A Beginner's way to trade options.

[jamit_05]

I have done following options trades today :

1) Bought 3400 Nifty May call between 202 and 207 and sold the same between 214-217

2) Bought 3500 put @ 176 and simultaneously sold 3400 put at 131.50

Will explain the reasons EOD.

ST

ST Sir,

A questions regarding the spread.

Our RR is 1:1.25 (because as yet we are prepared to lose our debit if 3500 breaks).

Are we not relying heavily on the event of 3500 level BO, and moreso because our RR is modest?

 

[Smart_trade]

ST Sir,

A questions regarding the spread.

Our RR is 1:1.25 (because as yet we are prepared to lose our debit if 3500 breaks).

Are we not relying heavily on the event of 3500 level BO, and moreso because our RR is modest?

Amit,

Spreads will generally give you Reward/risk ratio of 1.25 to 1.5. I am betting on 3500 as a resistance and because of elections,there is a good possibility that we will get near 3400 in which case I will book the trade. The idea in this trade is at 3400 the 3500 put will be in the money and 3400 put will be at the money . 3500 put will have more delta than 3400 put.I am playing on this difference in delta really.

ST

 

[Flock]

It is a totally wrong notion in the minds of option traders that one makes money only by option selling,pocketing the time decay,then one must practice fancy stuff like ratio backspreads,butterflies,Condors....and the like....totally wrong. There is no substitute to good analysis of the market and the right way to make money in options is buy call/put when market is taking breakout or breakdown,ride the move and make 100,200 or 300 % of your investment ( by way of premiums paid ) and get out once the move stalls,never stay invested in options We should also keep a stoploss of 20% of the premium if the mkt goes against you,take your loss and get out .

For deciding when to initiate the trade in options we require a system to analyse the underlying market action. One can use trendline breaks,breakout or breakdown from long consolidation,breakout from wedges,flags etc.Most of us are from miniflow and 60 min flow traders...so instead of trying to reinvent the wheel we will stick to 60 min flow as our basic analysis tool and trade all buy/sell signals with options....that will be a great combination

ST

ST,

Just putting a thinking cap on. If we trade the 60 min flow with the spot charts, and enter positions by buying out of the money options... will that be a bad idea?

Just thinking... the cost of an out of the money option in Nifty is around 100 Rs. depening upon how far it is out of the money. Now in 60 min we are expecting the market to move in our direction. So we should expect the option to be in the money. At the end of the day say if we get a good move move in our direction, and our option is in the money, we simply square it off and buy another out of the money option. Idea is that we keep only the premium for out of the money option on the table overnight. This will limit the risk to almost our stop loss in 60 min even in case of a gap opening against us.... Just thinking... not tested anything.

Rgds

 

[Smart_trade]

ST,

Just putting a thinking cap on. If we trade the 60 min flow with the spot charts, and enter positions by buying out of the money options... will that be a bad idea?

Just thinking... the cost of an out of the money option in Nifty is around 100 Rs. depening upon how far it is out of the money. Now in 60 min we are expecting the market to move in our direction. So we should expect the option to be in the money. At the end of the day say if we get a good move move in our direction, and our option is in the money, we simply square it off and buy another out of the money option. Idea is that we keep only the premium for out of the money option on the table overnight. This will limit the risk to almost our stop loss in 60 min even in case of a gap opening against us.... Just thinking... not tested anything.

Rgds

Good idea Flock....the rolling over will ensure that we put some profits in our pockets.....cannot see the reason why it should not work...60 min flow is a tested and tried method. One can trade that with out of money options....only hitch is in nifty the moves these days are bit small for this strategy to work well....stock options may be better if we find good liquidity in them.

Smart_trade

 

[sibumajumdar]

Hi,

Thanks to ST & Others. Read all the posts since my joining day before and richer by many ways regardind op trading. I could not understood terms--60 MIN FLOW & MINIFLOW. Please help me to understand.

Regards,

sibumajumdar

 

[MurAtt]

Strategy which I am trying to put together i.e. to make a profit without doing anything in between from start to end of expiry.

Sell
3500CE May is 160, 3500PE is 176 – so total premium recd is 336/-
(So we are covered till 3836 on the higher side and 3164 on the lower side. if naked shorts of the above)

Supposing mkt moves above or below these levels then just by this trade we are in deep trouble as losses will be huge above 3800 and below 3200 – therefore to protect ourselves from this,

Buy – 3400 PE @ 133 and 3600 CE @ 114 thereby decreasing our income by 247/-.

Ultimately our premium credit now arrives to 336 – 247 = 53+36 = 89 pts.

Now -
A. Say mkt expires at 3500 then
Total profit remains @ 89 credit premium.

