I have some better idea if one thinks there would be huge gap up after election result
there are two choices
1) close all Position before election results and re initiate the Position after results
2) make some delta adjustments
I would prefer second choice since it involves less transaction charges like taxes and brokerages
since the Portfolio has 3 Positions it need 6 Transaction to close and re enter
instead if one calculate the delta then one can easily balance the delta for one day. since the Prime goal of this Strategy is simply to eat time value one can sacrifice one day time value to protect the capital
only thing needed is to calculate the net delta on 7th dec
if it is -0.5 then one can buy at the money call options or if -0.7 then on can buy some in the money call option
for example assuming nifty index has value 6250 on 7th dec
since it is below our stop loss level then delta would be around( By approx -0.7 )
to protect then whole portfolio one can buy 6150 CE or 6200CE
since the holding period of these protective call is shorter one can continue to hold the Portfolio until his stop loss reaches if any fall and no huge up movement then he need to book some small loss as premium in protective call options
While Saravanan was typing his idea, I was typing my thoughts as follows :
I have been thinking about Pannalal’s strategy vis a vis other option strategies I have used in last one year. I am giving below my subjective thoughts for members to comment.
If one uses short strangle one is sure of max profit, but the losses would be unlimited unless one uses delta neutral strategy which could be easier said than done for beginners.
If one uses long condors, one is sure of both max profit as well as max loss.
Credit and debit spreads are safer option but unless one can guage the trend properly, will not give good profits.
In case of Pannalal’s strategy ( I don’t know whether it has a generic name), profit is handsome but one is not sure of losses one may have to incur if market goes against you. If the method indeed can give profits for say 10 months in a year, losses in 2 months should be small enough to give an overall decent profit. I am presuming Pannalal would be giving recommended trades at least for one year.
Considering the present case, let us assume one has got 140 points by entering 6600CE/6400CE/6300CE trade. Nifty is at 6176. If one wants to close trade at loss in case nifty spot crosses 6350 during next week (+174 points), one is not sure of the quantum of loss since it will depend on the time of the week. During early part it will be more and later in the week it will be lesser. How much ? Difficult to assess.
If one wants to adjust trade instead of accepting loss, I think it will be easier to do than delta neutral strategy .One can go long on nifty future say between 6200 and 6350 depending on one’s judgement and keep a stop loss of say 40 points. That will give insurance in case nifty moves up. This insurance will cost of 40 points and will ensure profit of 100 points. In fact if one goes long on NF @ 6200 with a stoploss of 40 points, one will be fairly safe since if nifty goes below 6160, chances of losses would be even lesser. In case nifty moves up to say 6250 and comes down in the following week, one can square off NF without loss.
If one does not take any action even after nifty starts moving up, one is safe if nifty remains below 6440 by expiry.
Unlike long condor, it will difficult to see graphic picture on OptionsOracle after one goes long on NF.
If one gets 140 points at the end of series it is 7000/40000 X100= 17.5% profit. If one gets 100 points, it is 5000/40000X100= 12.5% profit. Even if one slips in adjusting trade profit would be still in excess of 5%.
So it may be worthwhile adjusting the trade instead of accepting loss .
