Premium Eating Strategy - BankNifty Weekly Options

#11
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.
Thank you. Nicely explained.
 

SarangSood

Well-Known Member
#12
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...
Thats great. My only worry would be if market doesn't give any big 700-900 point moves. Then the current series can melt pretty fast.

On an average the current series ATM starts at around 350-400. So that multipled by 3 weeks would amount to around 1000-1200 against 700 of the the monthly ATM, which will still have 350 left by the time the last week starts. So we have bought around 1200 points premium against 700-350=350 point premium.

But i see the point in not worrying about the delta management part. What i have learned in BNF is that majority of premium is written only in moves. So when there is a quick 100-200 intraday point move and i shift my positions accordingly i actually get good m2m. But it can only be achieved oly by how fast you manage your delta.
 

mycall

Well-Known Member
#13
Thats great. My only worry would be if market doesn't give any big 700-900 point moves. Then the current series can melt pretty fast.
Yes, your are right and this is the only target... current series investment is 40-45pts at most, that is also used as a shield only... but along with that main series will also melt... and that amount is minimum 120pts... that is the target of this strategy... my target is max 0.5-1% return on investment in a week... say 25 to 35 pts max.

On an average the current series ATM starts at around 350-400. So that multipled by 3 weeks would amount to around 1000-1200 against 700 of the the monthly ATM, which will still have 350 left by the time the last week starts. So we have bought around 1200 points premium against 700-350=350 point premium.
During the 4th June trade which I mentioned in my previous post... I was tracking Current ATM options also... while main option showed max 170 loss current showed 303 loss and closed at 237 loss (current). So current short needs huge monitoring and ruthless intervention. Hats off to you. :up: Not my cup of tea though. I am too bad in intervening.
 

SarangSood

Well-Known Member
#14
Thats great. My only worry would be if market doesn't give any big 700-900 point moves. Then the current series can melt pretty fast.
Yes, your are right and this is the only target... current series investment is 40-45pts at most, that is also used as a shield only... but along with that main series will also melt... and that amount is minimum 120pts... that is the target of this strategy... my target is max 0.5-1% return on investment in a week... say 25 to 35 pts max.

On an average the current series ATM starts at around 350-400. So that multipled by 3 weeks would amount to around 1000-1200 against 700 of the the monthly ATM, which will still have 350 left by the time the last week starts. So we have bought around 1200 points premium against 700-350=350 point premium.
During the 4th June trade which I mentioned in my previous post... I was tracking Current ATM options also... while main option showed max 170 loss current showed 303 loss and closed at 237 loss (current). So current short needs huge monitoring and ruthless intervention. Hats off to you. :up: Not my cup of tea though. I am too bad in intervening.
Actually my trading experience has given me ROI of 3-5% weekly (depending on the moves) in writing current week. 1 week out of 4 are normally not conducive to write so the remaining weeks combined can give a good 10% a month. But as you said there is ruthless intervention which is very true. There can be 100s of trades in matter of minutes. That is why i trade with an operator.
 
Last edited:

anildnr

Well-Known Member
#15
Good messages from mycall and Sarang. Your messages are showing the way people need to look at option strategies and get decent returns from the market . Most of the people think that it is the place where people only loose money..but i feel its wrong..it is a place where huge amount of money is there to mint but only few are learning with experiences...
By the way i am also options writer and doing in limited number of lots and getting money from the game. Will post my thoughts on options soon. Yes amrutham is the who inspired with his strategies . All the best
 
#16
All option writing experts,

I have a question.

When you’ve wrote a call/put and the stock/ nifty/ bn is exactly moving towards it causing pain, what is the strategy to keep the show going? Should I book loss on that and write the next strike? Or wait until we near the expiry to see if there could be a retracement? TIA.


Cheers
AK
 

anildnr

Well-Known Member
#17
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.
Nice explanation
 

anildnr

Well-Known Member
#18
All option writing experts,

I have a question.

When you’ve wrote a call/put and the stock/ nifty/ bn is exactly moving towards it causing pain, what is the strategy to keep the show going? Should I book loss on that and write the next strike? Or wait until we near the expiry to see if there could be a retracement? TIA.


Cheers
AK
Hi arun..hope ur question is asking about naked calls or puts writing ..
My thought is like this..
Suppose if i short 27000ce when spot is around 26500 and if it is approaching 27k then i will try to buy 27200ce or something to minimise the loss
But only thing is if any unexpected move comes we cannot manage that do better to for spreads either calender or vertical spreads as cushion
 
#19
All option writing experts,

I have a question.

When you’ve wrote a call/put and the stock/ nifty/ bn is exactly moving towards it causing pain, what is the strategy to keep the show going? Should I book loss on that and write the next strike? Or wait until we near the expiry to see if there could be a retracement? TIA.


Cheers
AK
Hi arun..hope ur question is asking about naked calls or puts writing ..
My thought is like this..
Suppose if i short 27000ce when spot is around 26500 and if it is approaching 27k then i will try to buy 27200ce or something to minimise the loss
But only thing is if any unexpected move comes we cannot manage that do better to for spreads either calender or vertical spreads as cushion
Thanks Anil.

I have the underlying stock, though I have a couple of calls being written. Sure, I’ll start looking into the spreads strategy. Thanks a lot.



Cheers
AK
 

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