B. Expires at 3600 then
89-100=11 pts loss

C. at 3700 then
3500CE = -200, 3600CE=+100, Premium credit = +89; Total = 11pts loss.

D. at 3800 then
3500CE = -300, 3600CE=+200, Premium credit = +89; Total = 11pts loss.

E. at 3900 then
3500CE = -400, 3600CE=+300, Premium credit = +89; Total = 11pts loss.

So wherever the mkts close at or above 3600, we are at loss of 11pts.

For the downside :
A. Say mkt expires at 3500 then
Total profit remains @ 89 credit premium.

B. Expires at 3400 then
89-100=11 pts loss

C. at 3300 then
3500PE = -200, 3400PE=+100, Premium credit = +89; Total = 11pts loss.

So wherever the mkts close at or below 3400, we are at loss of 11pts.


Conclusion :
If mkts close nearabout 3500 (which by itseff is wishful thinking), we are profiting 89pts on an investment of 1sold call and 1 sold put i.e. 2 lots Nifty which would come to approx Rs. 30000 and need some more for M2M, say 15000/-. The buy call and buy put would be paid from the premium recd.

i.e. 4500 on 50000 inv, comes to 9% ROI.

If mkts move otherwise then max loss is 11 pts or 550 Rs.


Now dear members,
1. Is this ROI good? Considering that we will NOT BE DOING ANYTHING AT ALL INBETWEEN.
2. Any flaws in the logical end result of the profit/loss generated, something which I may have missed and IS a silly mistake
3. A possibility of loss making means failure and does not give the end result I am looking at therefore would suggest members to give a suggestion to improve end result.

Wishful thinking
Another possibility is that say after 7-10 days, the premiums would have reduced and ending the trade there would result in a better profit and/or ROI, depends on the market at that point of time and the sentiments which make the premiums a bit wayward..

 

[Smart_trade]

Strategy which I am trying to put together i.e. to make a profit without doing anything in between from start to end of expiry.

Sell
3500CE May is 160, 3500PE is 176 so total premium recd is 336/-
(So we are covered till 3836 on the higher side and 3164 on the lower side. if naked shorts of the above)

Supposing mkt moves above or below these levels then just by this trade we are in deep trouble as losses will be huge above 3800 and below 3200 therefore to protect ourselves from this,

Buy 3400 PE @ 133 and 3600 CE @ 114 thereby decreasing our income by 247/-.

Ultimately our premium credit now arrives to 336 247 = 53+36 = 89 pts.

Now -
A. Say mkt expires at 3500 then
Total profit remains @ 89 credit premium.

B. Expires at 3600 then
89-100=11 pts loss

C. at 3700 then
3500CE = -200, 3600CE=+100, Premium credit = +89; Total = 11pts loss.

D. at 3800 then
3500CE = -300, 3600CE=+200, Premium credit = +89; Total = 11pts loss.

E. at 3900 then
3500CE = -400, 3600CE=+300, Premium credit = +89; Total = 11pts loss.

So wherever the mkts close at or above 3600, we are at loss of 11pts.

For the downside :
A. Say mkt expires at 3500 then
Total profit remains @ 89 credit premium.

B. Expires at 3400 then
89-100=11 pts loss

C. at 3300 then
3500PE = -200, 3400PE=+100, Premium credit = +89; Total = 11pts loss.

So wherever the mkts close at or below 3400, we are at loss of 11pts.


Conclusion :
If mkts close nearabout 3500 (which by itseff is wishful thinking), we are profiting 89pts on an investment of 1sold call and 1 sold put i.e. 2 lots Nifty which would come to approx Rs. 30000 and need some more for M2M, say 15000/-. The buy call and buy put would be paid from the premium recd.

i.e. 4500 on 50000 inv, comes to 9% ROI.

If mkts move otherwise then max loss is 11 pts or 550 Rs.


Now dear members,
1. Is this ROI good? Considering that we will NOT BE DOING ANYTHING AT ALL INBETWEEN.
2. Any flaws in the logical end result of the profit/loss generated, something which I may have missed and IS a silly mistake
3. A possibility of loss making means failure and does not give the end result I am looking at therefore would suggest members to give a suggestion to improve end result.

Wishful thinking
Another possibility is that say after 7-10 days, the premiums would have reduced and ending the trade there would result in a better profit and/or ROI, depends on the market at that point of time and the sentiments which make the premiums a bit wayward..

Hello friend....

I have following observations on the strategy suggested by you.

1) It is a 4 option strategy and there is a good chance that 2 options will be in the money at expiry.Thus they will be excercised by the exchange...so you will pay brokerage and other charges on 6 contracts..This will set you back by Rs 18 or so if you have not taken this cost into consideration.

