High Profit EOD based option Strategy for Advanced Traders

[pannalal]

Dear Pannalal,
I have taken positions in nifty short strangle in the past and tried to convert them into iron condor to hedge risk. Typically I would get about 90 - 100 points for one lot.For example if one were to enter 6500CE/6000PE for Jan yesterday one would get 91.7 points. If one can leg in , it could even be more, although it is not certain.
With this position you are safer even when the market moves in either direction. Yesterday VIX was low. Premium would be higher if VIX is high.

My question is : with " High Profit EOD based strategy" when you are covered only for one side of the market movement what is the extra premium you can get?

You have a program which gives you recommended trade considering the option greeks whereas I take position in short strangle purely on the basis of premium available and the "Safe" limits of nifty on the up and down side.

Could you explain how your strategy is superior to short strangle ?

Needless to add, I find your strategy interesting and I have got good results when I tried it during the current "Difficult" month.

First thing, I do not claim that my strategy is superior to other strategies. However, as far as short strangle is concerned, you need to take care when price go below a BEP or above another BEP because there are two BEPs. In my strategy, there is only one BEP, so you need to take care only if price goes above (or approaching) BEP.

 

[gmt900]

First thing, I do not claim that my strategy is superior to other strategies. However, as far as short strangle is concerned, you need to take care when price go below a BEP or above another BEP because there are two BEPs. In my strategy, there is only one BEP, so you need to take care only if price goes above (or approaching) BEP.

I am sorry, you got me wrong. I did not mean you claim that your strategy is better than short strangle. I think I framed my question wrongly. I meant how your strateg is different.

 

[pannalal]

I am sorry, you got me wrong. I did not mean you claim that your strategy is better than short strangle. I think I framed my question wrongly. I meant how your strateg is different.

Gmtji,

There is no need to say sorry.

Below, I give some advantages over short strangle:

(1) Suppose, you sell 6500 CE and 6000 PE, you will get around 92 points. You are worried when Nifty goes up a certain point and also below a certain point.

(2) If you sell 6500 CE and 6600 CE, you will get 98 points. Your BEP will be around 6599 (almost 6600). You get slightly more points and you need not worry if Nifty goes even to 5000.

 

[Somatung]

Gmtji,

There is no need to say sorry.

Below, I give some advantages over short strangle:

(1) Suppose, you sell 6500 CE and 6000 PE, you will get around 92 points. You are worried when Nifty goes up a certain point and also below a certain point.

(2) If you sell 6500 CE and 6600 CE, you will get 98 points. Your BEP will be around 6599 (almost 6600). You get slightly more points and you need not worry if Nifty goes even to 5000.

@Pannalal

Nice thread you run here. Sir DP surely was knowing why he supported your thread/strategy.

Number two in the above post is a very valid point, as markets in general do not crash upwards instead prefer the downwards side. So selling those calls on a mathematical levels (Standard deviation) makes sense.

 

[DanPickUp]

Happy Christmas to all option traders here. Will not show up much in the future as you now have some very nice posters here. This thread is one of it. DanPickUp

 

[SaravananKS]

Gmtji,

There is no need to say sorry.

Below, I give some advantages over short strangle:

(1) Suppose, you sell 6500 CE and 6000 PE, you will get around 92 points. You are worried when Nifty goes up a certain point and also below a certain point.

(2) If you sell 6500 CE and 6600 CE, you will get 98 points. Your BEP will be around 6599 (almost 6600). You get slightly more points and you need not worry if Nifty goes even to 5000.

hello,
Short Strangle is Delta Neutral Strategy. where as your Strategy is hoping for bearish

You have Calculated only Reward part of both Strategies

what about risk factor??

your strategy seems more riskier than Short Strangle...

another Part of consideration is Probability

on that case Short Strangle is better..

For me it is not worth to compare one delta neutral Strategy to Bearish Strategy

since this Strategy is bearish then if we compare this Strategy with Bearish Options Strategies then it would be interesting
:thumb:

 

[pannalal]

hello,
Short Strangle is Delta Neutral Strategy. where as your Strategy is hoping for bearish

You have Calculated only Reward part of both Strategies

what about risk factor??

your strategy seems more riskier than Short Strangle...

another Part of consideration is Probability

on that case Short Strangle is better..

