long put butter fly-bank nifty

[viharpatel]

Dear buddy or girl ( As I do not know who or what you are and never mind about that )

The following analyzing picture is the best case you can be in the mentioned trade with calls.:

http://tinypic.com/view.php?pic=2r5byc6&s=6 Why?

As you see, you are over the zero line, means you not can lose as long as the vole not changes dramatically.

But this is not done by doing it with just implementing it at once with all legs. It is done by leg in.

As you ask for a save method to do so, you follow what is posted all over the net: Standard deviation choice.

If you do implement the strategy with STDV, you will be in a position you have to watch it daily. Never mind about that.

In that case you have to be aware about repair strategies. You have to be on a level where you have to have the knowledge how to do it.

To give you mental power: That is not rocket since. There is enough information around in the net how to do it. Just follow what is available and you will make it.

If I say that there are some ways which are not posted any where, then I mean that this are strategies which are synthetic.

Any synthetic strategy or what so ever is created to serve the asker of any strategy (like you, as you are the asker and I am on the other side the giver, which takes the full risk to give you the possibility to implement the strategy, and I do not want to have any risk, so I know how to build up an other strategy to reduce my risk, as the law from the exchange and so on....... )

I think you got the point and you also now realize that there is always some thing behind what ever you do, even you think you are the best.

It all may sounds a bit complicated to you out there, but do you think you play in that game with non pros. Do not fall in that trap what ever you plan.

All the best / DanPickUp

Seriously i understand little bit about that.
but i come to know that you are master of market. (sorry if i am wrong!). :clapping:

Any synthetic strategy or what so ever is created to serve the asker of any strategy (like you, as you are the asker and I am on the other side the giver, which takes the full risk to give you the possibility to implement the strategy, and I do not want to have any risk, so I know how to build up an other strategy to reduce my risk, as the law from the exchange and so on....... )

 

[DanPickUp]

Hi Dan,

As a student who is in his very initial stages of learning Option Trading, I try and go through whatever material i can find. Whether the video/post is authentic or not, this is something that i will have to understand over time.


Absolutely not. But as a Futures Trader i have benefited tremendously from my learning's from the net. (Especially from this Forum) All i expect is some ideas to work with. Like the idea of legging into a complex option strategy (or something like Gamma Scalping)


I'm afraid, I have been told so. :lol:



He is referring to the same problem that i mentioned a couple of posts earlier i.e. At times you will get the second leg at a better rate, but what if you don't

I think there is a solution to this legging situation, but presently i do not have an answer for it. Will have to spend more time on it.

Thanks
IF

Dear Internet_Fanboy

Never mind. As you say you learn over the net, here two links you may enjoy

http://theaceprogram.com/webinars/

http://www.discoveroptions.com/public/content/education/educationOverview.html

By the way: There are many ways to leg in a long put butterfly. You can start with one leg and then add all the others legs after a certain move. Or you can start with two legs and then add the other two legs after a certain move or you can start with three legs and then add the left one after a certain move. Needs a bit of planing, but the final result in general is far better compare to implementing any strategy at once.

Have a nice Sunday and see you around

DanPickUp

 

[viharpatel]

Hello Dan,

This time i am specifying that i am asking a quetion.

Strategy : IRON BUTTERFLY SPREAD

APPLYING ON BANK NIFTY(FEB-2013)

ON 1ST FEB BANKNIFTY IS 12685(CLOSE TO 12700)

Description : Buy OTM Call + Sell ATM Call + Buy OTM Put + Sell ATM Put

SO

12800 CALL BUY 166
12600 PUT BUY 178

12700 CALL SELL 209
12700 PUT SELL 228

NET PREMIUM RECEIVED 93 THAT IS MAXIMUM PROFIT

"BUT I AM CONFUSED WHAT IS MAXIMUM LOSS?"

ACCORDING TO STRATEGY :Max Loss = Strike Price of Long Call - Strike Price of Short Call - Net Premium Received

MEANS 12800-12700-93 = 7

IS IT RIGHT?


BUT AFTER TESTED IT AT EXPIRY:

BANK NIFTY 11487


12800 CALL BUY 0
12600 PUT BUY 1069

12700 CALL SELL 0
12700 PUT SELL 1230

ACCORDING TO POSITION LOSING MONEY IS 68.

DID I MISS SOMETHING OR THEORY OF LOSS COUNTING IS WRONG?

