High Profit EOD based option Strategy for Advanced Traders

[SaravananKS]

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.. (Now Verified Bear Spread 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.:)
it is not argument here we all learning :)

your Replay corrected me verify Probabilities again , thanks for that

Here is Visual Figure of Both Strategies

Short Strangle

Bear Spread

I think I have not asked my Question Clearly

My Question is for Short Strangle the Trader expects sideways movement
and aim for time Value in both legs

Where as the Bear Spread Suggested by you, the trader expects market will not go above 6600 and range bound ...

my Question is why one compare two Strategies having different goals??

I suggested to compare other bearish Strategies like sell 6100 CE and buy 6600 CE

even though there is less Probabilities nifty crossing 6600 but above 6600 it would be more than -1 Delta on that case
the risk will grow much faster than a normal short strangle

Since from Start of the thread you had given lot of Strategies I expected some other good Strategies to compare

Thank you for nice Reply :thumb:

 

[DanPickUp]

@Pannalal

You do very well by what you do, so there is not much need of me any more. If there is any absolute need of me, which I do not think so, try to PM.

@abcpankaj

What Panalal just posted is absolute right. Delta is delta and proba is proba. Here a link you should work through: http://www.optionstar.com/art/art3.htm It may is a bit complicated when reading on such topics the first time. If you start to understand such ways of option trading and analyzes in dept, you are one step further to become a successful strategical option trader. Understanding probability is even helpful in naked future trading.

Now all of you take care / DanPickUp

 

[gmt900]

your Replay corrected me verify Probabilities again , thanks for that

Here is Visual Figure of Both Strategies

Short Strangle

Bear Spread

I think I have not asked my Question Clearly

My Question is for Short Strangle the Trader expects sideways movement
and aim for time Value in both legs

Where as the Bear Spread Suggested by you, the trader expects market will not go above 6600 and range bound ...

my Question is why one compare two Strategies having different goals??I suggested to compare other bearish Strategies like sell 6100 CE and buy 6600 CE

even though there is less Probabilities nifty crossing 6600 but above 6600 it would be more than -1 Delta on that case
the risk will grow much faster than a normal short strangle

Since from Start of the thread you had given lot of Strategies I expected some other good Strategies to compare

Thank you for nice Reply :thumb:

Pannalal was replying to my question. I have been following short strangle strategy for sometime now and wanted Pannalal's views on how his strategy is different.

And I am glad that I asked the question. Lot of useful discussion on the subject. Thanks all for contributing to enrich knowledge about option trading.

 

[gmt900]

Dear Pannalal,
Today's discussion was very useful.

But it raises one question. How do we, ordinay folks who neither have software nor the knowledge of monitoring the probability, use this strategy?

May I ask you how long you would be holding our hand on the use of this strategy?
regards,
gmt

 

[pannalal]

Dear Pannalal,
Today's discussion was very useful.

But it raises one question. How do we, ordinay folks who neither have software nor the knowledge of monitoring the probability, use this strategy?

May I ask you how long you would be holding our hand on the use of this strategy?
regards,
gmt

Gmtji,

I am a very ordinary person. As far as trading is concerned, I am novice. However, I think this is the time when I should give my background info. I am a software engineer with mathematical background. I did my master degree in software engineering from BITS, Pilani with CGPA 10 out of 10 (Topper).

One year ago, I was not knowing anything about stock market. Many of my friends are into buying and selling shares (mainly equities) since 10-15 years. They were consistently losing money, still doing trading. I used to feel odd when they used to discuss about share market. So, one day, I started studying stock trading. I purchased books on Stock valuation, options, quantitative finance and start building the software.

Then, I did paper trading. My paper trading was simply writing programs and the computer will do paper trading for 5 years in less than one second. Then, I applied my method on 33 indexes of different stock exchanges of the world. My method consistently gave profit. In 31 indexes, the profit was higher than buy and hold (sell and hold in case of index was lower). In case of 2 indexes, the profit was less than buy and hold.

I am trading since last 4 months and consistently making profit by grace of God. However, I have never told this to my friends and I don't intend to tell in future also. During this very short period of trading, I have realized that doing paper trading (by writing program) is very different from real trading.

