Intraday Options Trading - Feedback Required
- Thread starter OptionQuant
- Start date
A Trading Strategy. What is wrong??
I have thought of a trading strategy, and would like to find what is wrong. It basically is a bull spread + bear spread.
Let us say, nifty is at 5400. Assume that the timevalue of option is -
ATM = 100
100 pts away = Rs 70
200 pts away = Rs 50
Now, I buy a 5400 call and a 5400 put. I also sell a 5300 put and a 5500 call.
Price of 5400 call = 100
Price of 5400 Put = 100
Price of 5300 Put = -70
Price of 5500 Call = -70
Total Payin = Rs 60
Now let us say Nifty moves to 5500 (by 100 points) then the position is -
Price of 5400 call = 170
Price of 5400 Put = 70
Price of 5300 Put = -50
Price of 5500 Call = -100
Total Value = 90.
Profit = 90-60 = 30
Nifty could move by 100 points after a loooong time, and time value could damn you. But then, the two sells would also reduce in value. Similarly, change in volatility is also covered.
It only assumes that Nifty will move 100 points in SOME direction in a reasonable period (say 10 days). This is invariably true.
That means I can always pocket Rs 30?=!!
I know that there is no free lunch. Can anyone tell me where I am going wrong??
All help is appreciated.
I have thought of a trading strategy, and would like to find what is wrong. It basically is a bull spread + bear spread.
Let us say, nifty is at 5400. Assume that the timevalue of option is -
ATM = 100
100 pts away = Rs 70
200 pts away = Rs 50
Now, I buy a 5400 call and a 5400 put. I also sell a 5300 put and a 5500 call.
Price of 5400 call = 100
Price of 5400 Put = 100
Price of 5300 Put = -70
Price of 5500 Call = -70
Total Payin = Rs 60
Now let us say Nifty moves to 5500 (by 100 points) then the position is -
Price of 5400 call = 170
Price of 5400 Put = 70
Price of 5300 Put = -50
Price of 5500 Call = -100
Total Value = 90.
Profit = 90-60 = 30
Nifty could move by 100 points after a loooong time, and time value could damn you. But then, the two sells would also reduce in value. Similarly, change in volatility is also covered.
It only assumes that Nifty will move 100 points in SOME direction in a reasonable period (say 10 days). This is invariably true.
That means I can always pocket Rs 30?=!!
I know that there is no free lunch. Can anyone tell me where I am going wrong??
All help is appreciated.
Re: A Trading Strategy. What is wrong??
Optionsoracle is a free software available in this link
http://www.samoasky.com/
Download it and punch in the parameters (days to expiry) and you will get different accurate payoffs in each case. Currently you are guessing the value of options when NF reaches different levels. You don't have to guess it. You can refine your strategy. Check it out.
Optionsoracle is a free software available in this link
http://www.samoasky.com/
Download it and punch in the parameters (days to expiry) and you will get different accurate payoffs in each case. Currently you are guessing the value of options when NF reaches different levels. You don't have to guess it. You can refine your strategy. Check it out.
Re: Brokerage is Killing me
My journey started with ICICIDIRECT , stopped it due to high brokerage
Then opened acct. with Sharekhan ( Still have but only for looking at charts)
Then opened acct with RKGLOBAL ( Closed after using it for one year)
Nowadays opened acct with ZERODHA ( Playing with them for lat 7 months ...
Atlast found a great broker - brokerage wise , Service , NOW s/w ..)
This was my experience ..have posted in many threads and I am an end user like u ...So take shortcut and learn from other's experience and go for the best ..
All the best..
Regards,
Raju
My journey started with ICICIDIRECT , stopped it due to high brokerage
Then opened acct. with Sharekhan ( Still have but only for looking at charts)
Then opened acct with RKGLOBAL ( Closed after using it for one year)
Nowadays opened acct with ZERODHA ( Playing with them for lat 7 months ...
Atlast found a great broker - brokerage wise , Service , NOW s/w ..)
This was my experience ..have posted in many threads and I am an end user like u ...So take shortcut and learn from other's experience and go for the best ..
All the best..
Regards,
Raju
Re: Brokerage is Killing me
If you are a single lot trader per order and do not trade more than 3-4 lots per day, RKGlobal still holds the edge over Zerodha. Zerodha's turnover charges are quite high as well as it's stamp duty (though the cap on stamp duty works well for huge volume traders).
Many brokers are giving better deals these days as competition in brokerage is becoming cut-throat.
If you are a single lot trader per order and do not trade more than 3-4 lots per day, RKGlobal still holds the edge over Zerodha. Zerodha's turnover charges are quite high as well as it's stamp duty (though the cap on stamp duty works well for huge volume traders).
Many brokers are giving better deals these days as competition in brokerage is becoming cut-throat.
Re: A Trading Strategy. What is wrong??
In your given scenario, on the maturity date, at expiry, your profit / loss would be as under:
Close at 5400: Loss of Rs. 60.
Close between 5400 to 5460: Loss between Rs. 60 to zero loss.
Close between 5461 to 5500: Profit between Rs. 1 to Rs. 40.
Close anywhere above 5500: Profit of Rs. 40.
Similar will be situation for Nifty closing below 5400 (corresponding to above equation, but in the negative direction respectively).
However, if you decide to square off the position before the maturity date, your profit or loss would depend upon several factors, i.e., number of days remaining for maturity, how far Nifty has gained, increase or decrease of implied volatility, etc. Suppose, Nifty has gained 100 points and is at 5500, then if it reaches this level in one or two days or a few days of purchase, you may gain something. But, if 5500 level is achieved after several days and there is considerable loss of “time value”, then you may actually lose money, since your strategy is a net positive theta strategy, which means that you lose money with time lapse, other things remaining constant. Use OptionsOracle to ascertain actual profit / loss for a particular day and a particular Nifty value. This is the position before the maturity date. However, as mentioned above, on the maturity date itself, if you allow all the options to expire, with Nifty closing value of 5500, you’ll gain Rs. 40 [this is so because the value of 5400 Call will be Rs. 100 while value of all other options will become zero).
If you’re confused by this answer, then use software like OptionsOracle (which is free) to see the returns, for yourself.
In your given scenario, on the maturity date, at expiry, your profit / loss would be as under:
Close at 5400: Loss of Rs. 60.
Close between 5400 to 5460: Loss between Rs. 60 to zero loss.
Close between 5461 to 5500: Profit between Rs. 1 to Rs. 40.
Close anywhere above 5500: Profit of Rs. 40.
Similar will be situation for Nifty closing below 5400 (corresponding to above equation, but in the negative direction respectively).
However, if you decide to square off the position before the maturity date, your profit or loss would depend upon several factors, i.e., number of days remaining for maturity, how far Nifty has gained, increase or decrease of implied volatility, etc. Suppose, Nifty has gained 100 points and is at 5500, then if it reaches this level in one or two days or a few days of purchase, you may gain something. But, if 5500 level is achieved after several days and there is considerable loss of “time value”, then you may actually lose money, since your strategy is a net positive theta strategy, which means that you lose money with time lapse, other things remaining constant. Use OptionsOracle to ascertain actual profit / loss for a particular day and a particular Nifty value. This is the position before the maturity date. However, as mentioned above, on the maturity date itself, if you allow all the options to expire, with Nifty closing value of 5500, you’ll gain Rs. 40 [this is so because the value of 5400 Call will be Rs. 100 while value of all other options will become zero).
If you’re confused by this answer, then use software like OptionsOracle (which is free) to see the returns, for yourself.
Last edited:
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