Low Risk Options Trading Strategy - Option Spreads

[summasumma]

Hi comm4300

Depending on how fine tuned the strategy is as a final one, you will need a very accurate option data feed provider for your trading platform or option strategy software.

If the ratio is very fine tuned, you then also have to be able to program this software or platform with the measurements for the ratios you want to see and trade, as you have to be quick in taking the trade as a whole.

One software you can use is OpVue6 and as a platform you can use CQG.

If you not have or not can afford such software or such a platform, you can widen the ratio to a level which is makable for you. You will have less signals when using a wider ratio.

On the other hand: Doing just a simple credit spread with out having to know about all that software and platform and ratio is surely not the worst idea. Or what do you think ?

DanPickUp

Hi Dan,

I think doing credit-spread is good idea... but as you already know it won't give good risk:reward ratio due to lack of recognition of the strategy in the indian service providers.

But can you throw some light on the strategy whic comm4300 is trying to ask? wats the actual name of that strategy? any link to the details of this strategy is highly appreciated.

Thanks,
..summasumma

 

[DanPickUp]

Hi Summa

http://www.moneycontrol.com/news/fo-cues/ratio-trading-making-money-using-options_466008.html

 

[summasumma]

Hi Summa

http://www.moneycontrol.com/news/fo-cues/ratio-trading-making-money-using-options_466008.html

After replied to you, i have realised its there in previous post and searched to find it.. anyway thanks for the link Dan.


...summasumma

 

[theartofweb]

Do you think It could be profitable to place a butterfly one day before expiry date?

(can you please provide a link to nifty options chain? no matter if delayed or EOD)

 

[DanPickUp]

Do you think It could be profitable to place a butterfly one day before expiry date?

(can you please provide a link to nifty options chain? no matter if delayed or EOD)

Hi

As you do not specify what kind of butterfly you have in mind, I guess you think about a "Long Call Butterfly".

- Volatility should be low for that specific strategy as you play a predefined range and not want the market to touch your break evens on either side.

- Highest profits are near expiration, but higher profit means higher risk. So, how is your risk reward calculation for this trade?

- And here may the most important point you have to consider when doing the trade in reality:

Bid Ask spread for the whole strategy if entered at once or if not done at once, bid ask spread for each leg. This will affect your profit and risk most if all other measurements worked.

Good luck

DanPickUp

 

[theartofweb]

Hi

As you do not specify what kind of butterfly you have in mind, I guess you think about a "Long Call Butterfly".

The index is trading at 4714.00

http://nseindia.com/marketinfo/fo/fomwatchsymbol.jsp?key=NIFTY

My strategy should be something like this (last price):

BUY 1 PUT 4600 Dec/2012 at 17.10
SELL 2 PUT 4700 Dec/2012 at 48.00
BUY 1 PUT 4800 Dec/2012 at 102.75

So, I have 17.10 + 102.75 - 48.00 - 48.00 = 23,85 net debit (max loss).

Max profit (should the settlement be 4700) is 100 - 23,85 = 76,15

downside break even is 4623,85
upside break even is 4776,15

Please correct me if I am wrong, thanks :thumb:

 

[DanPickUp]

The index is trading at 4714.00

http://nseindia.com/marketinfo/fo/fomwatchsymbol.jsp?key=NIFTY

My strategy should be something like this (last price):

BUY 1 PUT 4600 Dec/2012 at 17.10
SELL 2 PUT 4700 Dec/2012 at 48.00
BUY 1 PUT 4800 Dec/2012 at 102.75

So, I have 17.10 + 102.75 - 48.00 - 48.00 = 23,85 net debit (max loss).

Max profit (should the settlement be 4700) is 100 - 23,85 = 76,15

downside break even is 4623,85
upside break even is 4776,15

Please correct me if I am wrong, thanks :thumb:

Hi

You now present a " Long Put Butterfly ".

The different to the " Long Call Butterfly " is your personal market exception.

If you think market will go up, you will prefer the LCB and if you think market could go down, you prefer the LPB.

Do you have Option Oracle to test it ?

It will give you the exact figures and numbers to your questions.

If I do it for you, it will not be a long term help for you. So please download that software, as it is for free, and test what ever on it.

Good luck

DanPickUp

 

[theartofweb]

Hi

You now present a " Long Put Butterfly ".

The different to the " Long Call Butterfly " is your personal market exception.

If you think market will go up, you will prefer the LCB and if you think market could go down, you prefer the LPB.

That sounds news to me...

Do you mean there really is difference between LPB e LCB

I thought they led to the same figure because they both are neutral strategies.

http://www.theoptionsguide.com/long-put-butterfly.aspx
http://www.theoptionsguide.com/butterfly-spread.aspx

The butterfly spread is a neutral strategy that is a combination of a bull spread and a bear spread. It is a limited profit, limited risk options strategy. There are 3 striking prices involved in a butterfly spread and it can be constructed using calls or puts.

So, what if I do:

BUY 1 PUT 4600
SELL 1 PUT 4700

SELL 1 CALL 4700
BUY 1 CALL 4800

 

[DanPickUp]

That sounds news to me...

Do you mean there really is difference between LPB e LCB

I thought they led to the same figure because they both are neutral strategies.

http://www.theoptionsguide.com/long-put-butterfly.aspx
http://www.theoptionsguide.com/butterfly-spread.aspx



So, what if I do:

BUY 1 PUT 4600
SELL 1 PUT 4700

SELL 1 CALL 4700
BUY 1 CALL 4800

Hi

What you show now is a " Long Iron Butterfly".

If it is now a LCB or a LPB or a LIB, they all led to the same figure.

The figure and the names are not the final criteria. The links you showed are good for newbies like you. Such links explain only the most common things about any strategy, but nothing in dept.

I will give you an example:

You even can make a butterfly with one future, one call and three puts. As you see, the figure looks the same, means the figure is no criteria. Criteria is to know how to do it that you get this figure. And as you see, my trade finally is even over the zero line and none of the trades in your link are over the zero line.

http://i41.tinypic.com/14cdzdi.jpg

Happy Christmas

DanPickUp

 

[theartofweb]

Hi

What you show now is a " Long Iron Butterfly".

If it is now a LCB or a LPB or a LIB, they all led to the same figure.

The figure and the names are not the final criteria. The links you showed are good for newbies like you. Such links explain only the most common things about any strategy, but nothing in dept.

I will give you an example:

You even can make a butterfly with one future, one call and three puts. As you see, the figure looks the same, means the figure is no criteria. Criteria is to know how to do it that you get this figure. And as you see, my trade finally is even over the zero line and none of the trades in your link are over the zero line.

http://i41.tinypic.com/14cdzdi.jpg

Happy Christmas

DanPickUp

Well, originally my idea was to place a butterfly at market price (all legs same time) to "bet" the index won't go outside break even points.

I guess in order to obtain a trade over the zero line the strategy must be placed one leg at a time.

I would like to try your strategy on nifty options and futures. Yet, I'm quite newbie to them. Do nifty future and option have the same multiplier?

Thanks

EDIT: in your example did you place the future for first or last?