Delta Neutral Strategy (Long Nifty @ Long Puts)

[joy_mitali]

Dearest WasteJ and Cheda,
First of all I would like to congratulate u--for ur excel sheet----More than that---For the name of the sheet u have chosen----Thanks friend---for ur open heart---
To WasteJ---With due respect--- Iwill try my level best---to try to incorporate ur suggestions-----withen my limitations---My idea of this automation may have become a bit more grand----so I m stuck---But I will surely try to come out of it---may be it is taking a bit time----but with all ur blessings---it will be done---
As suggested---I will be in touch with Cheda---in time---
Regards,
joy_mitali

 

[vince]

Dear wastej, nautilus, chedda
I have been following this thread very closely and although i am not at all new to the concept of delta neutral trading / hedging , all the mock trades carried out have been done so without caring a whit for the account size of the trader.
To keep this excellent thread running may I suggest that a similar mock trade be taken up with the additional challenge of a reasonable limit on the account size available for margins.
It would greatly help in honing the skills of trade management which every successful trader must possess.
I would like to wish wastej a speedy recovery.

Trade well friends,
vince

 

[chheda]

Thanks WasteJ and Joy

I will be in touch with Joy and try my level best to make utility more users friendly and more informative as suggested by wasteJ .

Regards

Harish Chheda

 

[nautilus]

Delta Neutral Strategy (Long Nifty & Long Puts)

As per my earlier commitment I am starting a trade on the Nifty future and going long with its puts.

Action: Buy 1000 Nifty Futures (29th September, 2005) @ 2347.00 (Closing Price) = 23,47,000.00

Buy 2000 Nifty SP2340 Puts (29th September, 2005) @ 46.00 (Closing Price) = 92,000.00


Total: 24,39,000.00


Margin requirement is only 10% or 5% (Please let me know which one is correct) In case it is 10% the investment is going to be 2,43,900.00 and if it is 5% then the requirement is going to be only 1,21,950.00.

For those this trade is too large, they can reduce the numbers to 400 futures of Nifty and 800 Puts. Keep in mind that the numbers are even.

I will keep posting development on this trade for the rest of the period till expiry of the future date i.e.,
29th September 2005. I will post only on days when the action will be required, for no action days nothing will be posted.

So keep coming back and see how the adjustments are made to the delta neutral trade.

Regards to you all the TRADERS.

wastej

Having been through this trade several times there is one thing that I still cannot seem to figure out - I am sure the explanation is staring me in the face unfortunately I cannot see it!

My questions are as follows:

1) At the begining of this trade you went long a 10x100 futures contracts and went long 20x100 puts - (this based on the face value seems an unbalanced position or not delta neutral to a novice like me) what is the rational behind this?

2) Is there a specific formula (or ratio) for assuming initial short/long positions for different delta neutral strategies?

Thanks once again.

Regards

Nautilus

 

[vince]

Having been through this trade several times there is one thing that I still cannot seem to figure out - I am sure the explanation is staring me in the face unfortunately I cannot see it!

My questions are as follows:

1) At the begining of this trade you went long a 10x100 futures contracts and went long 20x100 puts - (this based on the face value seems an unbalanced position or not delta neutral to a novice like me) what is the rational behind this?

2) Is there a specific formula (or ratio) for assuming initial short/long positions for different delta neutral strategies?

Thanks once again.

Regards

Nautilus

At the beginning of the trade since we went long by 10*100 futures at 2347 that would make the the delta 10*100 , to balance we would have to sell 20*100 sp2340 puts which would be at the money and therefore have a delta of 0.5*200 each adding up to 1000. That is delta neutral.
However pls correct me if I am wrong.

regards,
vince

 

[[email protected]]

Hi Nautilus,

Every stock and future has +1 delta. So when we went long 1000 future contracts, we were long +1000 delta.

Every at the money put option has -.50 delta so 2000X-.50= -1000 delta and hence it was a delta neutral position to begin with.

Please read option Greeks for more clear understanding. This information can be obtained on all the brokers web sites as well as on NSE and BSE web sites.

I hope the things are bit clear for you now.

Regards,

Wastej

 

[amit_shriv]

Hi All
Based on what I learned from wastej I have made one utility which calculates adn display chart for Delta and Pay off as on expiration but I am not able to upload after ZIP its 320 KB.

Where should I upload it?

Amit

 

[amit_shriv]

Hi All,
I have uploaded the tool http://www.megaupload.com/?d=S3EMP2DX
I have not entered the exipration date in the tool for Demo trade, so please go to the 'Asset Settings' tab and enter 'Expiration date'.

waiting for the bugs, comments and suggestion from Wastej and seniors.

Regards
Amit

 

[amit_shriv]

One more thing I forgot to tell its a zip file so before running the tool unzip the folder.

 

[nautilus]

Hi Wastej & Vince:

Thank you both for the answer. I knew it was staring me in the face

Regards

nautilus