 

[DanPickUp]

Dear Viharpatel

Long call - short call : -43
Long put - short put: -50

If market closes exactly in the middle of the traded range, your profit: 93.

If market closes more on the downside: Your short put has value and your long put has value. The different of the short and long put will be your loss, if market closed under your break even point. Here your maximum loss would be 50 according to the numbers you showed. As you have a profit of 43 on the short call, your total loss from all the four legs would be 7.

If your testing program shows other numbers, then there must be a reason why it did so. I also do not understand your result of 68.

12800 CALL BUY 0 *166
12600 PUT BUY 1069

12700 CALL SELL 0 *209
12700 PUT SELL 1230

Long put - short put is a loss of 161. (1230 - 1069 = 161)

Long call - short call is a profit of 43. (209 - 166 = 43)

Loss from the put side of 161 minus the profit from the call side of 43 = 118. (-161 + 43 = - 118)

So your total loss from all the four legs would be 118 according to the numbers you give. (You even confused me first as you show different numbers :lol: )

DanPickUp

 

[viharpatel]

Hello Dan,

This time i am specifying that i am asking a quetion.

Strategy : IRON BUTTERFLY SPREAD

APPLYING ON BANK NIFTY(FEB-2013)

ON 1ST FEB BANKNIFTY IS 12685(CLOSE TO 12700)

Description : Buy OTM Call + Sell ATM Call + Buy OTM Put + Sell ATM Put

SO

12800 CALL BUY 166
12600 PUT BUY 178

12700 CALL SELL 209
12700 PUT SELL 228

NET PREMIUM RECEIVED 93 THAT IS MAXIMUM PROFIT

"BUT I AM CONFUSED WHAT IS MAXIMUM LOSS?"

ACCORDING TO STRATEGY :Max Loss = Strike Price of Long Call - Strike Price of Short Call - Net Premium Received

MEANS 12800-12700-93 = 7

IS IT RIGHT?


BUT AFTER TESTED IT AT EXPIRY:

BANK NIFTY 11487


12800 CALL BUY 0
12600 PUT BUY 1069

12700 CALL SELL 0
12700 PUT SELL 1230

ACCORDING TO POSITION LOSING MONEY IS 68.

DID I MISS SOMETHING OR THEORY OF LOSS COUNTING IS WRONG?

pardon me if i confused you .

initial trade

banknifty 12700(1-feb-2013)

12800 CALL BUY 166
12600 PUT BUY 178

12700 CALL SELL 209
12700 PUT SELL 228

at expiry BANK NIFTY 11487 (28-feb-2013)


12800 CALL at 0 ( bought at 166 so my loss is -166)
12600 PUT at 1069 (bought at 178 so my profit is 891)

12700 CALL at 0 (sold at 209 so my profit is 209)
12700 PUT at 1230 (sold at 228 so my loss is -1002)

so finally -166+891+209-1002=-68

how i come the number -68 is explained above.

is it right?

or still i am in hell?

 

[DanPickUp]

Dear Viharpatel

After all the numbers you give in different ways, the result you show is finally the right one.

Profit on the call side: 43

Loss on the put side: 111 * (I did not take in account the different from your starting put spread which is 50, and so I made the mistake there in the calculation. 161 - 50 = 111)

Final result: 68.

Hope we cleared that now. :lol::clapping:

But by adjusting your strategy at the right moment, you can avoid or at least reduce such losses.

DanPickUp

 

[viharpatel]

Dear Viharpatel

After all the numbers you give in different ways, the result you show is finally the right one.

Profit on the call side: 43

Loss on the put side: 111 * (I did not take in account the different from your starting put spread which is 50, and so I made the mistake there in the calculation. 161 - 50 = 111)

Final result: 68.

Hope we cleared that now. :lol::clapping:

But by adjusting your strategy at the right moment, you can avoid or at least reduce such losses.

DanPickUp

how did i adjust this trade to reduce loss ?

 

[DanPickUp]

how did i adjust this trade to reduce loss ?

Dear Virharpatel

Please check such question by Goggling. Google: How to adjust Iron Butterfly's, as there is enough material around in the net about that subject.

In a nutshell: As you implement the trade at once, roll up and down your legs on the side market will bring you in trouble. Means act according to market moves. For this you have to know your break even points and in your special case: Margins, as you will hold short positions over nigh and that is expensive in India.

Good trading / DanPickUp