High Profit EOD based option Strategy for Advanced Traders

[pannalal]

I have given the following strategy:

Transaction to be done on 29 Nov 2013 for Base Index at 6106.30
(Nifty closed at 6091.85 but Option Chain is based on index 6106.30)

Buy 6600 CE at Price 13.23
Sell 6300 CE at Price 73.97
Sell 6400 CE at Price 44.55
Net Points Received: 105.29

Nifty closed today (5 Dec) at 6241.10. If anybody has entered the above trade, the break even point was 6400. There is still gap of around 160 points. So, there was nothing to worry in ordinary circumstances. However, we do not know what will happen on Monday (by that time, election result will be out). There might be big jump in Nifty. So, to avoid loss, I think the easiest method is to close the two short legs (6300 CE and 6400 CE). Approx premium for these two strike price is 118 and 75 points. So, you lose around 90 points (say Rs. 4,500/=). But, we need not close 6600 CE as it might give some profit provided Nifty goes up considerably.

Note: In true sense, this was not a lose booking month but to avoid huge loss in case of big increase in Nifty spot, I think it is better to take the lose and close the short legs.

As far as entering new trade, let us see the situation for next three days after election result (Monday, Tuesday and Wednesday). I prefer not to enter into new trade because of unpredictable market after election result.

 

[gmt900]

I have given the following strategy:


Nifty closed today (5 Dec) at 6241.10. If anybody has entered the above trade, the break even point was 6400. There is still gap of around 160 points. So, there was nothing to worry in ordinary circumstances. However, we do not know what will happen on Monday (by that time, election result will be out). There might be big jump in Nifty. So, to avoid loss, I think the easiest method is to close the two short legs (6300 CE and 6400 CE). Approx premium for these two strike price is 118 and 75 points. So, you lose around 90 points (say Rs. 4,500/=). But, we need not close 6600 CE as it might give some profit provided Nifty goes up considerably.

Note: In true sense, this was not a lose booking month but to avoid huge loss in case of big increase in Nifty spot, I think it is better to take the lose and close the short legs.


As far as entering new trade, let us see the situation for next three days after election result (Monday, Tuesday and Wednesday). I prefer not to enter into new trade because of unpredictable market after election result.

If one closes the trade with 90 points loss he has to BOOK a loss of Rs 4,500. If one does not close the trade and market closes below 6400 on 26 Dec , ACTUAL loss would less than or equal to 4500.

If one has entered trade with a gain of 140 points, the BEP is 6440 and loss will be less than or equal to 4,500 if nifty closes below 6440.

On the other hand , if nifty closes below 6613 one would not get any profit from 6600CE open position assuming one has paid 13 points for buying 6600CE option. So it will be an additional loss of 13X50== 650.

Therefore I feel it makes sense to try and adjust the trade by buying NF or options to hedge the position although it is difficult for inexperienced traders rather than BOOKING loss.

These are the scenarios on the expiry day. With wildly fluctuating markets, one may get an opportunity to get out of the trade with a much lesser loss before expiry. Erosion of Time value may help in the process in that case.
Nifty has moved up 1.3% on the basis of exit poll reports.

Assuming it moves up another 1.3 % on Monday because of favorable results (for the market), nifty would be 6321, way below BEP of 6400 or 6440.

 

[pannalal]

If one closes the trade with 90 points loss he has to BOOK a loss of Rs 4,500. If one does not close the trade and market closes below 6400 on 26 Dec , ACTUAL loss would less than or equal to 4500.

If one has entered trade with a gain of 140 points, the BEP is 6440 and loss will be less than or equal to 4,500 if nifty closes below 6440.

On the other hand , if nifty closes below 6613 one would not get any profit from 6600CE open position assuming one has paid 13 points for buying 6600CE option. So it will be an additional loss of 13X50== 650.

Therefore I feel it makes sense to try and adjust the trade by buying NF or options to hedge the position although it is difficult for inexperienced traders rather than BOOKING loss.

These are the scenarios on the expiry day. With wildly fluctuating markets, one may get an opportunity to get out of the trade with a much lesser loss before expiry. Erosion of Time value may help in the process in that case.
Nifty has moved up 1.3% on the basis of exit poll reports.

Assuming it moves up another 1.3 % on Monday because of favorable results (for the market), nifty would be 6321, way below BEP of 6400 or 6440.

I perfectly agree with you. I suggested to book loss for the simple reason that if Nifty moves to 7000 points (though it is highly unlikely) and if members incur huge loss, I may have to face their wrath. So, I am trying to play safe. In any case, most members are highly experienced (and not novice like me), so they will be able to manage nicely.

Even if Nifty touches 6500 on Monday, it is highly unlikely that Nifty will remain at such high level till 26th December. There has to be some fluctuation and you can always manage with minimum loss (or even profit).

If Nifty remains within 6350 by 26th December, there is a decent profit.:thumb:

 

[SaravananKS]

I Closed the Whole Position around 40 Points Loss....:annoyed:
Even it is Possible to adjust (or Repair the Spread) I choose to close the Spread Since I want to utilize the margin money for other trades...

