What are broken wing strategies and how to trade them

[Reki]

I arrived at my bullish view on the basis of weekly chart, so effectively there will be 4 candlestick bars till expiry on 31 Oct

Reki

 

[Reki]

@ Dan, GMT900 and Comm4300, I realised that I have posted my above posts not relevant with the authors subject. I will delete it if it hinders the discussion on the title subject and start a new discussion forum.

Reki

 

[ananths]

@ 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

Hi Reki, Welcome to the options market and TJ.
Just wanted to do a correction...as highlighted above its not credit spread..what you did is Debit spread.
RR is very good..its only 20-22 Rs you can lose maximum. If you hold this till expirey you will get (100-22) points per lot. That is fine..if market is bullish you can hold this till expiry. However keeping an eye on 6000 strike price (high OI) and any further resistance would be good and also its good to keep a SL level incase you dont want to do any more adjustment to the spread and you can go for PUT debit spread if market reverses which will give you returns. :thumb:

 

[Reki]

Hi Ananths, thank you for highlighting the error. Yes, since I am already in debit 2245 rupees this is call debit spread. As mentioned by Dan, my objective is to get the feel to stay longer and manage fear and greed I think that the only thing I will monitor about this trade is how it fluctuates every day with change in Nifty. I think this is what will give me more learning than the profit if any at expiry. So basically I have 100% assumed that my 2245 rupees is gone. What is currently going in my mind is at what frequency should I check the trade price should it be every day or should it be weekly. Because I have taken this trade on weekly candlestick chart the next bar will form after one week, so should I check it then. There will be 4 bars till expiry so I will get to check 4 data points with my trade. I am in double mind right now but not at all worried about 2245 rupees.

Reki

 

[gmt900]

@ Dan, GMT900 and Comm4300, I realised that I have posted my above posts not relevant with the authors subject. I will delete it if it hinders the discussion on the title subject and start a new discussion forum.

Reki

Dear Reki,
You are most welcome to continue posting in this thread.
gmt900

 

[mmca2006]

Hi Reki

A little contribution from my side Your RR is very good , but I prefer spread of 5800/5900 !!

MAx profit of 6200/6300 is 7625 !!
Max profit of 5800/5900 is 3165 !? ( I will double the quantity to increase profit )
but still I prefer 5800/5900 because BEP for your strategy is 6223 (5% above from the current level), BEP for 5800/5900 is 5868 (.70% below the current level ) so probability is high of getting profit !!
I have also bullish view and expect market to go up but doubt whether it can breach 6200 level during OCT series because of Huge option build up at 6000/6100 level, I MAY BE WRONG . I am attaching two charts for aforesaid two strategies at the mid of the month say on 18/10/13, Hope u won't mind
Ist one for 6200/6300
second one for 5800/5900

 

[ananths]

@mmca2006,

I slightly disagree with you on this because Reki's view is for entire month and he mainly concentrated on the RR.
For your example RR is too high for a low risk trader...see what happens if market goes against you, will lose more than his spread.
Basic idea is to reduce the risk hence choosing a low risk spread makes sense.

If you have a strong bullish view then your spread choice looks fine. You have all the chances that it will end in good profit but at a cost of high RR.

Good discussion! :thumb:

 

[mmca2006]

@mmca2006,

I slightly disagree with you on this because Reki's view is for entire month and he mainly concentrated on the RR.
For your example RR is too high for a low risk trader...see what happens if market goes against you, will lose more than his spread.
Basic idea is to reduce the risk hence choosing a low risk spread makes sense.

If you have a strong bullish view then your spread choice looks fine. You have all the chances that it will end in good profit but at a cost of high RR.

Good discussion! :thumb:

ananths
but while concentrating to good RR ONLY ,I think probability of loosing money will increasehowever I admit that it ultimately depends on the psychology of individual traders , I should take that trade ,which gives me sound sleep, !!!

 

[SaravananKS]

Hi Reki, Welcome to the options market and TJ.
Just wanted to do a correction...as highlighted above its not credit spread..what you did is Debit spread.
RR is very good..its only 20-22 Rs you can lose maximum. If you hold this till expirey you will get (100-22) points per lot. That is fine..if market is bullish you can hold this till expiry. However keeping an eye on 6000 strike price (high OI) and any further resistance would be good and also its good to keep a SL level incase you dont want to do any more adjustment to the spread and you can go for PUT debit spread if market reverses which will give you returns. :thumb:

I Doubt Put Debit Spread would right solution when market not seems to go beyond 6200...

Since These Kind of Risk Reward Ratio would available only on far Strike Spreads

For example

One Can adapt 5700PE Long 5600PE Short ( Debit Spread)

The maximum Risk is 69.50-50.75 18.75 for Two Lots it is 1875/-


Plus Rs 2300 Already Risked if market Stays in 6200-5700 Range then

Total Risk would 4175 for the Reward of 5825

Instead if he Exits (Pre close ) when market not seems to be Cross 6200

where he may cut the Initial risk


Or Other wise suppose he took 6000 PE and 5900 PE

which are Trading now at 167.90 and 126.45 ( Today LTP) then

The Risk Increases 167.90-126.45=41.45 for two Lots 4145 Plus 2300 Original risk would be 6445 for the Max Reward of 3555

Again if Market close between 6000-6200 he would loose all risky amount


IMO SL is best Option or he has to take risk as it is Rs 2300 Lottory which gives Rs 10000/- Prize if he got it

 

[ananths]

I Doubt Put Debit Spread would right solution when market not seems to go beyond 6200...

Since These Kind of Risk Reward Ratio would available only on far Strike Spreads

For example

One Can adapt 5700PE Long 5600PE Short ( Debit Spread)

The maximum Risk is 69.50-50.75 18.75 for Two Lots it is 1875/-


Plus Rs 2300 Already Risked if market Stays in 6200-5700 Range then

Total Risk would 4175 for the Reward of 5825

Instead if he Exits (Pre close ) when market not seems to be Cross 6200

where he may cut the Initial risk


Or Other wise suppose he took 6000 PE and 5900 PE

which are Trading now at 167.90 and 126.45 ( Today LTP) then

The Risk Increases 167.90-126.45=41.45 for two Lots 4145 Plus 2300 Original risk would be 6445 for the Max Reward of 3555

Again if Market close between 6000-6200 he would loose all risky amount


IMO SL is best Option or he has to take risk as it is Rs 2300 Lottory which gives Rs 10000/- Prize if he got it

I think you got confused by my statement...what I mean in simple terms is that currently market is going up...book your profit when you see some resistance and go for put spread instead of waiting for the profit position to turn to losses. One can have a view until expiry but allowing a profit position to turn to losses is not a good idea instead he can keep SL and switch to another spread. Hope that clarifies.