Low Risk Options Trading Strategy - Option Spreads

[AW10]

DEAR AW 10,

I AM ALSO TRADING IN OPTION FOR LAST ABOUT 4 YRS AND THOUGH I AM NOT GOOD AT MARKET ANALYSIS, RISK PREDICTION ETC STILL MAKING MONEY MOSTLY USING SIMPLE SPREADS.
I ALWAYS AVOID RISK AND PREFER TO WAIT RATHER THAN TAKING A QUICK WRONG DECISION. FOND OF TAKING SMALL PROFITS IN DOUBTFUL SITUATIONS.THAT IS HOW I CONTINUE TO GAIN WITHOUT MUCH KNOWLEDGE.

I HAD BEEN THROUGH WHOLE OF THIS THREAD AND QUITE IMPRESSED WITH THE KIND OF KNOWLEDGE YOU DO HAVE. THANKS FOR SHARING THEM WITH ALL WITHOUT ANY PERSONAL INTEREST.MY ADVICE IS THAT U SHOULD WRITE A BOOK ON OPTION TRADING AS NO SUCH CONTENT AVAILABLE ANYWHWRE:thumb:.

Thanks Jyotixxx for your generous compliments. Thanks for encouraging me to write a book but guess, I am not prepared for being author at this moment. Maybe someday. Good to know that you are effectively using spread strategy to manage the risk well and collecting profit from market.

I HAV SOME DOUBTS ALSO AND HOPE U WILL HELP ME TO CLEAR THEM.

I WILL START WITH A POSITION OF MINE PLACED TODAY::

I AM BULLISH ON TCS AS EVERYONE WOULD BE. IN THE MORNING HOURS I SOLD ONE LOT OF OTM CALL AND IN THE AFTERNOON I BOUGHT LOWER CALL. TILL I PLACED SECOND POSITION I WAS CLOSELY OBSERVING TCS.

POSITIONS ARE AS UNDER:


1. SOLD 1 LOT(250) TCS 1200 CE @ 24.00

2 BOUGHT 1 LOT(250) TCS 1150 CE @ 27.00

CMP OF TCS IS 1146

DIRECTION IS BULLISH
COST OF THE TRADE (27-24)X250= 750
MAX RISK=750
MAX REWARD=1200-1150-3=47X250=11750
BREAKEVEN POINT IS 1153


NOW MY RISK IS ALMOST NEGLIGIBLE, BUT I RISKED IT FOR 4 HOURS WITH A NAKED SHORT. HOWEVER WITH MY LAST TRADING EXPERIENCES I KNOW THAT IF A STOCK JUMPED 4-5% IN THE MORNING OBVIOUSLY THE CALLS WILL WILL BE VERY HIGH IN THE MORNING AND WILL DECAY TILL THE END OF THE DAY.

NOW MY DOUBTS ARE::

USUALLY I SQ OFF ALL POSITION IF I GET AROUND 50-60% OF MAX REWARD. SUPPOSE I AM CONFIDENT ENOUGH LIKE IN THIS CASE WHERE GOOD RESULTS ARE KEY DRIVER FOR TCS FOR NEXT 10-20 TRADING SESSION AND MAX CHANCE OF CLOSING ABOVE 1200 MARK ON EXPIRY IS LIKELY WITH LITERALLY NO RISK.

? CAN I WAIT TILL EXPIRY WITHOUT SQ OFF BOTH POSITIONS IF IT TENDS TO CLOSE ABOVE 1200.
? I NEVER WAIT TILL EXPIRY WITH SPREAD. WHAT ARE ON GROUND DISADVANTAGES.
? ANY OTHER ADVICE ON THIS.


THANX IN ADVANCE

Regarding your position - Anybody would envy you for opening such a nice low risk trade which has potential reward risk ratio of 47/3 = 15+ in next 10 days. Wow.

Looking at the TCS chart, 1200 has been major resistance since Jan-2011. Stock fell from here 4 times in last 6 months. So plz watch out that you are not expecting too much from it. Fact is even after great results, stock fell in this week, and currently it is trading below psychological level of 1150.
Stocks do show pattern of "Buy the rumor, Sell the news" around results season.

If I had this position, then I wouldn't worry too much about managing risk as it is pretty much low. But I will watch closely and focus on protecting my profits. Your breakeven point is very close to mkt price hence there is high probability that position will show the profit. CNX IT is side /downtrend, TCS is also in Side / downtrend so watch out for feeling v/s facts.

As it is only 1 lot, so it doesn't give chance to book partial profit. I will watch for intraday break of price below support levels book profit. TCS has huge Call OI at 1200 level, so it might be difficult for this to close above this level.

Hope this helps. Use your own judgement and plz don't beat me if tcs crosses 1200 by expiry.

happy trading.

 

[AW10]

hi, what if i short nifty 5000 call and nifty price go above 5500 or below 4500.

If mkt closes below 4500, then you keep the all premium collected from selling 5000 call. If market goes above 5500, then your obligation will be beyond 500 points.. So depending upon how much premium you collected by shorting the 5000 Call, you will have to calculate the Loss.

pritam, not sure if i have answered your question correctly. let me know if you were expecting something different.

Happy Trading

 

[rajesh pawar]

no post in this thread from 18 july ?????

jyotixxx... what happened to your TCS spread....

trying to learn.... so keep posting....

