Trading options with one month view

[smartcat]

I think that instead of always taking a neutral view of the market and construction iron condor 3% + and - from the month begining nifty spot, if we have a positive view of nifty than the same iron condor may be constructed with spot + 100 points as base and then selecting strikes 3% + and - to this base. Similarly if our month end view on nifty is bearish than the base will be spot - 100 points.

Worth trying. But what process are you following to have a bearish/bullish view on the Nifty?

Once you create a position, don't bother much if the position starts losing money. The key to success in this strategy (wide strike condor) is to be mechanical and disciplined.

What I've noticed over the last 18 months I've started using iron condors on Nifty/Individual stocks/USDINR is that the underlying tends to get back into the "profit zone" many times by expiry. Just because the spot price has breached one of the strike prices, it doesn't mean you have to get out of the position. If you keep getting out of positions, brokerage & "missed profits cost" will reduce your overall returns.

 

[Reki]

Worth trying. But what process are you following to have a bearish/bullish view on the Nifty?

Once you create a position, don't bother much if the position starts losing money. The key to success in this strategy (wide strike condor) is to be mechanical and disciplined.

What I've noticed over the last 18 months I've started using iron condors on Nifty/Individual stocks/USDINR is that the underlying tends to get back into the "profit zone" many times by expiry. Just because the spot price has breached one of the strike prices, it doesn't mean you have to get out of the position. If you keep getting out of positions, brokerage & "missed profits cost" will reduce your overall returns.

Hi Smartcat, got your point. Thanks for the insight.

Reki

 

[mmca2006]

Worth trying. But what process are you following to have a bearish/bullish view on the Nifty?

Once you create a position, don't bother much if the position starts losing money. The key to success in this strategy (wide strike condor) is to be mechanical and disciplined.

What I've noticed over the last 18 months I've started using iron condors on Nifty/Individual stocks/USDINR is that the underlying tends to get back into the "profit zone" many times by expiry. Just because the spot price has breached one of the strike prices, it doesn't mean you have to get out of the position. If you keep getting out of positions, brokerage & "missed profits cost" will reduce your overall returns.

Very good suggestion :thumb:

 

[Reki]

Hi, the below is transcript of my post last week when I took the below trade last friday. Trade date : 4 Oct :

My view till expiry 31st Oct : bullish
Amount willing to lose : around 2500 rupees
Credit spread taken : call credit spread
Bought 2 lots (100) of Call Nifty 6200 for 53.05 each
Sold 2 lots (100) of Call Nifty 6300 for 30.6 each
Net Debit per unit : - 53.05 + 30.6 = 22.45
Qty : 2 lots (100)
Net amount that I can lose = 2245

Plan to hold it till expiry : 31 Oct
Objective of the trade : to get feel of long term holding of a strategy and overcome fear of losing indifinite money. So basically I have purchased a lottery ticket of 2245 rupees (plus broker charge)
Currently I have no plan of making any adjustment for this strategy because I am not any expert and do not have deeper understanding of making adjustments

Today I reviewed the above trade on weekly basis and took the following action.

- The market moved in the direction of monthe end view and closed with the white weekly bar.
- The profit from the debit spread was :

Buy Call Option 6200 : 28.15 (price increase from 53.05 to 81.20 rupees)
Sell Call Option 6300 : - 15.40 (option price increase from 30.60 to 46 rupees)
Net profit : 12.75 rupees x 100 = 1275 rupees

But the above is a notional profit, because I took the following change

Though my month end view continue to be bullish, my next week view is neutral i.e. not major bullish. So it can be neutral or bearish.

So I covered Sell Call Option 6300 for 45 rupees. So one leg of my debit setup was closed. I continue to hold Buy Call Option 6200 (2 lots)

With me new weekly view I have not put another leg of Sell Call Option 6100 for 131 rupees (2 lots). So my new setup is a Call credit spread.

Now I have:

Sell Call option 6100 for 131 (2 lots)
Buy Call option 6200 for 81 (2 lots) (today's closing price - actual purchase price is 53rupees)
Profit already booked 12.75 (2 lots)

I will use the profit earned to take my position above the zero line, and once it is over the zero line, I can then continue to hold my original position with original view till month end expiry.

I feel the above adjustment made by me is in line with me short term. I have also ignored broker charge since I have taken is real trade after 6 months as a learning experience to manage trade on weekly basis with a month end view.

Reki

 

[emailkailash]

Hi, the below is transcript of my post last week when I took the below trade last friday. Trade date : 4 Oct :

My view till expiry 31st Oct : bullish
Amount willing to lose : around 2500 rupees
Credit spread taken : call credit spread
Bought 2 lots (100) of Call Nifty 6200 for 53.05 each
Sold 2 lots (100) of Call Nifty 6300 for 30.6 each
Net Debit per unit : - 53.05 + 30.6 = 22.45
Qty : 2 lots (100)
Net amount that I can lose = 2245

Plan to hold it till expiry : 31 Oct
Objective of the trade : to get feel of long term holding of a strategy and overcome fear of losing indifinite money. So basically I have purchased a lottery ticket of 2245 rupees (plus broker charge)
Currently I have no plan of making any adjustment for this strategy because I am not any expert and do not have deeper understanding of making adjustments

Today I reviewed the above trade on weekly basis and took the following action.

