simple straddle strategy

#1
Hi,
I've started experimenting/ backtesting some strategies so thought of starting with a real simple one.
Buy both NIFTY calls and puts to the nearest strike of nifty at 930 on first day of series. Sell on closing of series.
Returns 11%(total) in last 3 years.
I know not great, simple savings account will give more but something this simple is +ve seems interesting.
Thoughts/ ideas on refining this?

Regards
 
#2
Hi,
I've started experimenting/ backtesting some strategies so thought of starting with a real simple one.
Buy both NIFTY calls and puts to the nearest strike of nifty at 930 on first day of series. Sell on closing of series.
Returns 11%(total) in last 3 years.
I know not great, simple savings account will give more but something this simple is +ve seems interesting.
Thoughts/ ideas on refining this?

Regards

http://www.hsbcinvestdirect.co.in/derivatives/OptionStrategy.jsp


May be this link is helpful to you.
 

rkkarnani

Well-Known Member
#3
Hi,
I've started experimenting/ backtesting some strategies so thought of starting with a real simple one.
Buy both NIFTY calls and puts to the nearest strike of nifty at 930 on first day of series. Sell on closing of series.
Returns 11%(total) in last 3 years.
I know not great, simple savings account will give more but something this simple is +ve seems interesting.
Thoughts/ ideas on refining this?

Regards
Sounds interesting !
Beware :
I do not know much about Options, but I do know that what you get in actual trades is much less than what you get in "Paper" analysis!!! :p The greed, fear and indiscipline factor cannot be quantified in analysing the past!
 
#4
Sounds interesting !
Beware :
I do not know much about Options, but I do know that what you get in actual trades is much less than what you get in "Paper" analysis!!! :p The greed, fear and indiscipline factor cannot be quantified in analysing the past!
you are right
Straddle i think on paper gives nice return , but in reality it may be less
 
#5
Hi,
I've started experimenting/ backtesting some strategies so thought of starting with a real simple one.
Buy both NIFTY calls and puts to the nearest strike of nifty at 930 on first day of series. Sell on closing of series.
Returns 11%(total) in last 3 years.
I know not great, simple savings account will give more but something this simple is +ve seems interesting.
Thoughts/ ideas on refining this?

Regards
The strategy is not so simple as it looks on paper. Straddle is amongst the costliest strategies to handle. Lot of understanding of Vega and other greeks specially Delta come into play while entering this strategy. I certainly believe in taking straddle positions but not just on a fixed day. Entries could be timed according to the conditions of Volatility prevailing and the likelihood of a good directional movement even when the strategy is straddle which is a non directional strategy but a big move in one direction is the biggest profit maker. Yes I do agree that if handled correctly Straddle positions can bring in good returns.
 
#6
The strategy is not so simple as it looks on paper. Straddle is amongst the costliest strategies to handle. Lot of understanding of Vega and other greeks specially Delta come into play while entering this strategy. I certainly believe in taking straddle positions but not just on a fixed day. Entries could be timed according to the conditions of Volatility prevailing and the likelihood of a good directional movement even when the strategy is straddle which is a non directional strategy but a big move in one direction is the biggest profit maker. Yes I do agree that if handled correctly Straddle positions can bring in good returns.
can you give an example of conditions of volatility favorable for straddles? Are event days (gdp/ inflation/rbi) good bets?
 
#7
can you give an example of conditions of volatility favorable for straddles? Are event days (gdp/ inflation/rbi) good bets?
Straddle positions are best to enter when the Implied Volatility is at lower levels. Lower levels means Implied Volatility is lower than the Historical Volatility readings for that particular scrip.

Volatility for every scrip will differ. For a share which is volatile enough and historical values of Volatility are around 45-50 a higher number of IV [eg. IV 47 ] will be ok and a stock which is low volatile whose Historical Volatility remains at around 22-25 this same number of 47 will be huge.

Just a day before the earnings announcement day [April 12th] of INFY the IV of ATM CE & PE was around 70 . So this IV was greater than the Historical Values of Volatility for INFY . This means that the premiums were very high. If suppose now at this point somebody takes a Straddle position then he is paying more money to acquire this postion. If the result announced is in line of the estimates then the share might just move a little in either direction and so the Implied Volatility will come down drastically after the result announcement. This will incur hefty loss to the straddle position as the IV has come down so does the value of the premium.

So taking straddle just before the Earnings Announcement or RBI report or any such mega event can go against the trader if the reaction after the announcement is not so sharp that the position crosses the BEP [Break Even Point]. Taking Straddle position well before the event when the IV is in the lower range [compared to Historical Volatility] can though be profitable as the Premium value will increase till the day before the event as the IV till that time will probably increase due to anxiety of the market participants.

A drastic move though after the event can be really profitable as the stock might move so much that the BEP is crossed and the total position is now in profit. So a probability of move has also lot of importance in a straddle position.
 

mastermind007

Well-Known Member
#9
Straddle positions are best to enter when the Implied Volatility is at lower levels. Lower levels means Implied Volatility is lower than the Historical Volatility readings for that particular scrip.
Is it a good idea to use INDIA VIX numbers as Implied Volatility calculations? Something that I've been exploring

As for Buying or Selling Options at lower or higher IV, you also need to look at its Beta differentials.
 
#10
Is it a good idea to use INDIA VIX numbers as Implied Volatility calculations? Something that I've been exploring

As for Buying or Selling Options at lower or higher IV, you also need to look at its Beta differentials.
INDIA VIX values can be used but these values are useful for NIFTY options.
 

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