Low Risk Options Trading Strategy - Option Spreads

[lazytrader]

.....So it is sort of Iron condor position.....

:thumb: How do you remember all those? I get confused with ITM and OTM between put and call. Takes a bit of thinking.

 

[Capricorn]

I think, this is more of personal choice of trader. Will someone shoot me down if I open a delta neutral trade and adjust it at +/- 50 deviation.

Not at all :lol: but it is normally not considered worthwhile adjusting for such a small skew.

 

[lazytrader]

Nov 5000 straddle going for 425.

 

[abigbull]

Please don't mind as i am just picking the funda of options , but here on a practical note just wanted to understand what should be a good options bet for the october series .

Experts pls suggest a simple yet affective strategy with Call Buy / Write with Put Buy / write for oct 09 which can help .
My belief is that too an emotional one that Nifty having reached 5000 will face resistance may go to 4900 - 4850 and then will again bounce back to 5200 may be till oct end .

Is this the right way of thinking and then wld like to plan a Put - Call strategy which provides me buffer as well as give me reasonable premium profit due to time decay . Hope this will be a good learning exercise .

Is the following right approach .
1> Defensive
Sell Call 5400 @ 19 ( As i think it will not reach 5400 Nifty in oct )
Sell Put 4700 @ 52 ( As i think it will not drop to 4700 Nifty in oct 2009 )

2 > Bit aggressive
Sell Call 5300 @ 34
Sell Put 4800 @ 76

But here in case the Nifty follows a trend in one direction i will lose money so what should be my right " write option " strategy for Oct no when the nifty is in ( 4950 - 5000) range ......

Thanks in advance as this is for my learning .

 

[pasha]

Not at all :lol: but it is normally not considered worthwhile adjusting for such a small skew.

Capricorn, looks like you have some experience with this. Have you read the Wastej thread?

 

[rajsingh]

Its a pretty old thread

 

[Capricorn]

Capricorn, looks like you have some experience with this. Have you read the Wastej thread?

Yes , I have .

 

[DanPickUp]

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[AW10]

Nov 5000 straddle going for 425.

Too less premium for 2 months of time. It is reasonable to around 350+ for short straddle with 20 days of life.. so for 2 months it shd be lot more.

VIX is low.. and hence option premium is also low. not suitable condition to write options.
If mkt falls and vix goes up, and hence the premium, then u might be caught on wrong foot. Effect of Timedecay will be lost due to change in intrinsic value of straddle and increase in premium due to volatility.

Happy Trading

 

[AW10]

Please don't mind as i am just picking the funda of options , but here on a practical note just wanted to understand what should be a good options bet for the october series .

Experts pls suggest a simple yet affective strategy with Call Buy / Write with Put Buy / write for oct 09 which can help .
My belief is that too an emotional one that Nifty having reached 5000 will face resistance may go to 4900 - 4850 and then will again bounce back to 5200 may be till oct end .

Is this the right way of thinking and then wld like to plan a Put - Call strategy which provides me buffer as well as give me reasonable premium profit due to time decay . Hope this will be a good learning exercise .

Is the following right approach .
1> Defensive
Sell Call 5400 @ 19 ( As i think it will not reach 5400 Nifty in oct )
Sell Put 4700 @ 52 ( As i think it will not drop to 4700 Nifty in oct 2009 )

2 > Bit aggressive
Sell Call 5300 @ 34
Sell Put 4800 @ 76

But here in case the Nifty follows a trend in one direction i will lose money so what should be my right " write option " strategy for Oct no when the nifty is in ( 4950 - 5000) range ......

Thanks in advance as this is for my learning .

abigbull, the strategy that you are thinking is called SHORT STRANGLE, so plz read about them on net/books to understand their usage.

This strategy will win from time decay and drop in volatility.
Currently we are in low volatility situation (VIX is at lower end), i.e. option premium is low.Such low VIX days are not suitable for option writing. As volatility increases in days ahead, the premium will increase and it will go against your position.

Stay away from creating short position without any protective log position. Or atleast understand the risk that u are taking. In your defensive strategy, you are collecting 71 rs of premium. If any surprise news comes anywhere in the world and market falls by 100 pts (which is quite possible), the premiums will increase by atleast 100 points
and then u get into intermediate paper loss. If market falls further, your paper loss will start going up..
So think about what will u do in such scenario. There is another thread where short straddle / strangle strategies were discussed so plz chk that out.
If u seriuos about learning this, then why don't paper trade it.
In an excel sheet, keep recording following

Strategy 1
Date - Call prem - put prem total prem Spot Nifty VIX



Track this for a month and keep recording your observations probably this excercise itself will teach you lot more then what a book can teach on this topic. And best thing it costs you no money and no psychological tension ( as it is a paper trade).

To get the best form oct series, As you are bearish with limit at 5000, you can also create bearish Short call spread by buying 5100 and selling 5000 call..(this way u will get some amt credited).. You can also create 5100/5000 bearish put spread by buying 5100 put and sell 5000 put..

And see how they develop in days to come.

Happy Trading