Low Risk Options Trading Strategy - Option Spreads

[tnsn2345]

Dear Enygma,

Ahh, VIX, don't be surprised but this figure for me is just another tool (other the the UL chart) to predit the 'direction' of the UL. Yes just the direction. And nothing else. A high HV or a low HV to me is irrelevant. Incidently if you would have observed my last trade keenly, the HV has risen in last couple of days still the short straddle was profitable. You know why? The answer is in the 'smile'. Knowing that you are a pro options trader, I know you will understand what I meant here by 'smile'.

The 'smile' wasn't there before two days, and now I can see a very broad 'smile' in fact a U shaped 'smile'. That means that the IV of ATM and near ATM options has dropped. And this is what is more important for me as an options writer in short straddle set up - a high IV (and not the HV)

To add reason for OTM covered call, as you correctly said, I am bullish on the UL over the next two days, (atleast tomorrow).

The greeks of this set up is :

Instrument ........Delta...... Vega........ Theta
Short CE 5500.....-0.40......-5.17..... ....+2.59
Long NF............ +1 .00....... --- ...........----
Long PE 5300......-0.31...... +4.81.......... - 2.33

Net...................+ 0.29.......-0.36......... +0.26

So with just -0.36 Vega I am taking care of any further drop of IV of these Options and with +0.26 Theta, time decay is taken care off. I am ok with a Delta of + 0.29 as I am neutral to bullish with the UL over next 2 days.

Just to tell you something more, VIX is calculated on the basis of OTM near and mid month Options prices so ATM and just around ATM strike options prices will not matter for VIX, the important thing as I mentioned is the IV. Also VIX is a broad barometer predicting the volatility for a longer term around a month, hence for my short TF options setups (2 / 3 days, it does not impact my setup decision at all)

Regards,

p.s. ' smile' = Volatility Smile (for the benefit of novice Options traders)

Dear Friends,

The parachute (Protective OTM Put) was discarded immediately at the BOD as the market opened gap up. The OTM covered call set up was prematurely wound up at review interval 1500 hrs with a net gain of 24 points (including loss incurred in Protective Put) as a new modified setup has been intiated at EOD.

Earlier I had written about my short starddle trade just to counter Sumeet thoughts and my intention was not to put / show my trades. But got carried away and had also posted my next days trade. Though this was and has never been my objective and have always refrained from this. Hence though I have taken another position EOD today like always, I will post my trades here only when I feel there is a need to counter some discussion. Else will maintain status quo.

Regards,

 

[tnsn2345]

Hi Dear,

While you are trading option and putting Vertical Spread/ Calendar Spread - You execute legs separately or at once.

Does NSE is accepting these spread orders as a single execution and Which broker is offering. These 2 - 4 legs option order in a single execution are common in NSE or not. (Order = Simultaneously execution of all the legs of strategy).

Please clarify these.

Thanks
Vikas Panwar

Dear Vikas,

Many brokers are offering single execution for spread orders. Also such facility is there to buy Index too where you can buy Index stocks (in the same weights) incase you may want to buy Index for some of your strategies instead of NF (especially for larger TF TPs). You may check up with your broker or check your trading software itself for this facility.

Regards,

 

[vikaspanwar]

Thanks Dear,
I have contacted to IB (Intractive Broker), as sales person, NSE is not accepting the spread (Calendar/Vertical) order in a single execution. Even I tried this in their DEMO.
But when I went through the nseindia.com. Types of order, there spread order is mentioned. So which kind of order NSE is accepting. Is it option Strategies order (Calendar/Vertical Spread) ?

 

[sumeetsj]

A long straddle or strangle can be taken now.
Put writing max at 5200 levels, and 5300 strike. Hence wont go below that.
Calls max OI is at 6000 strike.
This is conservative outlook

Now although with hindsight..
I think the straddle worked

 

[Talon]

After long time posting here, it's like coming back home!!
OTM call Reverse Calendar spread + OTM put Calendar spread.
I feel this should be the one with least risk.
-Talon

 

[sumeetsj]

Markets entering uncertain state i feel now. Mostly downside i think.
I think upside is limited or not much now looking at the fundamental scenario.
Also Railway and Union budget is awaited.
Thinking of a best strategy with relatively less risk.
If any inputs are there please share.
Shall post soon..

 

[AW10]

I made a post related to budget trade in 2009. Here are related posts.

http://www.traderji.com/options/26217-paper-trading-nifty-straddles-12.html#post330742
http://www.traderji.com/options/26217-paper-trading-nifty-straddles-12.html#post331879

One of the best thread on budget trading is by Sunil (missing him in TJ now-a-day).

http://www.traderji.com/trading-diary/30324-annual-tryst-nifty-union-budget.html

happy trading

 

[columbus]

Markets entering uncertain state i feel now. Mostly downside i think.
I think upside is limited or not much now looking at the fundamental scenario.
Also Railway and Union budget is awaited.
Thinking of a best strategy with relatively less risk.
If any inputs are there please share.
Shall post soon..

Basically GOVT is in a bad shape.
I still remember a story ,asking any person to make a line SHORT
without erasing out.A smart and wise man put another big line next to it.
Automatically the first line has become SHORT.
After 2-G spectrum ,everyone is talking about RAJA ,completely forgetting
about MUNDA.(It is peanuts compared to 1.76 lakhCrore scam).
After few days we may forget RAJA ,because another scam involving
2lakhCrores is underway.

 

[veluri1967]

Basically GOVT is in a bad shape.
I still remember a story ,asking any person to make a line SHORT
without erasing out.A smart and wise man put another big line next to it.
Automatically the first line has become SHORT.
After 2-G spectrum ,everyone is talking about RAJA ,completely forgetting
about MUNDA.(It is peanuts compared to 1.76 lakhCrore scam).
After few days we may forget RAJA ,because another scam involving
2lakhCrores is underway.

Well said, columbus.

Earlier scams used to be unidimensional. Only length of lines were compared. After 2G, its two dimensional. Length of line and thickness of line.

Next may be 3 dimensional. Length, thickness, Height(Depth) of line.

 

[tnsn2345]

Now although with hindsight..
I think the straddle worked

Dear Sumeet,

Felt like commenting of few of your recent posts, but this one finally promted me to write back......pls grow up !!!

I am writing this purposely since I felt that you have good understanding of Options and how they work, so channelise your effort and knowledge to learn how to trade them. Wishful thinking is stock market may be crime but in Options trading it is suicidal.

For any scenerio in of the UL, there are multiple Options strategies you can take, which one would you take? Which one is the best? When I take a particular position depending on my view of the UL, I also have couple of other alternative setups for the same view but they are not taken only noted. Upon closing the trade, the result of the actual trade is compared with the alternatives and performance is measured. This is learning for me so I can fine tune my next trades and this goes on. So you see I am not addressing the basic question of the direction of the UL, it is given for me (I assume my prediction will be right) my focus is on the setups which can give me the best risk adjusted, low SD ROI.

I know you have that thing in you to trade options so focus and no wishful thinking.

Regards,