High Profit EOD based option Strategy for Advanced Traders

[pannalal]

Strategy:

A wonderful delta, gamma and theta neutral strategy (It is very difficult to find such strategy manually):

Transaction to be done on 11 Nov 2013 for Base Index at 6140.75

Buy 6550 PE at Price 363.45
Sell 6450 PE at Price 283.95
Buy 6600 CE at Price 4.30
Net Points Paid: -83.80

Delta: -0.01773
Gamma: -0.00031
Theta: 0.02790
Vega: -0.37997
Rho: -0.09688

Profit for Index less than or equal to 6450 on 28 Nov 2013 is 16.20
Loss for Index equal to 6500 on 28 Nov 2013 is -33.80
Loss for Index equal to 6550 on 28 Nov 2013 is -83.80
Loss for Index equal to 6600 on 28 Nov 2013 is -83.80
Loss for Index equal to 6650 on 28 Nov 2013 is -33.80
Profit for Index equal to 6700 on 28 Nov 2013 is 16.20
Profit for Index equal to 6750 on 28 Nov 2013 is 66.20
Profit for Index equal to 6800 on 28 Nov 2013 is 116.20
Profit for Index equal to 6850 on 28 Nov 2013 is 166.20

Break Even Points:
6466.20 and 6683.80

On 11 Nov 2013, if Nifty (Spot) is around 6140 and remains within 10 points for 5 to 10 minutes, and using strategy of buy at low and sell at high, you can easily manage to do above trade by paying total 80 points. This is the difference between experience and novice trader.

At margin of 17%, the total margin required is around Rs. 27,000. For 11 days, at 10% interest, you get around Rs. 125. However, in this strategy, you can easily get Rs. 750. That is 60% annual return.

Very Important:
Either do not enter into trade, if enter, be sure to make all the three trades at one go. If you do two trades and miss one trade, then this strategy might result into huge losses. So, this is not for novice but only for Advanced Traders.

Profit and Loss given are indicative. The actual profit / loss depends upon the premium paid and received by you.

Disclaimer: I shall not be responsible if anybody does any trade based on the above guidance. The above strategy is only for advanced traders (and not for novice). I do not share your profit so not ready to share the loss.

 

[gmt900]

Dear Ananthji and gmt900ji,

There are certain issues with the given strategy.

Buy 6550 PE at Price 281.05. As per Black Scholes formula, it should be around 297. So, your points are reduced by 16 points and 53.45 becomes 37.45.

According to me, there are simple rules for option game:

(1) Position to be taken either by last Friday of the month or at best in next 2 days. If you are not able to take position in these 3 days, you should forget about that month. You need to do only this single trade in the month. In case of profit, the trade is automatically square off by NSE on expiry date. In case of loss, you need to reverse the trade as and when indicated.

(2) There is no need to bother about Risk Reward ratio. If at all, you need to worry, it is about two things, delta and theta. If you use simple rule, you can expect around 10% returns per month. However, you may incur losses in 2 months (though in most cases it can be restricted to 10%, to be on safe side, you can take it 15%). So, net profit comes to 70%. But, my past data suggests that you can easily get 80% to 90% returns per year. I am working on these data and I shall publish the data for 5 years.

(3) If something exceptional happens, you may get even 40% returns or you may also get 130% returns. I have analyzed past data and these exceptions happened only three times in last 10 years.

(4) You require around Rs. 70,000 for one lot of trade as margin money. However, it differs from broker to broker. My estimate of Rs. 70,000 is based on the 7% margin. If your broker is taking 10% or 11% margin, then requirement goes up.

Whatever strategy I am giving, these are based on the closing premium price for that day. If Nifty opens on the next working day at same level, you may get premium very near to the amount listed in strategy. However, your profit / loss depends upon the premium paid / received by you.