Now, I come to your question. You have done trade last month and you exited on 19th December (as far as I remember) with 13% returns in three weeks. You did not do any probability calculation but still you knew when to exit. So, it is your commons sense that is much more important than all the programs and software. I have build these programs so that I can take informed decision but decisions are still taken by human only. So, your experience in trading is much more valuable than these sofware programs. Down the line (may be after one year), I shall not be using any program and still I should be able to do trading.

 

[traderite]

@ Pannalal Ji,

Your thread is very interesting. Though I do not trade Options much as of now but plan to bring them into my trading sooner than later.

One strategy which I have been very interested in taking positions into is Iron Butterfly Spread.

Can you please share your thoughts about the strategy , its pros and cons and how much difficult is to handle or adjust this strategy.

Thanks in Advance

 

[ananths]

Dear Pannalal,
Today's discussion was very useful.

But it raises one question. How do we, ordinay folks who neither have software nor the knowledge of monitoring the probability, use this strategy?

May I ask you how long you would be holding our hand on the use of this strategy?
regards,
gmt

Pannalalji has software to analyse and he uses high level algo's i think...good to have such intelligent people around.
@Pannalalji & gmt bhai, OptionOracle also give probability information..is that useful to check for such strategies? (May not be as good as your sw.so this doubt)

EDIT:- in OptionOracle graph it gives probability percentage

 

[pannalal]

Pannalalji has software to analyse and he uses high level algo's i think...good to have such intelligent people around.
@Pannalalji & gmt bhai, OptionOracle also give probability information..is that useful to check for such strategies? (May not be as good as your sw.so this doubt)

EDIT:- in OptionOracle graph it gives probability percentage

Ananthji,

If option oracle is giving probability, it has to be correct only. In any case, using my method (truely speaking, none of the methods are mine, all are from different sources, I just developed the software):

(1) The probability of Nifty going above 6600 by 30th Jan 2014 is 16.7%
(2) Probability of Nifty crossing 6500 by 30th Jan 2014 is 24.8%.
(3) Probability of Nifty going below 6100 by 30th Jan 2014 is 30.5%.

Please compare and see how much difference you get.

In any case, I am not using high level algo. Actually speaking, Monte Carlo is the easiest method and very simple to program. Only thing, it gives impression that it is high level.

 

[pannalal]

@ Pannalal Ji,

Your thread is very interesting. Though I do not trade Options much as of now but plan to bring them into my trading sooner than later.

One strategy which I have been very interested in taking positions into is Iron Butterfly Spread.

Can you please share your thoughts about the strategy , its pros and cons and how much difficult is to handle or adjust this strategy.

Thanks in Advance

It is difficult to tell anything about a strategy without exact details of a trade. Much depends on the net premium received, volatility and probability of Nifty remaining in the given range. There will be loss outstide the two break even points.

 

[ananths]

Ananthji,

If option oracle is giving probability, it has to be correct only. In any case, using my method (truely speaking, none of the methods are mine, all are from different sources, I just developed the software):

(1) The probability of Nifty going above 6600 by 30th Jan 2014 is 16.7%
(2) Probability of Nifty crossing 6500 by 30th Jan 2014 is 24.8%.
(3) Probability of Nifty going below 6100 by 30th Jan 2014 is 30.5%.

Please compare and see how much difference you get.

In any case, I am not using high level algo. Actually speaking, Monte Carlo is the easiest method and very simple to program. Only thing, it gives impression that it is high level.

Dear Pannalalji,
I never checked the probability of a strike price reaching or not...for me any number you say is reachable in markets. I wont go with probability for that reason. However your way of analysing makes sense but only problem i feel is how many of us have patience to hold on to the trade even if its in loss?
If you trade with real money in market, you will exit when you see a huge loss but it may come to profit in later stage but I feel its more about mental strength rather than the strategy itself. So whether you use software or algo doesn't matter much.

I know people may get offended by this post but truth is one has to try the strategy with REAL money in market to get to know how he behaves when market goes against him and test for min 1 year!!!!:thumb: