High Profit EOD based option Strategy for Advanced Traders

[abcpankaj]

if one's view is bullish , he can sell put ratio spread (sell 2 ,6000 & buy 1 5900 put).
since dec put's iv is more than calls iv , it will give better RR.
less risky bullish trade may be to sell 2 6500 & buy 1 6600
one can also play with the ratio's sell 3 buy 2 , sell 5 buy 3 in accordance with his market view.
Thousand ways to skin a cat

 

[pannalal]

Delhi results are still unclear - if BJP wins means 4 out of 5 states.
Markets are not concerned about Congress or BJP but a clear strong central govt.Even if congress wins 4/5 states there will be a gap up.

And GDP growth is not a single day story.
A clear one sided win means no policy paralysis by the future govt.
And hence a better GDP growth in 2015.

In general election times are very volatile.
A un expected gap up on 9th Dec could be very costly.

Market always doesn't follow the fundamentals.
If the market controllers are on the long side and a 10% up move form here on a single month and no is going to ask why markets moved up in spite of bad fundamentals.

How can one have the exit after a huge gap ?

Option strategies has to be decided based upon the events that are coming up.

Note:- Historically Markets are 95% bullish on Dec.

Jaganji,

My knowledge about politics and economics is practically zero.

As far as gap of Nifty open is concerned, I just asked my computer to give list of those dates where gap was more than 100 and it gave following data (I am talking about the entire history of NSE).

Date	    Open      Prev Day Close         Gap
15.03.2011  5,420.00  5,531.50  	   -111.50
05.08.2011  5,204.35  5,331.80  	   -127.45
08.08.2011  5,083.85  5,211.25  	   -127.40
09.08.2011  4,947.90  5,118.50  	   -170.60
10.08.2011  5,196.55  5,072.85   	    123.70
02.09.2011  5,109.80  5,001.00   	    108.80
07.10.2011  4,883.65  4,751.30   	    132.35
28.10.2011  5,341.90  5,201.80   	    140.10
01.12.2011  4,970.85  4,832.05  	    138.80
16.07.2013  5,930.80  6,030.80  	   -100.00
05.09.2013  5,553.75  5,448.10   	    105.65
19.09.2013  6,044.15  5,899.45   	    144.70

From the above list, it is clear that nifty opened with gap of 100 and above 12 times (9 times in 2011 and 3 times in 2013). Five times, the gap was negative and 7 times, the gap was positive.

I shall be thankful if you can tell me which date coincides with the election date or election result.

Even if Nifty opens with gap on 9th December, the options are not expiring on 9th December, there is still time till 26th December.

Though, I firmly believe that loss should be reduced to as small as possible, I also believe, there is no need to get panicky and be cool and calm. Most of the time, market gives enough opportunity to adjust / reduce / limit your losses.:thumb:

 

[pannalal]

4 Points gain every day is not assured.... if volatility increases even nifty stays at same Point Premium Increases I have seen this Particularly in election times

Though I adapted this Strategy @ Todays Close Price to hedge my Longs , The movement in India Vix Play important role in coming days as India vix Neither very low or Very High

Saravananji,

You are 100% right.

Please see my reply to GMTji: Vega is related to volatility. However, it is very difficult to estimate volatility, NSE is giving VIX - volatility index (but these are historical). There are methods based on time left (of expiry) and strike price to estimate the volatility but still it is a guess and nobody knows what will be exact volatility (just like we do not know about Nifty).

We are much more concerned with iv (implied volatility) rather than VIX. There are methods to compute iv based on the following two parameters:
(1) Time left (Date for which you are computing iv and option expiry date)
(2) Strike Price

When I try to estimate the iv using different methods like Monte Carlo and GARCH, I get different results. Even if you run Monte Carlo 5 times (say each iteration one hundred thousand times), you get slightly different results. Then, when you compare with the real iv, you find it is still different.

So, volatility is as elusive as the Nifty itself.

 

[jagankris]

Jaganji,

My knowledge about politics and economics is practically zero.

As far as gap of Nifty open is concerned, I just asked my computer to give list of those dates where gap was more than 100 and it gave following data (I am talking about the entire history of NSE).

Date	    Open      Prev Day Close         Gap
15.03.2011  5,420.00  5,531.50  	   -111.50
05.08.2011  5,204.35  5,331.80  	   -127.45
08.08.2011  5,083.85  5,211.25  	   -127.40
09.08.2011  4,947.90  5,118.50  	   -170.60
10.08.2011  5,196.55  5,072.85   	    123.70
02.09.2011  5,109.80  5,001.00   	    108.80
07.10.2011  4,883.65  4,751.30   	    132.35
28.10.2011  5,341.90  5,201.80   	    140.10
01.12.2011  4,970.85  4,832.05  	    138.80
16.07.2013  5,930.80  6,030.80  	   -100.00
05.09.2013  5,553.75  5,448.10   	    105.65
19.09.2013  6,044.15  5,899.45   	    144.70

From the above list, it is clear that nifty opened with gap of 100 and above 12 times (9 times in 2011 and 3 times in 2013). Five times, the gap was negative and 7 times, the gap was positive.

I shall be thankful if you can tell me which date coincides with the election date or election result.

Even if Nifty opens with gap on 9th December, the options are not expiring on 9th December, there is still time till 26th December.

Though, I firmly believe that loss should be reduced to as small as possible, I also believe, there is no need to get panicky and be cool and calm. Most of the time, market gives enough opportunity to adjust / reduce / limit your losses.:thumb:

Yes in general writers have the edge.
Better to be cautious this time.

The last general election gap up - a ten% gap up which remains unfilled till date.

But I guess before such black swan events markets will hover in a range.

 

[pannalal]

Yes in general writers have the edge.
Better to be cautious this time.