Dear Pannalal,
In your earlier post, you mentioned that it is preferable to enter trade as early as possible, while this post suggests that one should forget about the trade if one cannot enter within 2/3 days after new series starts.
You have already given recommended strategy for 11/11/13.
Please clarify.
Thanks and regards,
gmt

 

[pannalal]

Dear Pannalal,
In your earlier post, you mentioned that it is preferable to enter trade as early as possible, while this post suggests that one should forget about the trade if one cannot enter within 2/3 days after new series starts.
You have already given recommended strategy for 11/11/13.
Please clarify.
Thanks and regards,
gmt

Dear gmtji,

When you are entering trade on 11/11/2013, you are getting around 16 points profit. If the same trade, you would have entered on 01/11/2013, you would have got around 40 points. So, profitability gets reduced every day.

Why delta, gamma and theta neutral strategy?

Suppose, the market goes to the direction where you may incur loss, you can square off your trade at almost same price. For example, given in above example, if Nifty moves to 6300 on 23/11/2013, you still get around 81 points. So, what you have lost is 3 points, brokerage and STT. Practically minimum loss.:thumb:

 

[trader15]

good going pannalal ji.. very good informative thread..

 

[pannalal]

I have given the following trade to be done on 5th Nov 2013 at the beginning of the thread:

Transaction to be done on 05.11.2013 for Base Index at 6317.35:
Buy 6600 CE at Price 24.40
Sell 6400 CE at Price 87.25
Sell 6500 CE at Price 49.50
Net Points Received: 112.35

Very Important:
Either do not enter into trade, if enter, be sure to make all the three trades at one go. If you do two trades and miss one trade, then this strategy might result into huge losses. So, this is not for novice but only for Advanced Traders.

Profit / Loss in points (To convert to rupees, multiply it with 50):
Profit if Index is less than and equal to 6400 on 28.11.2013 is 112.35
Profit for Index equal to 6500 on 28.11.2013 is 12.35

Presently (on 13th Nov 2013), the Nifty spot is around 6000. So, those who have taken the position will be earning around Rs. 5000 (assuming 12.35 points are used for brokerage, STT etc.). The margin requirement is around Rs. 40,000. So, this is 150% return (almost sure shot as Nifty is not likely to cross 6400 by 28 Nov 2013). Anyway, the picture will be clear on 28 Nov 2013.

I stopped giving strategy for the time being as 28 Nov 2013 is very near and 26 Dec 2013 is too far. I shall start giving strategy from 28 Nov 2013 and give this for 4-5 days.

 

[gmt900]

I have given the following trade to be done on 5th Nov 2013 at the beginning of the thread:

Transaction to be done on 05.11.2013 for Base Index at 6317.35:
Buy 6600 CE at Price 24.40
Sell 6400 CE at Price 87.25
Sell 6500 CE at Price 49.50
Net Points Received: 112.35

Very Important:
Either do not enter into trade, if enter, be sure to make all the three trades at one go. If you do two trades and miss one trade, then this strategy might result into huge losses. So, this is not for novice but only for Advanced Traders.

Profit / Loss in points (To convert to rupees, multiply it with 50):
Profit if Index is less than and equal to 6400 on 28.11.2013 is 112.35
Profit for Index equal to 6500 on 28.11.2013 is 12.35

Presently (on 13th Nov 2013), the Nifty spot is around 6000. So, those who have taken the position will be earning around Rs. 5000 (assuming 12.35 points are used for brokerage, STT etc.). The margin requirement is around Rs. 40,000. So, this is 150% return (almost sure shot as Nifty is not likely to cross 6400 by 28 Nov 2013). Anyway, the picture will be clear on 28 Nov 2013.

I stopped giving strategy for the time being as 28 Nov 2013 is very near and 26 Dec 2013 is too far. I shall start giving strategy from 28 Nov 2013 and give this for 4-5 days.

