trades, so if my strategy is giving profit in an increasing order i go full monty. My orders are always small but very frequent (can be in every 30 seconds). Generally if i have a winning strategy with me i can create a position of 300 lots of a strangle till 1pm.

After this position is created i check for any other strategies which are doing better. For example a strangle can easily be converted into a cal leg, put leg, butterfly or an iron condor. Let's say i have sold 300 lots of a strangle with both the options of .20 delta So by 2:00pm if there is any volatility and cal leg is doing better than i will buy my .20 delta puts and also buy .50 delta cals. So my position will be converted into cal leg.

I will book profit in more than half of my position and carry forward the remaining with extra hedging. This is what i do day in and day out.

In a strangle i shift both of my legs. I maintain a constant delta of both my legs. So if I'm maintaining a delta of say .2 of both cal&put and bnf moves upwards so than my cal will become .25 and put will become .17 So i will shift in such a way that my average delta of both cal& put becomes .2 again. The fastest way to achieve this is if i shift a part of my cal position of .25 to a .08 cal, so in shifting very less quantity i can achieve a .2 required delta. Same goes with put leg.
 

mycall

Well-Known Member
In a strangle i shift both of my legs. I maintain a constant delta of both my legs. So if I'm maintaining a delta of say .2 of both cal&put and bnf moves upwards so than my cal will become .25 and put will become .17 So i will shift in such a way that my average delta of both cal& put becomes .2 again. The fastest way to achieve this is if i shift a part of my cal position of .25 to a .08 cal, so in shifting very less quantity i can achieve a .2 required delta. Same goes with put leg.
Thanks for your detail explanation... it is really very knowledge worthy. I still have some issues which I faced practically doing adjustments.

"I shift a part of my call position of .25 to a .8 cal"... this means you book loss in the process... but yes... delta of call side is brought back to .2... now put side delta became .17... so the first job is to make it .2... that can be achieved by rolling up all or part of the put lots... but I guess that will not cover 'ALL' the loss booked in managing ce side... to achieve that do you increase or decrease position?... you mention about 'extra hedging'... is that the thing?

Sorry for pushing you on this... I clearly understand that you may be using a delta assessment system which gives continuous evaluation of your delta position based on which you take decision 'where' to move and 'how' much to move... but my doubt is that delta is not only greek which control option premium during volatility... my experience says that the moment I move the loosing position I 'book' loss... and this loss contains two more greeks 'gamma' and 'vega' apart from 'delta' which is very difficult to manage by just adjusting winning side delta...

Again... please forgive me if I sound persuasive... you need not to answer if it infringes into your strategy secrecy. I completely understand and honour that.

Thank you.
 

SarangSood

Well-Known Member
Thanks for your detail explanation... it is really very knowledge worthy. I still have some issues which I faced practically doing adjustments.

"I shift a part of my call position of .25 to a .8 cal"... this means you book loss in the process... but yes... delta of call side is brought back to .2... now put side delta became .17... so the first job is to make it .2... that can be achieved by rolling up all or part of the put lots... but I guess that will not cover 'ALL' the loss booked in managing ce side... to achieve that do you increase or decrease position?... you mention about 'extra hedging'... is that the thing?

Sorry for pushing you on this... I clearly understand that you may be using a delta assessment system which gives continuous evaluation of your delta position based on which you take decision 'where' to move and 'how' much to move... but my doubt is that delta is not only greek which control option premium during volatility... my experience says that the moment I move the loosing position I 'book' loss... and this loss contains two more greeks 'gamma' and 'vega' apart from 'delta' which is very difficult to manage by just adjusting winning side delta...

Again... please forgive me if I sound persuasive... you need not to answer if it infringes into your strategy secrecy. I completely understand and honour that.

Thank you.
If our quantity of ce&pe is always the same and the delta is neutral, then automatically our gamma and vega is neutral. Just think about it, if you have 100 lots of both ce&pe sold and your delta is neutral then it has to mean that your gamma is also neutral because both the options will have the same delta. That's the number one reason i don't sell extra options against a losing leg. It imbalances our gamma and vega.

The second part about booking loss in a leg: It's about how you see your position. I see it as a whole and not separate legs. So i will not be concerned if I'm booking loss or profit because my whole position as it is would be in profit (because i will only be adding in a winning strategy).

Also if I'm booking loss in ce side than I'm also booking profit in pe side simultaneously. Most of the times it would be the other way around. Because cal will not increase that much (remember my 90% time formula) as it should against my pe falling I'm already booking profit in that leg.

I increase my position by selling a strangle and vice versa. Extra hedging would be that i buy ATM options against my .2 delta options. In a cal leg it can be that i buy a part of my short ce option and also buy some put option. So i get covered in gaps.

Sir there is no secrecy from my end because you still need a lot of discipline to do all of it. I'm really happy to help and i also get to learn a lot from you as well. By explaining something both the people are learning.
 

mycall

Well-Known Member
@SarangSood... bhai... highly appreciated... I got my doubts cleared by your response... it looks like a war game you fight during those trending days... and come out unscathed... that's a great achievement and must be highly satisfying...

About the learning... yes... I truly believe in knowledge sharing... together we grow theory... very very scarce nowadays...

Thank you again bhai for sharing enlightening pieces of insight from you long trading career...
 

SarangSood

Well-Known Member
@SarangSood... bhai... highly appreciated... I got my doubts cleared by your response... it looks like a war game you fight during those trending days... and come out unscathed... that's a great achievement and must be highly satisfying...

About the learning... yes... I truly believe in knowledge sharing... together we grow theory... very very scarce nowadays...

Thank you again bhai for sharing enlightening pieces of insight from you long trading career...
Ur welcome @mycall.... I don't find any traders on this forum to discuss about writing or any option strategies for that matter. So it's always good to catch up on people who are interested... Whenever you implement today's discussion, do tell how it went..!
 

Similar threads

Zerodha – Open Paperless Account

Open online account with Zerodha. Free delivery trading and Max Rs 20 for Intraday, F&O, Currency and Commodity Trading. Intraday High leverage with MIS, CO and BO.

Name:Phone:
Email:City:
State:
Are you a day trader?