2) But even the return of 4500-900 (brokerage) is not bad ROI on Rs 50,000 at all. In case of max ptofit you will make 3600/- and in case of loss you will loose 11 +18 =29 points or Rs 1450/- The point is your profit zone is too pointed...as you move away from 3500 in either direction,your profit will decrease.(for example,if the excercise price is 3550,your profit will be 89-50-18(brokerage) =Rs 21 * 50=Rs 1050. It is very difficult to pinpoint the closing...

Hope I have not committed any logic error anywhere...

But I like your idea of earning steady returns on our investment. Let us see whether we can improve this strategy with the help of our other friends...

Best wishes,

Smart_trade

 

[Smart_trade]

Hi,

Thanks to ST & Others. Read all the posts since my joining day before and richer by many ways regardind op trading. I could not understood terms--60 MIN FLOW & MINIFLOW. Please help me to understand.

Regards,

sibumajumdar

Hello friend....

60 min flow and miniflow are two trading methods we all follow to trade futures. For your information ,the links are given below :

Miniflow :

http://www.traderji.com/day-trading...-miniflow-live-discussion-808.html#post304911

60 min flow :
http://www.traderji.com/futures/25237-60min-flow-trades-week-saints-method-78.html#post303503

I am sure you will find these threads useful...

Best Wishes,

Smart_trade

 

[praveen taneja]

Strategy which I am trying to put together i.e. to make a profit without doing anything in between from start to end of expiry.

Sell
3500CE May is 160, 3500PE is 176 so total premium recd is 336/-
(So we are covered till 3836 on the higher side and 3164 on the lower side. if naked shorts of the above)

Supposing mkt moves above or below these levels then just by this trade we are in deep trouble as losses will be huge above 3800 and below 3200 therefore to protect ourselves from this,

Buy 3400 PE @ 133 and 3600 CE @ 114 thereby decreasing our income by 247/-.

Ultimately our premium credit now arrives to 336 247 = 53+36 = 89 pts.

Now -
A. Say mkt expires at 3500 then
Total profit remains @ 89 credit premium.

B. Expires at 3600 then
89-100=11 pts loss

C. at 3700 then
3500CE = -200, 3600CE=+100, Premium credit = +89; Total = 11pts loss.

D. at 3800 then
3500CE = -300, 3600CE=+200, Premium credit = +89; Total = 11pts loss.

E. at 3900 then
3500CE = -400, 3600CE=+300, Premium credit = +89; Total = 11pts loss.

So wherever the mkts close at or above 3600, we are at loss of 11pts.

For the downside :
A. Say mkt expires at 3500 then
Total profit remains @ 89 credit premium.

B. Expires at 3400 then
89-100=11 pts loss

C. at 3300 then
3500PE = -200, 3400PE=+100, Premium credit = +89; Total = 11pts loss.

So wherever the mkts close at or below 3400, we are at loss of 11pts.


Conclusion :
If mkts close nearabout 3500 (which by itseff is wishful thinking), we are profiting 89pts on an investment of 1sold call and 1 sold put i.e. 2 lots Nifty which would come to approx Rs. 30000 and need some more for M2M, say 15000/-. The buy call and buy put would be paid from the premium recd.

i.e. 4500 on 50000 inv, comes to 9% ROI.

If mkts move otherwise then max loss is 11 pts or 550 Rs.


Now dear members,
1. Is this ROI good? Considering that we will NOT BE DOING ANYTHING AT ALL INBETWEEN.
2. Any flaws in the logical end result of the profit/loss generated, something which I may have missed and IS a silly mistake
3. A possibility of loss making means failure and does not give the end result I am looking at therefore would suggest members to give a suggestion to improve end result.

Wishful thinking
Another possibility is that say after 7-10 days, the premiums would have reduced and ending the trade there would result in a better profit and/or ROI, depends on the market at that point of time and the sentiments which make the premiums a bit wayward..

Ohhhhhhhhh Myyyyyyyyyyyyy Gooooooooooooood
Are you trading or doing PHD on options?????????????/
Sorry no offend meant but is it really biginners way

 

[MurAtt]

Ohhhhhhhhh Myyyyyyyyyyyyy Gooooooooooooood
Are you trading or doing PHD on options?????????????/
Sorry no offend meant but is it really biginners way

PT bhai,

Aap to poore TJ me chhaye hue ho -- kuch idea aap bhi aage pesh kijiye, being very experienced and knowledgeable - or should I write the other way round - being very knowledgeable and expreienced.

Also I read on TJ someehere in your post that u trade only in options

SO

Why not a strategy from your end which will earn us a decent profit (not crorepati or lakhpati but decent).

On a serious note, is my strategy as confusing as the no of confused smileys in the post above?

Murtaza