The last general election gap up - a ten% gap up which remains unfilled till date.

But I guess before such black swan events markets will hover in a range.

Jaganji,

It has happened on 18th May 2009. The Nifty closed exactly at 650 above opening. The Nifty opened at 3673.15 and closed at 4323.15. As soon as news of clear victory to the ruling Congress-led alliance came, within 30 seconds, first upper circuit of 15% was hit. In another 10 second, the second upper circuit of 5% was hit and the trading was suspended on NSE as well as BSE. You can imagine what happened on that day. On 17th May 2009, the total volume was Rs 8655.24 crores. On 19th May 2009, the total volume was Rs. 26002.26 crores. However, on 18th May 2009, the total volume was Rs 113.99 crore as trading was suspended in 40 seconds.

However, please note that it was Central Government election not of Delhi Government. Delhi Government does not have any right to pass any act for entire India. They can pass only state (actually territory) related act, so, it does not have any impact on Nifty. Still, anybody is fearing that any such thing can happen, they can close the trade on 8 December itself. Though, there is no reason to happen any such thing now, but if it happens, you just do not have any time to do anything. Straight Loss. Absolutely nothing can be done if Nifty jumps by 650 points in flat 40 seconds.

The key important points to be noted:

(1) It was central government election result not of Delhi government result. Delhi Government result can hardly have any impact on Nifty.

(2) Though, Nifty jumped by 650 points on 18th May 2009 and reached at 4323.15, it was nowhere near the highest it has reached earlier. Nifty highest was 6357.10 on 8th Jan 2008. So, it was way below the highest. Now, if Nifty has to cross 6357.10, it has to make new high and there is huge resistance for that.

 

[jagankris]

Jaganji,

However, please note that it was Central Government election not of Delhi Government. Delhi Government does not have any right to pass any act for entire India. They can pass only state (actually territory) related act, so, it does not have any impact on Nifty. Still, anybody is fearing that any such thing can happen, they can close the trade on 8 December itself. Though, there is no reason to happen any such thing now, but if it happens, you just do not have any time to do anything. Straight Loss. Absolutely nothing can be done if Nifty jumps by 650 points in flat 40 seconds.

It is a number Game.
I mean to say that Delhi election results - the outcome is not clear.
Doesn't mean that Delhi election results has the same importance of Central Govt elections and Markets will react significantly to Delhi results alone.

Delhi - Not clear - AAM Admi party may win considerable seats creating a hung or coalition govt in Delhi.

MP - BJP
Chatisgarh - BJP
Rajasthan - BJP
Tripura - Communist

If BJP wins Delhi means in 4 states BJP will come to power.
In line with the GoldMan Sacchs poll prediction of Modi Factor and BJP coming to power in the next general election.
It is viewed that the results of 5 state election as a trend of outcome in the next general elections due in May 2014.

Just for Fed Tapering postponement markets gaped up 150 points so any thing is possible.

Let us wait and watch.

Trend is your Friend and currently Trend is bullish .

 

[gmt900]

It is a number Game.
I mean to say that Delhi election results - the outcome is not clear.
Doesn't mean that Delhi election results has the same importance of Central Govt elections and Markets will react significantly to Delhi results alone.

Delhi - Not clear - AAM Admi party may win considerable seats creating a hung or coalition govt in Delhi.

MP - BJP
Chatisgarh - BJP
Rajasthan - BJP
Tripura - Communist

If BJP wins Delhi means in 4 states BJP will come to power.
In line with the GoldMan Sacchs poll prediction of Modi Factor and BJP coming to power in the next general election.
It is viewed that the results of 5 state election as a trend of outcome in the next general elections due in May 2014.

Just for Fed Tapering postponement markets gaped up 150 points so any thing is possible.

Let us wait and watch.

Trend is your Friend and currently Trend is bullish .

I think we can argue till cows come home and still nifty will do what it wants to do and nobody will have a hint of what it will do.
Like Pannalal says one can close the position before the election results if one wants to. More importantly, it depends on what the nifty level is on 7 Dec.
BTW two questions;
Will it be a good idea to get out of the trade on 7th and re enter after results, if it mitigates the risk?
Is it possible to guess the quantum of loss if there is a huge bump up on nifty after the results?
While I fully understand and agree with the concerns expressed by the members about the risks in such trades, I tend to agree more with Pannalal's thinking that unless one is willing to take risk you can't make money in trading.
" How much risk" is an individual decision

 

[gmt900]

Dear Pannalal,
Your recommended strategy was based on Thursday's EOD level. Since nifty opened with a big gap up and remained at more than 1% higher throughout the day, would it have been prudent to take position around 3 pm as follows:
Buy 6700CE @ 12.35
Sell 6400CE @ 65.6
Sell 6500CE @ 39.25

This would have given 92.5 points and the BEP would have been 6400+92.5=6492.5.
This would have given a little less profit but it would have been a safer trade.
Do you agree?

 

[pannalal]

Dear Pannalal,
Your recommended strategy was based on Thursday's EOD level. Since nifty opened with a big gap up and remained at more than 1% higher throughout the day, would it have been prudent to take position around 3 pm as follows:
Buy 6700CE @ 12.35
Sell 6400CE @ 65.6
Sell 6500CE @ 39.25

This would have given 92.5 points and the BEP would have been 6400+92.5=6492.5.
This would have given a little less profit but it would have been a safer trade.
Do you agree?

Perfect strategy. The break even point is much higher and much more safer.

 

[pannalal]

Many thanks to all members for supporting me. I shall be out of station for 15 days from 1st December to 15th December. During this period, I shall be at different locations. I don't know where and when my data card will work. So, there may be delay in response. This is for information and once again thanks to all members.