Low Risk Options Trading Strategy - Option Spreads

[adityasaraf007]

To get clear result's about that you have to open a trading journal with some psychological questions you have to answer after you entered a trade. Do this beside your normal trading journal and you will find out how you tick.

Tc

DanPickUp

Yes. I know that. While I was writing on the Thread "Does Support and Resistance Works?", it helped a lot in taking Trading Decisions and have had an immensely positive effect. I have paused it for a while, as I am presently pressed for time.

I am still a college student, while trying to learn the intricacies of this market. From this month onwards, I am going to be involved with academic studies for the professional examinations, so going to have fewer time to trade. Anyways, I do plan to start from a scratch with the Support and Resistance Thread after a long period of hibernation.

Thanks and take care.

Regards

 

[AW10]

AW10 , Trader.Trends and others:

I like to know positive and negitive about selling FAR out of the money options of two month forward say today if i sell naked 5700 call of Nov 2011 and sell 4200 put of Nov 2011.

Or you please give link of any thread where any discussion take palce about selling FAR OUT THE MONEY OPTIONS.

Thanks

The strategy is good but following are the points to address for it
- poor liquidity hence mis-pricing of those options. As you are looking are 2 months away and that too FAR OTM, you will not see good order flow in them.
Specially if you are trading bigger size then 5 or 10 contract, most likely your strategy's performance will not reflect the theoretical backtesting performance.
- focus on decision making based on spot's movement. Due to FAR OTM and more time, it is likely that you might become lazy in trade mgmt or will get biased that there is enough room left for it to come in ITM. By the time, it comes into ITM, you losses on OTM position will be huge. Hence u need to be lot more proactive and realistic in risk mgmt.
- Time decay on Premium received will be low hence your average time in trade will have to be long to see some return. This means lower turn-around on your capital. You might be able to get similar timedecay, in trading near month contract, and reduce average time in trade to get better turnover on your capital. Ofcourse that will surface few other issues that u need to monitor. so it is question of tradeoff.

hope this helps

 

[ajshare108]

The strategy is good but following are the points to address for it

- poor liquidity hence mis-pricing of those options. As you are looking are 2 months away and that too FAR OTM, you will not see good order flow in them.

I am watching 500 point FAR OTM option since last one month and find resnable trading volume ( I am trading only in NIFTY.

Specially if you are trading bigger size then 5 or 10 contract, most likely your strategy's performance will not reflect the theoretical backtesting performance.

I am new in option trading hence i will start with one lot of both side (Call and Put)


- focus on decision making based on spot's movement. Due to FAR OTM and more time, it is likely that you might become lazy in trade mgmt or will get biased that there is enough room left for it to come in ITM.

I am in full time job so can'nt track full time market movement, only watching market from 9.00 AM to 9.30 AM and place any order.

By the time, it comes into ITM, you losses on OTM position will be huge. Hence u need to be lot more proactive and realistic in risk mgmt.

If the market remain in 150-200 point range on both side I will remain in position and if it mover faster than I am planning to book profit on the other side of my position and take new position accordingly.


- Time decay on Premium received will be low hence your average time in trade will have to be long to see some return. This means lower turn-around on your capital.

I am trading in Future and option only to hedge (cover my losses which comming due to present selling in market) of long term portfolio which i right now building with target of 2013-2014.

You might be able to get similar timedecay, in trading near month contract, and reduce average time in trade to get better turnover on your capital.

As i said cannot track full day market movement and daily or 1-3 day market movement are very volatile. so short term volatility will not give big effect in this strategy probably.

Ofcourse that will surface few other issues that u need to monitor. so it is question of tradeoff.

????? Please explain.

Your valuable advice please.

 

[shabsaif]

I am new in this thread -Option Trading Strategy

I know from sources that Ratio Traing in Option is very low risk sure return strategy !! I dont know is it true ??

I search and found Ajay jain web site www dot ratiotrading dot in , but I could not understand !!

Some one have any knowledge or any view ?? Please .....

 

[fabrics]

I have sold 5300 CE @ 21.10 Sept.
if on expiry the nifty closes below 5300 will be my gain.

 

[fabrics]

I have sold 5300 CE @ 21.10 Sept.

I f on expiry the nifty closes below 5300 what will be my gain

 

[AW10]

I have sold 5300 CE @ 21.10 Sept.
if on expiry the nifty closes below 5300 will be my gain.

If nifty expires below 5300, then you can keep whole premium of 21.10 i.e. your profit will be 21.10 * 50 = 1055. As it expires worthless, there will be no final settlement.

Personally, I do close my short option positions when about 80 to 90% of profit is already realised. eg - if price comes down to 3 or 4 Rs., I will square-off the position (why block money to make last 3 rs on it) and find next trade where I can make more money.

Hope this helps
happy trading

 

[Rishi001]

Hi AW10,

I have been reading your thread from last couple of weeks (still not finished), and wanted to thank you for the excellent information that you have provided.

Based on my learning, I had entered the following position two days back:

View = Bearish; Buy 5100 PE@115, Sell 4900PE @56,
Max loss = 59, If nifty expires above 5100,
Max Profit = 141 points if nifty expires below 4900,
BEP = 5044
Stoploss = 25% = 14 points or when the combined value falls to 42.
Take profit = 85% or (141*85%) 119 points.

As of today end the position is
5100 PE @ 212.5 and 4900 PE@114, Net gain = 39 points.

As Per my strategy my take profit has still not arrived, neither my stop loss is hit.

But I want to preserve my profits, so please advice what further action could be taken to lock in the existing profits.

Thanks
Rishi.

 

[shabsaif]

I am new in this thread -Option Trading Strategy

I know from sources that Ratio Traing in Option is very low risk sure return strategy !! I dont know is it true ??

I search and found Ajay jain web site www dot ratiotrading dot in , but I could not understand !!

Some one have any knowledge or any view ?? Please .....

 

[trader.trends]

I am new in this thread -Option Trading Strategy

I know from sources that Ratio Traing in Option is very low risk sure return strategy !! I dont know is it true ??

I search and found Ajay jain web site www dot ratiotrading dot in , but I could not understand !!

Some one have any knowledge or any view ?? Please .....

From his site
It profitable for brokers and not for retailers.
If any individual wants to do
this ratio trading then either he

has to work as dealer/operator
with broker's collaboration or take his own broking unit.