Dear Pannalal,
It was easy to enter into the trade for the strategy suggested for 5 Nov.
However, it was difficult to enter in some of the subsequent strategies because of the wide difference in ITM Put prices.
Anyway, the strategies are interesting if one can manage to enter them.
Will look forward to your posts for Dec series.
Thanks and regards,
gmt

 

[pannalal]

Dear Pannalal,
It was easy to enter into the trade for the strategy suggested for 5 Nov.
However, it was difficult to enter in some of the subsequent strategies because of the wide difference in ITM Put prices.
Anyway, the strategies are interesting if one can manage to enter them.
Will look forward to your posts for Dec series.
Thanks and regards,
gmt

You are right. Most of the strategies suggested were not practical because of the following reasons:

(1) I have tried to put strategies with minimum risk as per suggestions given by Ananthji.

(2) If strike price is not multiple of 100 (say 6150, 6050 etc.), the volumes are very less. So, I have to take into account only strike prices which are multiple of 100 so that it becomes practical. This may result into less profit but it will easy to enter. The problem is not with the NSE but with the investors.

 

[ananths]

You are right. Most of the strategies suggested were not practical because of the following reasons:

(1) I have tried to put strategies with minimum risk as per suggestions given by Ananthji.

(2) If strike price is not multiple of 100 (say 6150, 6050 etc.), the volumes are very less. So, I have to take into account only strike prices which are multiple of 100 so that it becomes practical. This may result into less profit but it will easy to enter. The problem is not with the NSE but with the investors.

Dear Pannalalji,

You are welcome to publish any strategies not only low risk strategies..it would be good learning.
Why I was pointing at low risk is that options are very unpredictable and constructing a strategy demands very high margin money in India unlike other markets like US. I believe Indian Options market is not as matured as other markets. For example our option market has only 3 months expiry strike prices liquid..where as in US its for more than a year.
Anyway dont restrict yourself to low risk strategies...your high probable strategies were also good and please continue your thread as you wish. We will be here to support and discuss. :thumb:

 

[pannalal]

Dear Pannalalji,

You are welcome to publish any strategies not only low risk strategies..it would be good learning.
Why I was pointing at low risk is that options are very unpredictable and constructing a strategy demands very high margin money in India unlike other markets like US. I believe Indian Options market is not as matured as other markets. For example our option market has only 3 months expiry strike prices liquid..where as in US its for more than a year.
Anyway dont restrict yourself to low risk strategies...your high probable strategies were also good and please continue your thread as you wish. We will be here to support and discuss. :thumb:

I shall give 2-3 strategies with high profit high risk, medium profit medium risk, low profit low risk. The only problem is if Nifty crosses the upper mark, then there is loss, the question is when. If Nifty crosses the upper mark within 5-10 days, then there is bigger losses. However, if Nifty does not cross the upper mark in next 20 days, the risk gets reduced to a large extent. If Nifty does not cross upper mark at all, then there is only profit, no chance of loss. For example, if we take Nov 2013, we are safe if Nifty remains within 6500 on 28 Nov 2013. As Nifty is at 6056 (closing on 14 Nov 2013), so it is very unlikely to cross 6500 on 28 Nov 2013. But, you never know.

 

[gmt900]

I shall give 2-3 strategies with high profit high risk, medium profit medium risk, low profit low risk. The only problem is if Nifty crosses the upper mark, then there is loss, the question is when. If Nifty crosses the upper mark within 5-10 days, then there is bigger losses. However, if Nifty does not cross the upper mark in next 20 days, the risk gets reduced to a large extent. If Nifty does not cross upper mark at all, then there is only profit, no chance of loss. For example, if we take Nov 2013, we are safe if Nifty remains within 6500 on 28 Nov 2013. As Nifty is at 6056 (closing on 14 Nov 2013), so it is very unlikely to cross 6500 on 28 Nov 2013. But, you never know.

Good ! Since most of us are not experts, we find it difficult to manage the trade if market goes against us. But it will be interesting to look at high profit high risk strategies also.
If not immediately, some of us may be able to use these strategies after attaining certain degree of profficiency.
So, please do give high risk strategies too. As I said in the earlier post, it will be better if the spread between bid and ask prices is within manageable range.