Low Risk Options Trading Strategy - Option Spreads

[sundeesh]

Need some help again, today i traded with my virtual money (not real money, just paper trading)

I got to estimate that nifty will be at 5300 level soon.
So,When the spot nifty was somewhere at 5430, i sold 5400 put for 92.05 and brought 5500 put for 138.05. so my net investment should be Rs.46 and the same should be my max loss. and i guess my max profit can be 54.

But the problem is my net mtm showed minus-80, does that mean i am having a loss of Rs.80 ? shouldn't that be restricted to Rs46 at max ? where did i go wrong ?

I used nseindia.com to paper trade.

kindly help.

 

[comm4300]

Need some help again, today i traded with my virtual money (not real money, just paper trading)

I got to estimate that nifty will be at 5300 level soon.
So,When the spot nifty was somewhere at 5430, i sold 5400 put for 92.05 and brought 5500 put for 138.05. so my net investment should be Rs.46 and the same should be my max loss. and i guess my max profit can be 54.

you have entered into debit spread. and your calculations are correct.

But the problem is my net mtm showed minus-80, does that mean i am having a loss of Rs.80 ? shouldn't that be restricted to Rs46 at max ? where did i go wrong ?

I used nseindia.com to paper trade.

kindly help.

net mtm -80 is the spread contracting by rs.1.60 [remember lot size of 50, 1.6x50]

meaning, if your spread was at 46, it probably went down to 44.40 and hence the mtm of -80.

when you say you entered spread at 46, it is multiplied by 50/lot. So, you are actually risking rs. 2300; reward of 56 means rs.2800 per lot.

rgds

 

[DanPickUp]

What about:

Short 5400 call Mar
Long 5700 call Mar
Long 5400 call April
Short 5700 call April

Can be implemented at once if you like. Test it on your software with this strikes and with other strikes. It may is some thing some of you like to trade once. It is called a vertical call swap.

 

[comm4300]

What about:

Short 5400 call Mar
Long 5700 call Mar
Long 5400 call April
Short 5700 call April

Can be implemented at once if you like. Test it on your software with this strikes and with other strikes. It may is some thing some of you like to trade once. It is called a vertical call swap.

Hi Dan,

google search for vertical call swap did not give any result. just vertical spread.

did put in the trades on optionsoracle.

so many interpretations that my limited knowledge is coming up with:

a. looks like calendar spread at two different strikes, just that one is a debit and the other one credit.
b. credit spread current month and debit spread next month.

still can't figure out the strategy and profit potential.

but, this much i can deduce, volatility current month is high and next month is hoped to be low.

kindly share your insights.

 

[DanPickUp]

Hi Comm4300

There are quit a few option trading strategies around you do not find much, or in some cases nothing in the net about it. You just have to know them from some body which knows them. Specially when it comes to more complicated hedge strategies.

This idea I presented is just an other one compare to the put debit spread from Sundeesh. Both are bearish strategies.

The above bearish position, which consists a Mar credit call spread is hedged by an April debit call spread. Nothing special, just a mix of a credit spread with a debit spread.

The Mar bear call spread, consists of a short close-to-the-money call thats hedged by a long out-of-the-money Mar call generates positive time decay.

Hedging now this Mar bear call spread with an April bull call spread means margin will be lower compare to the put debit spread, at least in my markets. It may different to your market as you have a different margin system. That is why I posted: Test it.

DanPickUp

 

[sundeesh]

Actually, 1st of all, i am not every clear with the break-even point calculation.

And that's making me wonder what if i buy a 7100PE and sell a 7000PE to take a bearish spread(when nifty @ 5450). what will be the break-even ? will there be any problem with the delta ?

Generally what is the formula for break-even in a 1) bearish spread 2) bullish spread

break- even for a bearish spread= higher strike (involved in the spread) - cost of trade ?

 

[vssoma]

dear,
if i enter in this trade today before closing....suppose tomorrow SBIN opens gap up/down or i manage to close trade after moving 20-25 points ( @2330/2375) up/down...will my profits are same as that pictures below shows or it is only virtual....and it could be different with this.....

 

[gunsho]

dear,
if i enter in this trade today before closing....suppose tomorrow SBIN opens gap up/down or i manage to close trade after moving 20-25 points ( @2330/2375) up/down...will my profits are same as that pictures below shows or it is only virtual....and it could be different with this.....

The picture shows the profit on the expiry date. Your maximum profit is if market close at 2350 on expiry date. Maximum loss is anything outside 2300 and 2400 on expiry date. This is not a directional strategy. To win, SBI should close between 2300 and 2400 on expiry date. You have wait so time value goes down.

Also, the picture shows margin values are not as per Nifty standards. If you include margins, max profit will be around 6% and max loss will be 1%, which is a very good risk/reward trade :thumb:.

 

[vssoma]

dear,
as per today's data we find that nifty will be range between 5000 to 5600...
and there are 13 days to expiry...if we sell both CE5500 and PE5100, will be a good strategy are how can we use this information more useful to earn more money...

 

[mmca2006]

dear,
as per today's data we find that nifty will be range between 5000 to 5600...
and there are 13 days to expiry...if we sell both CE5500 and PE5100, will be a good strategy are how can we use this information more useful to earn more money...

Thanks vssoma for such query , I also wanted to initiate same trade today , however I have another query regarding repair of such strategy , suppose on 27th march we find nifty hovering around 5000 ( for this strategy lower protection on 27th is 5002 ) and market is bearish , possibility of nifty touching 4900 is extremely high and there is high probability of facing loss relating to such trade.
Now what should we do to save/ repair the trade, should we cover 5000 pe and initiate a fresh short 4900 pe ? What to do ? Hope AW10 or any seasoned option trader like DAN can help us.