What are broken wing strategies and how to trade them

[DanPickUp]

@Comm4300

I am not sure if you are afraid to enter the market with any option trade. So what can be done to take away some fear from that? I would suggest you to take a trade on a weekly chart. Choose the trend and then choose an otm debit spread. Why otm and why debit spread?

Otm is less risky and debit spread means you are long more atm and short more otm. If trend is up, you try it with a call debit spread vice versa with a put debit spread.

If market now moves up, you start to make profit on the long call and you start to lose on the short call, vice vers with the put debit spread. But all that is not very important in that case. Important is to be in the market and to feel that you not get killed. You will feel that you also can sleep at night. Stay like that for a few days if possible.

The money you can lose is the spread between the long leg and the short leg. So this amount you have to be willing to lose and it should not be more then one or two % of your capital. To get that feeling, there is no other way. You must once enter the market with a very low risk trade and take care just for that trade. Profit in this trades will not be important. If you managed that, then you shipped around of one of the bigger mistakes newbie do: You shipped around the greed the first time in trading. Your first step to implement the rule: Take care about the trade first, as money will follow, will come true and starts to become part of your thinking.

Will do an other post on that subject if wished. Not today but I can do in the coming days. But you have to do your part by entering the market with a low risk trade.

Take care / DanPickUp

 

[Reki]

Got to this place while googling for option strategies and having spent a few days here to reading content posted by forum regulars which made me register and here comes my first post.

Hi Dan, in your second last post above you have mentioned :

"Choosing the strategy: We can work with three or four strategies at all the time and use others when feeling so."

If you could kindly clarify that you put 3 or 4 strategies all together in the market or you implement 1 strategy and then make adjustments. If you do 3/4strategies at same time then are they for different time frames or for different underlyings.

And also when you say your second criteria is Volatility in the market (high or low) - you are talking about the volatility (HV) of the underlying or the Implied vola (IV) of respective options.

Hope my questions are not confusing. If you want I will try to rephrase them again.

 

[gmt900]

Got to this place while googling for option strategies and having spent a few days here to reading content posted by forum regulars which made me register and here comes my first post.

Hi Dan, in your second last post above you have mentioned :

"Choosing the strategy: We can work with three or four strategies at all the time and use others when feeling so."

If you could kindly clarify that you put 3 or 4 strategies all together in the market or you implement 1 strategy and then make adjustments. If you do 3/4strategies at same time then are they for different time frames or for different underlyings.

And also when you say your second criteria is Volatility in the market (high or low) - you are talking about the volatility (HV) of the underlying or the Implied vola (IV) of respective options.

Hope my questions are not confusing. If you want I will try to rephrase them again.

Hi Reki,
Dan is unavailable for a few days. He may reply to our querries after his return.
Regards,
gmt900

 

[Reki]

Thanks GMT900, will await his return.

 

[DanPickUp]

Got to this place while googling for option strategies and having spent a few days here to reading content posted by forum regulars which made me register and here comes my first post.

Hi Dan, in your second last post above you have mentioned :

"Choosing the strategy: We can work with three or four strategies at all the time and use others when feeling so."

If you could kindly clarify that you put 3 or 4 strategies all together in the market or you implement 1 strategy and then make adjustments. If you do 3/4strategies at same time then are they for different time frames or for different underlyings.

And also when you say your second criteria is Volatility in the market (high or low) - you are talking about the volatility (HV) of the underlying or the Implied vola (IV) of respective options.

Hope my questions are not confusing. If you want I will try to rephrase them again.

@Reki

Hi and welcome in the forum. I will take my time to answer your post coming Friday. As we do not know anything about you, could you in the mean time kindly tell what your experience in option trading is, what kind of markets do you trade, some ideas about the lot sice and what option matrix you use to do so.

As you wrote: Hope my questions are not confusing, would you mind to tell me what you think could be confusing in your question? Did you try by your self what you ask about and if not: Why?

Thanks and take care / DanPickUp

 

[Reki]

Hi Dan,

I am trading stocks for the last 2 years and my investment period is about 1 to 2 weeks, I use daily chart for stocks. I was introduced to options around 12 months back by my broker who placed some orders for me by taking my confirmation by telling me that my money will be doubled in one day and investment amount ranged from 4000 to 6000 rupees. After that I tried on my own and lost all money placed in 5 trades I took. But that money was not much. Since then I have started reading on options from some books, brokers website and from this forum. Since last 6 months I am doing paper trades with straddle,strangle and covered call and call put credit spread. Currently I know only these four strategies and am focusing only on them. I paper trade them for 1 week time frame. I am using my brokers option calculator available on their website to calculate delta, time decay and volatility.

 

[Reki]

By confusing I mean that if my question is not clear than I will rewrite it again in detail. I have not done any multiple strategies in my paper trading of options

 

[Reki]

I have done paper trading in nifty options only and not for stocks

 

[DanPickUp]

@Reki

Ok, have recognized your above post's and will be back as promised.

DanPickUp

 

[Reki]

@Comm4300

I am not sure if you are afraid to enter the market with any option trade. So what can be done to take away some fear from that? I would suggest you to take a trade on a weekly chart. Choose the trend and then choose an otm debit spread. Why otm and why debit spread?

Otm is less risky and debit spread means you are long more atm and short more otm. If trend is up, you try it with a call debit spread vice versa with a put debit spread.

If market now moves up, you start to make profit on the long call and you start to lose on the short call, vice vers with the put debit spread. But all that is not very important in that case. Important is to be in the market and to feel that you not get killed. You will feel that you also can sleep at night. Stay like that for a few days if possible.

The money you can lose is the spread between the long leg and the short leg. So this amount you have to be willing to lose and it should not be more then one or two % of your capital. To get that feeling, there is no other way. You must once enter the market with a very low risk trade and take care just for that trade. Profit in this trades will not be important. If you managed that, then you shipped around of one of the bigger mistakes newbie do: You shipped around the greed the first time in trading. Your first step to implement the rule: Take care about the trade first, as money will follow, will come true and starts to become part of your thinking.

Will do an other post on that subject if wished. Not today but I can do in the coming days. But you have to do your part by entering the market with a low risk trade.

Take care / DanPickUp

@ Dan, as per your above advice to Comm4300, today I initiated such a trade.

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

Thanks Dan for suggesting such a trading plan for beginners like me. This is the first real money trade after doing paper trading for past 6 months