For me it is not worth to compare one delta neutral Strategy to Bearish Strategy

since this Strategy is bearish then if we compare this Strategy with Bearish Options Strategies then it would be interesting
:thumb:

Saravananji,

I am giving reply to your question to view the things in correct perspective.

Your first point that short strangle is delta neutral is correct to a large extent. The delta (computed using Nifty spot level of 6268.40) for short strangle is around -0.17 whereas for my strategy, it is -0.51.

Now, we come to the probability part. The probability that by 30th Jan 2014, Nify will cross 6600 will be around 16.7%. If you take short strangle, the probability that it will cross either side is 55.3%.

Probability of Nifty crossing 6500 by 30th Jan 2014 is 24.8%.
Probability of Nifty going below 6100 by 30th Jan 2014 is 30.5%.

In the nutshell, probability of losing in my strategy is around 17% whereas probability of losing in short strangle of 6500 CE with 6000 PE is 55%. However, you can always take steps to avoid loss and make it profitable based on the market movements.

I always calculate probability before entering into any trade and keep computing it on daily basis. All my trades are based on the computation of probability.

My views are radically different from others. While, most members talk about risk reward ratio, I always see the probability. For example, in a particular trade if the risk is 25 points and reward is 75 points. Most members see it as very good trade. However, if probability of risk is 90%, I believe it is a bad trade. However, if luck is in your favour, you still earn because it falls in 10%.

These are my views and you need not agree with me. Please also note that we never argue, we just discuss for the benefits of all the members here. In the process, we also learn lot from others.

 

[pannalal]

Happy Christmas to all option traders here. Will not show up much in the future as you now have some very nice posters here. This thread is one of it. DanPickUp

Happy christmas to you and all the members.

Please visit from time to time as many of us are novice and looking for your expert comments to enrich our knowledge.

 

[abcpankaj]

Probability of Nifty crossing 6500 by 30th Jan 2014 is 24.8%.
Probability of Nifty going below 6100 by 30th Jan 2014 is 30.5%.

-I totally agree & appreciate your point of looking at RR in conjunction with probability.
-are the probabilities of nifty at 6500+ or 6100- calculated using delta ,which (if i understand it correctly ) is probability of nifty expiring at 6500+ or 6100- {either 1 of them will happen so probability of total position should be OR-ed instead of AND-ed }
-Or the probabilities are calculated directly from historical data taking into account the nifty movement in one month in past {& which gives probability of nifty at 6500+ or 6100- anytime before expiry to be 55 % }

regards

 

[pannalal]

-I totally agree & appreciate your point of looking at RR in conjunction with probability.
-are the probabilities of nifty at 6500+ or 6100- calculated using delta ,which (if i understand it correctly ) is probability of nifty expiring at 6500+ or 6100- {either 1 of them will happen so probability of total position should be OR-ed instead of AND-ed }
-Or the probabilities are calculated directly from historical data taking into account the nifty movement in one month in past {& which gives probability of nifty at 6500+ or 6100- anytime before expiry to be 55 % }

regards

The probability has nothing to do with delta. For example, delta of my strategy is around -0.51 (whereas probability is 16.7%). For short strangle of 6500 CE with 6000 PE, the delta is -0.17 (wheras probability is 55.3%).

While calculating probability, I take last 5 years of Nifty spot data, VIX and use Monte Carlo method (with 100,000 iterations) along with genetic algorithms.

It is OR-ed only. When, there is OR condition in probability, you add the probability (provided these are mutually exclusive). In case of AND condition, you multiply the probabilities if events are independent. In case, the events are not mutually exclusive, you add probabilities and subtract multiplication of probabilities.

P(A or B) = P(A) + P(B) - P(A)*P(B) if it is not mutually exclusive.

In the given case, Nifty cannot be below 6100 and above 6500 at one go, so these are mutually exclusive.