- The market moved in the direction of monthe end view and closed with the white weekly bar.
- The profit from the debit spread was :

Buy Call Option 6200 : 28.15 (price increase from 53.05 to 81.20 rupees)
Sell Call Option 6300 : - 15.40 (option price increase from 30.60 to 46 rupees)
Net profit : 12.75 rupees x 100 = 1275 rupees

But the above is a notional profit, because I took the following change

Though my month end view continue to be bullish, my next week view is neutral i.e. not major bullish. So it can be neutral or bearish.

So I covered Sell Call Option 6300 for 45 rupees. So one leg of my debit setup was closed. I continue to hold Buy Call Option 6200 (2 lots)

With me new weekly view I have not put another leg of Sell Call Option 6100 for 131 rupees (2 lots). So my new setup is a Call credit spread.

Now I have:

Sell Call option 6100 for 131 (2 lots)
Buy Call option 6200 for 81 (2 lots) (today's closing price - actual purchase price is 53rupees)
Profit already booked 12.75 (2 lots)

I will use the profit earned to take my position above the zero line, and once it is over the zero line, I can then continue to hold my original position with original view till month end expiry.

I feel the above adjustment made by me is in line with me short term. I have also ignored broker charge since I have taken is real trade after 6 months as a learning experience to manage trade on weekly basis with a month end view.

Reki

Since you are still holding 6200 Call, how you can count that as a profit booked, should be Notional profit

 

[Reki]

Hi Emailkailash, you are correct, it is notional profit, but again because I have now taken new position of Sell call option 6100 for 131 rupees and credit a new strategy of call credit spread, I think I can call it as realised profit. I really do not know what to call such type of profit (or loss in case it is so)

Reki

 

[emailkailash]

Hi Emailkailash, you are correct, it is notional profit, but again because I have now taken new position of Sell call option 6100 for 131 rupees and credit a new strategy of call credit spread, I think I can call it as realised profit. I really do not know what to call such type of profit (or loss in case it is so)

Reki

For the time being you can call it Real LOSS as you have booked your losing position, now as per your strategy, if markets make a nosedive from here, then your 6100 CE sell option will give you profit but again 6200 CE may slip in below your original purchase price (depends when and where you decide to close this).

If markets makes further upmove from here then we have to see how options are priced.

If this was my position and I was expecting neutral to bearish next week I would have closed 6200 CE instead of 6300 CE (actually your closing of 6300 CE and selling 6100 CE signifies that you are bullish at one thought and bearish at other and at the same time having both bearish & bullish position)

Kailash

 

[Reki]

For the time being you can call it Real LOSS as you have booked your losing position, now as per your strategy, if markets make a nosedive from here, then your 6100 CE sell option will give you profit but again 6200 CE may slip in below your original purchase price (depends when and where you decide to close this).

If markets makes further upmove from here then we have to see how options are priced.

If this was my position and I was expecting neutral to bearish next week I would have closed 6200 CE instead of 6300 CE (actually your closing of 6300 CE and selling 6100 CE signifies that you are bullish at one thought and bearish at other and at the same time having both bearish & bullish position)

Kailash

Hi, this type of strategy is called spreads, where on one strike price you are long and on other (higher or lower) you are short. What I have just now done is converted my call debit spread to call credit spread.

My new position will be beneficial if the market goes down or even tanks or circuits down. On the contrary if the market zooms or circuits up, I will lose 100 - 49.80 = 50.20 rupees. 49.80 is the credit spread amount ( 131 - 81.20) and 100 being the difference in the strike price (6200 - 6100) of my call options.

 

[hector777]

Hi people ,

Just joined the forum today ... ... Damn good site i should say .... very informative ....

Btw here goes my first Post / Query

Today the Market opening up with almost a 75 points gain and closed with 75 points on nifty ... but the call options on nifty hardly went up accordingly ..... i had a 6400 call option .... it closed lower than yesterday closing !!!! .... But the Put options of nifty saw a proportionally fall ... as expected ... My question is ... how come the nifty call options did not increase proportionally. whats the logic ??? ... Please advice ...

 

[smartcat]

Today the Market opening up with almost a 75 points gain and closed with 75 points on nifty ... but the call options on nifty hardly went up accordingly ..... i had a 6400 call option .... it closed lower than yesterday closing !!!! .... But the Put options of nifty saw a proportionally fall ... as expected ... My question is ... how come the nifty call options did not increase proportionally. whats the logic ??? ... Please advice ...

It probably means the option players don't expect the Nifty to cross 6400 by expiry.

Since Vega, theta, gamma etc concepts are complicated, what you need to know is that option prices are dependent on two factors - SUPPLY and DEMAND.

In the above case, there is simply no "demand" for 6400 call option from the buyers. And whenever there is no demand, the price falls.