Since I Bought 6600 CE Call @ 20.50 I booked profit on that call also

 

[gmt900]

I have given the following strategy:


Nifty closed today (5 Dec) at 6241.10. If anybody has entered the above trade, the break even point was 6400. There is still gap of around 160 points. So, there was nothing to worry in ordinary circumstances. However, we do not know what will happen on Monday (by that time, election result will be out). There might be big jump in Nifty. So, to avoid loss, I think the easiest method is to close the two short legs (6300 CE and 6400 CE). Approx premium for these two strike price is 118 and 75 points. So, you lose around 90 points (say Rs. 4,500/=). But, we need not close 6600 CE as it might give some profit provided Nifty goes up considerably.

Note: In true sense, this was not a lose booking month but to avoid huge loss in case of big increase in Nifty spot, I think it is better to take the lose and close the short legs.

As far as entering new trade, let us see the situation for next three days after election result (Monday, Tuesday and Wednesday). I prefer not to enter into new trade because of unpredictable market after election result.

I feel it would be a good idea to go for a long straddle at a strike price closer to today's EOD. The risk will be limited since if nifty doesn't move much we will lose only one day's time value, whereas if nifty makes a substantial move on either side one can benefit.

 

[gmt900]

If one closes the trade with 90 points loss he has to BOOK a loss of Rs 4,500. If one does not close the trade and market closes below 6400 on 26 Dec , ACTUAL loss would less than or equal to 4500.

If one has entered trade with a gain of 140 points, the BEP is 6440 and loss will be less than or equal to 4,500 if nifty closes below 6440.

On the other hand , if nifty closes below 6613 one would not get any profit from 6600CE open position assuming one has paid 13 points for buying 6600CE option. So it will be an additional loss of 13X50== 650.

Therefore I feel it makes sense to try and adjust the trade by buying NF or options to hedge the position although it is difficult for inexperienced traders rather than BOOKING loss.

These are the scenarios on the expiry day. With wildly fluctuating markets, one may get an opportunity to get out of the trade with a much lesser loss before expiry. Erosion of Time value may help in the process in that case.
Nifty has moved up 1.3% on the basis of exit poll reports.

Assuming it moves up another 1.3 % on Monday because of favorable results (for the market), nifty would be 6321, way below BEP of 6400 or 6440.

Just a question on hedging by NF

If one has got 140 points while initiating the trade, should one buy one lot of NF when nifty spot reaches 6350 and another one lot if nifty crosses 6450 spot?

In that case, hedging will be required to be done with only one lot of NF in case nifty spot remains below 6450 before expiry.

Or should one hedge with two lots of NF as soos as nifty spot crosses 6350?

I am aware that it is not very easy to manage this trade but with proper stop losses it should be possible to do it.

 

[abcpankaj]

[/U][/B]

I feel it would be a good idea to go for a long straddle at a strike price closer to today's EOD. The risk will be limited since if nifty doesn't move much we will lose only one day's time value, whereas if nifty makes a substantial move on either side one can benefit.

Risk is one day's time value Plus volatility crash.
Vix already dropped around 10% next day exit poll's.
But a real big move will take care of both.

 

[pannalal]

Just a question on hedging by NF

If one has got 140 points while initiating the trade, should one buy one lot of NF when nifty spot reaches 6350 and another one lot if nifty crosses 6450 spot?

In that case, hedging will be required to be done with only one lot of NF in case nifty spot remains below 6450 before expiry.

Or should one hedge with two lots of NF as soos as nifty spot crosses 6350?

I am aware that it is not very easy to manage this trade but with proper stop losses it should be possible to do it.

You can manage even with one NF. Just go long and as soon as you recover sufficient points, you close the options. It is not even necessary that you wait for Nifty to reach 6350. At any point, you feel Nifty is going up with high pace, just go long Nifty Future and once you get enough points, you can short Nifty and close the option trade and still you will be gaining some points. However, if you feel you can manage two lots of Nifty, it is still better because you will earn handsome points.

As far as Election result is concerned, the Nifty will open with huge gap, so there will not be enough time to do anything.

If you go for long straddle, you may earn good number of points but I don't know whether these will be enough to cover if Nifty makes a big move to higher side. In case, Nifty moves down (in case of adverse Election result), you are getting points both from this strategy as well as from long straddle.

 

[pannalal]

Based on Election result, there might be unexpected jump in Nifty. However, it is highly unlikely that Nifty can sustain such level till 26 Dec 2013. The circumstances are not in favour of High Nifty: Fed tapering decision, low GDP growth, high inflation etc.

 

[gmt900]

Based on Election result, there might be unexpected jump in Nifty. However, it is highly unlikely that Nifty can sustain such level till 26 Dec 2013. The circumstances are not in favour of High Nifty: Fed tapering decision, low GDP growth, high inflation etc.

I am not really trying to argue with this analysis. But I feel 1.3 % upmove has already taken place on thursday. If the results tomorrow are as indicated by the exit polls, nifty may not substantial move up. It it does move up, it will not more than 1%. If, on the other hand ,the results upset the predictions as per the exit polls there will a sharp decline of 1% or more.