 

[aces27]

Hi AW10 , Other Senior Members ,

Thanks for this great input.
I face a nice Dillema over here.

1.Conservative Wisdom of Grandfather , Uncle etc (Successfull Industrialists) advise strongly against
Stock Trading - they suggest investing and regular real business focus.

Of Course Certainity does not exist ,but is it possible to have steady income (lets say a safe 30% annualy)
worthy of the time and proving it to them from Stock Markets.

2. I have fairly well grasped the concept of options and spreads.
Throughout the thread you have suggested means to apply the strategy.
However Can you teach us how to determine the direction to a reasonable extent that we can apply the strategies ourselves.
Without that , the knowledge of options would be incomplete.
Again it may not be a perfectly possible to do so , but you can share your experiences to shed light on some
safer ways and means to determine the future direction or pick oppurtunities.

I understand that since you are active here for over two years on this thread you must have made money.
Please do teach us how to fish.

Regards.

 

[jackace]

lol............. nice one

 

[linkon7]

Hi AW10 , Other Senior Members ,

I understand that since you are active here for over two years on this thread you must have made money.

Please do teach us how to fish.

Regards.

Read the thread from first to last... U'll become an ace fisherman....!

 

[ajshare108]

i have traded first time in nifty option, few days ago i brought 5500 put @ 86.00 and today i have sold 5300 put at 82.00. please help me to how and when to close this trade.

looking forward for reply from seniors.

 

[AW10]

You have done something which many experienced option trader find it difficult to do - open a position, position moves in profit, you adjust the position and make it a risk free trade, with very high profit potential.

If it is your first option trade, then you may not learn much from it. But don't forget it as it is going to help you later.
Coming to your trade, at this stage, you are holding a 200 point spread, with cost of 4 Rs. i.e. max that u can loose on this trade is 4 rs, and max you can make is 200. Realistically, you will end up somewhere between these 2 number and make some profit.

If mkt goes below 5300, it is no problem for you, cause your 5500 put will gain in value. The net value of spread will tend towards 200. You can book profit at anytime and collect the money.
If mkt stays above 5300, the short 5300 put will loose its time value whereas 5500 does not have much to loose cause it has more real value and less timevalue.
If series expires in this range, then 5300 short put will go worthless whereas 5500 long put will come out with some value at settlement.
If market goes above 5500, you will loose 4 rs max cause both option will be worthless. 5300 put will loose value faster then 5500 put, which is good for you.

Hope my post makes sense to you. please download option oracle software and study the risk graph, and breakeven points of your position, if you really want to take option trading seriously. Just a warning, don't let this perfect first trade set wrong foundation of your trading. Trading is not this easy. Market may not be so favorable to you always so learn how to protect yourself.

All the best and happy options trading.

 

[ajshare108]

You have done something which many experienced option trader find it difficult to do - open a position, position moves in profit, you adjust the position and make it a risk free trade, with very high profit potential.

If it is your first option trade, then you may not learn much from it. But don't forget it as it is going to help you later.
Coming to your trade, at this stage, you are holding a 200 point spread, with cost of 4 Rs. i.e. max that u can loose on this trade is 4 rs, and max you can make is 200. Realistically, you will end up somewhere between these 2 number and make some profit.

If mkt goes below 5300, it is no problem for you, cause your 5500 put will gain in value. The net value of spread will tend towards 200. You can book profit at anytime and collect the money.
If mkt stays above 5300, the short 5300 put will loose its time value whereas 5500 does not have much to loose cause it has more real value and less timevalue.
If series expires in this range, then 5300 short put will go worthless whereas 5500 long put will come out with some value at settlement.
If market goes above 5500, you will loose 4 rs max cause both option will be worthless. 5300 put will loose value faster then 5500 put, which is good for you.

Hope my post makes sense to you. please download option oracle software and study the risk graph, and breakeven points of your position, if you really want to take option trading seriously. Just a warning, don't let this perfect first trade set wrong foundation of your trading. Trading is not this easy. Market may not be so favorable to you always so learn how to protect yourself.

All the best and happy options trading.

Thanks a lot. I am not a very experienced traders, although i am in this market since long time. My strategy is to slowly invested in the stocks and try to hedge my portfolio position by selling nifty future as and when it seems that market is mature enough for a good correction. so instead of selling my portfolio i prefer to sell nifty future. I always try to sell my protfolio when nifty trade above market PE above 22-22.5 (nifty PE).

this is the first time i try to trade in option after going through your this thread.

thanks a lot again for this valuable guidelines.

 

[DanPickUp]

Read the thread from first to last... U'll become an ace fisherman....!

Hi

If it would be so easy, like our friend is telling us, then there would be hounder ts of successful nifty option traders around after reading this great thread.

But this is not the case and never has been the case !!

I do not know, what kind of book's about options you ever read in your live.

There are various high quality books about options around which go far behind, what is posted in this thread and some of this books have been sold more than a 100'000 times. Would mean, we would have some ten thousand of successful option traders after reading such books.

Also not the case !!

If we take now the statement from our friend, all this readers of such books or thread would be successful, than why is it not like that ?

On the other hand I agree 100% with him: Being lazy and just not do any work, just not works in what ever you do.

Tc

DanPickUp