Thoughts and Trades on Options

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kvram

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riginally Posted by jamit_05 View Post
The difference is a whole 1000 points between the two strikes. I suppose, it is a safe trade. This can be done every month too.
The difference between the break even points is even greater at 1840 points.
I am wondering what could possibly go wrong in this trade. I will be happy if someone would like to play Devil's Advocate.
Reply With Quotedear sir mundeji kindly analyze as we are ready to enter this safe strategy,thanking you.
 

jamit_05

Well-Known Member
The difference between the break even points is even greater at 1840 points.
I am wondering what could possibly go wrong in this trade. I will be happy if someone would like to play Devil's Advocate.
Trade1: The Shorted Strangle

SELL 6500CE JUNE14 @ 270
SELL 5500PE JUNE14 @ 150

On second thought, it does not matter whether two strikes are 1000 points apart. What appears risky is that weekly trend is still up, and 65CE is only 350 pts away from CMP. If the trend were to take off in a direction, then in a month or two, 700 odd points of travel is easily possible. Starting at around 6900 the above strangle will be very undesirable.

GMT, you must think of a solution, a hedge.
 
Trade1: The Shorted Strangle

SELL 6500CE JUNE14 @ 270
SELL 5500PE JUNE14 @ 150

On second thought, it does not matter whether two strikes are 1000 points apart. What appears risky is that weekly trend is still up, and 65CE is only 350 pts away from CMP. If the trend were to take off in a direction, then in a month or two, 700 odd points of travel is easily possible. Starting at around 6900 the above strangle will be very undesirable.

GMT, you must think of a solution, a hedge.
Good Advice. GMT must think of hedging.

I would advice him to buy at least 5400 PE and 6800 CE every month available at Rs 4 per pair. ( 5400 pe March and 6800 Ce march) There is no harm in sacrificing 4 or 5 points every month to hedge and stay protected. Suppose market moves 200 points in next month and after that market gets up sealed. Assume the situation.

Election is approaching which is to be kept in mind always.

Also likewise vice versa for downside.

My Mantra . Always Stay protected at least by Holding deep OTM
 
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If I am right, your current position is as follows;

SHORT 6000CE JUNE14 1000QTY @519.47

SHORT 6000PE JUNE14 (1000 + 200) QTY @300.28

LONG 5500PE APRIL14 1000QTY @39.95

LONG 6300CE MARCH14 1000QTY @38

LONG 6000PE MARCH14 400 QTY @50.60

Got a little confused with the actions taken, hence the post

I am holding 6000 pe june 14 is 1600 Qty and not 1200

I have already exited 6000 PE instead holding March 5800 PE
 
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riginally Posted by jamit_05 View Post
The difference is a whole 1000 points between the two strikes. I suppose, it is a safe trade. This can be done every month too.
The difference between the break even points is even greater at 1840 points.
I am wondering what could possibly go wrong in this trade. I will be happy if someone would like to play Devil's Advocate.
Reply With Quotedear sir mundeji kindly analyze as we are ready to enter this safe strategy,thanking you.

Strategy is good.Hedging will be a nice idea. I am also planning to initiate this strategy.

I need span margin only. I don t need exposure margin

For me the margin is roughly between 25 and 30 k. The potential reward will be more for me.
 
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gmt900

Well-Known Member
Good Advice. GMT must think of hedging.

I would advice him to buy at least 5400 PE and 6800 CE every month available at Rs 4 per pair. ( 5400 pe March and 6800 Ce march) There is no harm in sacrificing 4 or 5 points every month to hedge and stay protected. Suppose market moves 200 points in next month and after that market gets up sealed. Assume the situation.

Election is approaching which is to be kept in mind always.

Also likewise vice versa for downside.

My Mantra . Always Stay protected at least by Holding deep OTM
Thanks Amit and Munde,
I agree that we must be willing to sacrifice a few points and remain protected.
I must thank Munde for introducing the concept of writing short straddle/strangle of far month for getting regular income of 5% + per month.

If I enter this trade (short strangle 6500/5500 June), I will definitely hedge.
Also, if nifty starts moving violently on one side, I will adjust the trade by moving the strangle up or down as required. I hope it will be easier to adjust far month strangle than near month strangle.
 
Is this position is in conjunction with any earlier position? Or just your best attempt at adjusting delta?

You may take profit and shift the strangle to forward months when it has decayed enough, needn't necessarily wait for expiry.

Actually I was planning to buy 6300 CE march one day back as the trend has changed a little bit. So yesterday April 6600 ce lost 6 points and march 6300 ce lost 16 points.

I want to be a little more safe on upside so thought of buying 6300 ce

Today 6300 ce march has gained 10.5 points and 6600 ce has gained 3.5 poins.

So The difference in yesterday and today between April 6600 Ce and March 6300 Ce is approximately 17 points.
 
@Munde,

As I posted earlier, I feel selling June short straddle is a very good strategy.

Even if one were not to hedge by buying otm options of April or March, there would be enough time to act in case of a violent move by nifty. If one hedges, one will be safer no doubt.

Please give your comments on the following strategy :

SELL 6500CE JUNE14 @ 270

SELL 5500PE JUNE14 @ 150

TOTAL INFLOW 420 POINTS = 21,000

UPPER BEP 6920

LOWER BEP 5080

MARGIN REQUIRED 75,000

RETURN IN FOUR ODD MONTHS 28%

MONTHLY RETURN @ 7%

Advantage in going in for short strangle instead of short straddle is less/no trade adjustment is required, which learners like me find difficult to practice.
While calculating margin do u reduce the inflow amount from margin :confused:
 

jamit_05

Well-Known Member
Thanks Amit and Munde,
I agree that we must be willing to sacrifice a few points and remain protected.
I must thank Munde for introducing the concept of writing short straddle/strangle of far month for getting regular income of 5% + per month.

If I enter this trade (short strangle 6500/5500 June), I will definitely hedge.
Also, if nifty starts moving violently on one side, I will adjust the trade by moving the strangle up or down as required. I hope it will be easier to adjust far month strangle than near month strangle.
While I continue to play The Devil's Advocate:

Point 1:
We short far month options, for their fat premiums. So that returns from time decay are good.

This strangle will yield 420 points, whereas the straddle+hedge will yield 750 points. Hence the returns from the same period of exposure to theta will much less in the strangle.



PS: All in all, i think selling such a strangle is a nice variation. In case of fast moves, the trader has planned to shift the strangle to higher strikes hence mitigating the risk.
 
While I continue to play The Devil's Advocate:

Point 1:
We short far month options, for their fat premiums. So that returns from time decay are good.

This strangle will yield 420 points, whereas the straddle+hedge will yield 750 points. Hence the returns from the same period of exposure to theta will much less in the strangle.



PS: All in all, i think selling such a strangle is a nice variation. In case of fast moves, the trader has planned to shift the strangle to higher strikes hence mitigating the risk.

Both are good strategies. In Strangle the Probability is high of getting 400 points

In Straddle the Probability is low of getting 700 points though the potential is there

In Straddle also we can expect roughly 400 to 500 points
 
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