Delta Neutral Strategy (Long Nifty @ Long Puts)

[[email protected]]

I would like to hazard a guess at what I should be doing to rectify the current situation:

1) Cover the short calls (sp2480)@21.55
2) Sell 300 puts (sp any) as long as the premium received is 6 or greater.

Phew waiting for the brick bats

Hi Nautilus,

I would like to know your reasons for thinking of taking above quoted actions, please post them here. Once I know your reasoning, I will offer my comments, till than have a great day.

Once I finish this thread, I will be asking you to teach me forex trading, as I have read some of your postings, sounds you know your subject.

Thank you,

Regards,

Wastej

 

[nautilus]

Hi Nautilus,

If my assumption was correct then you have not calculate your profit and loss correctly. The mistake is in Item No.2.

Please read the post by Harish and recalculate the profit and loss.

Regards,

Wastej

Hi Wastej:

I have checked Harish's posts going back to 12th Sep on 200 short calls(sp 2480) - the only difference I see is the execution prices. Mine was struck at 21.55 and his was struck at 33.85. But the calculated loss against today's settlement at 72.70 comes to -10230.

Am I missing something? or not seeing the obvious?

Sorry

Nautilus

 

[[email protected]]

Hi Nautilus,

Despite you being absolutely wrong in picking up the direction of the market, if you take no further action, your trade will end up with profit of 7460 assuming that the Nifty will close above 2480. You still have 300 put options SP2340 in hand against which you have not sold any thing.

Let us see if you can figure out how I came up with this number. If you also come up with this number, than you have understood the trade, if not, I will help you.

Now you see the beauty of this trade, from a loss, we have changed it into profit with some adjustments. It is like playing chess with the market and have fun while playing and in the end get paid for your work too.

To a good trader the market is source of income, without assuming risk, for all others it is guess work, be it a TA or intuition, hot tip, inside information or any other news or rumor.

One more thing I would like you to figure out is the risk in our hand in worst-case scenario.

Good Luck.

Regards,

Wastej

 

[nautilus]

Hi Nautilus,

I would like to know your reasons for thinking of taking above quoted actions, please post them here. Once I know your reasoning, I will offer my comments, till than have a great day.

Once I finish this thread, I will be asking you to teach me forex trading, as I have read some of your postings, sounds you know your subject.

Thank you,

Regards,

Wastej

Hi Wastej:

The reasons for taking the above mentioned actions are:

1) If the market carries on higher we will carry on incurring losses on the short calls(sp2480)@21.55 - so to prevent this if we cover this position we will stop bleeding further.
2) The reason for selling 300 puts(sp any) as long long as the premium collected is greater than 6 - will enable us to collect premium and balance our current loss of 1600 and also bring us to a delta neutral position again long 2000 puts (sp2340). As we approaching expiry the options will expire worthless and we will be able to keep the premiums.

Now the brick bats!!

Regards

Nautilus

As for the FX you are most welcome anytime.

 

[[email protected]]

2) 200 short calls(sp2480) @21.55 would settle at 60.05 (current price) resulting in a loss of 7700

If the assumption was that market closed at 2527, the profit and loss should have been calculated like this:

2480+21.55 (premium we collected) - Ending price of NIfty 2527=25.45 x 200= 5090.00.

I hope you understand this now.

Regards.

Wastej

 

[[email protected]]

Hi Wastej:

The reasons for taking the above mentioned actions are:

1) If the market carries on higher we will carry on incurring losses on the short calls(sp2480)@21.55 - so to prevent this if we cover this position we will stop bleeding further.
2) The reason for selling 300 puts(sp any) as long long as the premium collected is greater than 6 - will enable us to collect premium and balance our current loss of 1600 and also bring us to a delta neutral position again long 2000 puts (sp2340). As we approaching expiry the options will expire worthless and we will be able to keep the premiums.

Now the brick bats!!

Regards

Nautilus

As for the FX you are most welcome anytime.

Hi Nautilus,

Good trader keep the money once it comes, when we sold 200Calls SP2480 we collected 21.55 for each call. We are not worried, no matter how high the Nifty goes, just because we have the 200 Long Nifty futures to counter act the bullishness of Nifty. On the up side our 200 Nifty futures have stopped participating in the profit once Nifty reached 2480.

You are absolutely right, we should sell 300 puts against our long put option position of 2340, and I couldnt understand the logic of collecting Rs.6.00 premium?

One should try to assume least amount of risk, here comes risk and reward ratio. Some times it is all right to let the option expire worthless than taking unnecessary heavy risk. That may not be case with our trade, let us see how market reacts and we will take action accordingly.

Regards,

Wastej

 

[nautilus]

If the assumption was that market closed at 2527, the profit and loss should have been calculated like this:

2480+21.55 (premium we collected) - Ending price of NIfty 2527=25.45 x 200= 5090.00.

I hope you understand this now.

Regards.

Wastej

Yes, thank you.

Nautilus

 

[nautilus]

Hi Nautilus,


Let us see if you can figure out how I came up with this number. If you also come up with this number, than you have understood the trade, if not, I will help you.

One more thing I would like you to figure out is the risk in our hand in worst-case scenario.

Good Luck.

Regards,

Wastej

Hi Wastej:

My reasoning goes like this: We are basically trying to balance our 2000 long puts(sp2340) by selling puts. So far we are short 1700 puts in total and we have the possibility of selling 300 more.

I think the risk in our hand in the worst case scenarion would be the premium we have collected on the last lot of 300 short puts(sp 2480)@ 21.50 = 6450.

Nautilus

 

[nautilus]

Hi Nautilus,

Good trader keep the money once it comes, when we sold 200Calls SP2480 we collected 21.55 for each call. We are not worried, no matter how high the Nifty goes, just because we have the 200 Long Nifty futures to counter act the bullishness of Nifty. On the up side our 200 Nifty futures have stopped participating in the profit once Nifty reached 2480.

You are absolutely right, we should sell 300 puts against our long put option position of 2340, and I couldnt understand the logic of collecting Rs.6.00 premium?

One should try to assume least amount of risk, here comes risk and reward ratio. Some times it is all right to let the option expire worthless than taking unnecessary heavy risk. That may not be case with our trade, let us see how market reacts and we will take action accordingly.

Regards,

Wastej

Wastej

Thanks for clarification and explanations. This is great.

Nautilus

 

[chheda]

Hi Harish,

You have done excellent job, I couldnt have done any better.

Please think it through and let me know what we should be doing with this trade if we want to almost double our profits, from yesterday's profits.

If we don't take any action between now and the expiry date, our profit will reduce by Rs.8000.00 (approximately), as all the options will expire worthless.

You have to come up with a plan that will give us extra profit, with least amount of risk.

Regards,

Wastej

Hi WasteJ ,

I think we have to sell Nifty Put of slightly higher SP (i.e. 2380 / 2400 ) when market dips against 1300 uncommitted nifty put .

Regards

Harish Chheda