will straddle of nifty option in budget period be suitable?

[sachin divase]

Dear Traderji,
Will straddle strategy for nifty option in budget period give good returns?
please post your valuable comments.

Thanking you.

 

[Traderji]

Option straddle is a strategy which uses both a put and call option.

The trader who buys a straddle (buys a put and a call) will make money no matter which way the market moves - provided that the size of the movement is sufficient to cover the cost of the two premiums paid.

Buyers of straddles are therefore hoping for large price movements to occur while sellers of straddles (sellers of a put and a call) are hoping for prices to remain largely unchanged.

 

[TradingPicks]

To take advantage of any big moves post the budget one can BUY a Nifty Option Straddle.

Buy a NIFTY 31MAR2005 CE 2100.00 currently trading at 44.15

Buy a NIFTY 31MAR2005 PE 2000.00 currently trading at 36.85

Assuming you bough one contract of each your total outgo would be Rs. (44.15+36.85) X 200 = Rs. 16,200.00

If the market does make a BIG move post budget in the upward direction (bullish), you will break even at 2181.00 and start making profits above 2181.00

Alternatively if the market makes a BIG moves post budget in the downward direction (bearish), you will break even at 1919.00 and start making profits below 1919.00

As the Nifty is currently at 2050.00, you therefore need a move of at least 131.00 Nifty points in either direction to start making any profits.

If you expect the Nifty to move by over 131.00 Nifty points in either direction after the announcement of the budget and before 31st March 2005 then go ahead and make this straddle trade.

Any comments or questions, please go ahead and post them here.

 

[sharv]

is it advisable to make straddle in satyam,reliance,infosys,tisco instead of nifty?

thanks.

sharv.

 

[Neal]

I think that if one is making a call on the direction on the market post budget it is better to trade the Nifty as against individual stocks.

 

[RajK]

Interesting discussion!

I have used a similiar strategy on the Nifty.

The NIFTY 31MAR2005 CE 2100.00 is trading at 42.30

and

The NIFTY 31MAR2005 PE 2000.00 is trading at 40.80

SO one can get them both for 83.10

Anybody else can give some inputs??

 

[sara]

Is it advisable to buy a 2050 CE and write a 2100CE and / or buy a 2050 PE and write 2000 PE, so that the investment is minimal and we will be able to catch a small move up to 50 pts on either sides above which this will not work. I do not know how profitable this would be, expecting the experts to write on this.

 

[RajK]

Is it advisable to buy a 2050 CE and write a 2100CE and / or buy a 2050 PE and write 2000 PE, so that the investment is minimal and we will be able to catch a small move up to 50 pts on either sides above which this will not work. I do not know how profitable this would be, expecting the experts to write on this.

Your strategy would work in normal market conditions, but if you are trading the BUDGET, then buying both puts & calls as mentioned above would be appropriate.

 

[RajK]

Post Budget closing prices are:

NIFTY 31MAR2005 CE 2100.00 49.65

NIFTY 31MAR2005 PE 2000.00 12.00

 

[RajK]

NIFTY 31MAR2005 CE 2100.00 is trading at 61.15

NIFTY 31MAR2005 PE 2000.00 is trading at 9.00