Low Risk Options Trading Strategy - Option Spreads

[sibumajumdar]

Thanks for compliments SLM Uncle. I sincerely appreciate your zeal and committment to learn about options trading. You beat many other traders on this forum of half of your age who are more bothered about getting tips from some one then learning and generating their own tips. Your age, experience and on top of it, the Open Mindset, are few big EDGEs in the market for you.

Regarding plethora of options trading strategy, In my view, there is no ONE single strategy that can be called as best and fits all market conditions. It depends on your view on market and then finding the suitable strategy for that condition.
I divide my market reading in 2 parts
Trend - Bullish, Sideway, Bearish
Volatility - High, Average, Low

That itself, gives us 9 types of market condition and if u decide to play all of them then u need atleast 9 option strategies for it. Seems a lot of choice, nah ? That is problem with Options trading, it is like getting in a Buffet Dinner where we are spoilt for choice. So we take our pick, and select only few items that we like.. So do exactly same here as well and Pick up 1 market condition and 1 or 2 strategies to start with.
Once u get the grip of the subject, then picking up new mkt conidtions and new strategies will be lot easier..

As u are already into MiniNF trading, so I am sure, directional strategy will be easiest for you. And with various Spread that I have mentioned in here, u can easily learn about the various aspects of option price movement at reduced risk.
Personally, after lossing lot of money in like any other option trader, I started with SPREADs and then learnt other stuff. Hence my recommendation will be to go for them.
With spreads, u can very well afford to skip Volatilty part of mkt conditions as the legs of Spread give u almost 80 to 90% protection against any change in volatility. So just focus on Directional aspect.
Only disadvantage is that spreads don't move too fast hence it needs time to show you result and hence extra patience is needed.

Hope this helps, SLM Uncle. Feel free to bounce off any other doubt here and I will try my best to answer that.

Happy Trading.

Mr AW10 ,

Thanks for your long reply with word of assurance from where i learned a few things which will certainly help me to go ahead with learning process. But iam very sorry for thanking U so late because of unavoidable commitment. Before i start trading in option 1st i wish to complete your thread. And iam sure by that time my basics wii be cleared & self confidence will grow. Frankly iam unable to judge "trend" & "volatility" which is very vital for opt trading. As U said i wish to start with Spread. Your thread made it very clear that " call or put , if it is bullish sprd then buy low & sell high.....". This quote given me lot of confidence bcz earlier never knew how to remember. May i know which is the right time to take what type of spread with more chances of success. I wish to start from next month. I wish to mention here that LINkon the genious is my distant neighbour from whom i learned many things abt tradig & technicals for which iam extremely thankful to him but for option his level is too high for me at this moment. Moreover, he is always very busy with developement of new Techniques. As i have no SW, i do day trading (Minifty)with the help of BB, RSI, Macd, TRIX & manage to earn 300 to 800 daily. But i wish to increase it with option after learning the same from U & many other contributors like DanPick, LT, ST to name a few. Sorry to make it lengthy. Hoping for whole hearted cooperation from U & ALL... Thanking again....Let Almighty Bless Us ALL.....SLM uncle.

 

[AW10]

SLM Uncle, right to buy is spread is when your system gives trend related entry.
There is no other specific time for this trade. For MNF trade, do u look at day of the week, time of the day etc or just take the trade when system gives signal. It is exactly the same here.

Due to low risk nature, u can infact afford to become bit contrariran as well. But as a beginner, I will not suggest that now. Being a MNF trader, u are comfortable taking long/short signal, so just use that as criteria here too.
While market is developing, you can very well perfrom various calculation related to which strikes / CALL or PUT/max profit/ max loss / reward risk ratio etc.

I will not recommend to trade spreads as daytrade.. cause you can very well manage your risk in daytrade with stops. You can very well Buy a CALL when system gives bullish entry, look at the chart or underlying/or option price and place stoploss for CALL position.

With spread, the rate of change in premium is slow. As the risk is limited, it will suit you for swing trade entry (say based on 60min chart etc) which u might not be able to carry now due to gap opening risk.

Hope this helps.

Happy Trading

 

[gautamparmar]

Hi SLMUncle

Can U please share ,how/what strategies you follow to make 300 to 800 rs daily by trading mininifty in bit detail?.

You will be highly appreciated. Thanks in Advance for that.

@AW10,LIKON,DANIPIC,SMART_TRADE : Can you please give me name of MOST SUCCESSFULL , HIGHLY RESPECTED , NO CONTROVORCIAL Trader in Histrory?.

SOrry for asking this kind of off topic question. But I can not resist myself here to ask this question here.

By the I am enjoying and learning by reading your all post here in traderji.

GREAT!!!!

Thanks a TON, AW10,LINKON,DANIPIC,SMART_TRADE

 

[AW10]

Hi SLMUncle
Can you please give me name of MOST SUCCESSFULL , HIGHLY RESPECTED , NO CONTROVORCIAL Trader in Histrory?.

Gautam, It is difficult for me to pick up ONE such trader because each trader is different. You can refer to Market Wizard and New Market Wizard books to find the list of some of the best traders of our time.
I am not sure if Georg Soros, Jim Roger and Buffet are in that list or not but I do consider them as successful trader.

If you are looking at histroy then I would also cound Gann, Toby Crable, Jesse Livermore etc.

But as they become famous, it is obvious that there will be people who will bring out -ive facts about them as well. But who cares, as a trader, I respect them for their trading skills and what they do otherwise, is none of my business.

Happy Trading.

 

[DanPickUp]

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[sibumajumdar]

Hi SLMUncle

Can U please share ,how/what strategies you follow to make 300 to 800 rs daily by trading mininifty in bit detail?.

You will be highly appreciated. Thanks in Advance for that.

@AW10,LIKON,DANIPIC,SMART_TRADE : Can you please give me name of MOST SUCCESSFULL , HIGHLY RESPECTED , NO CONTROVORCIAL Trader in Histrory?.

SOrry for asking this kind of off topic question. But I can not resist myself here to ask this question here.

By the I am enjoying and learning by reading your all post here in traderji.

GREAT!!!!

Thanks a TON, AW10,LINKON,DANIPIC,SMART_TRADE

Dear Gautam,

I shall certainly give the details of my strategy i follow in day trading but if i have the concent of thread owner Mr AW10 because its not the right thread for wht u ask for. Plz note iam a novice hardly know very little abt technicals. What i follow has learned after going through various Threads of this informative Forum & of course from Linkon Choudhury who is a regular contributor of TJ. Till then Happy trade to U & All. Let God Bless us All.....SLM uncle.

 

[gautamparmar]

Dear AW10,DanipickUP

WOW!!!!!. Thank you very much for your responses.

It is said that "Goal has to be BIG, it is crime to have lower/small goal".

@Danipic: Certainly I want to be that kind of trader not that person.

It is said that anything is first happend in human mind than in the outside world.

Basically I want to make icon, Hero in trading world so that i can always get inspiration from them.

THERE IS NO SHORTCUT FOR HARDWORK & experience by all means , I know this very well.

@SLMUncle : Actually I read a lots about TA. infact I am bombarded with these info. Now I am quite confused from where to start?
That's the reason i asked for.

@AW10 : Extremly Sorry about diverting this thread from it's original topic.

Let's make an end to my question and shower us with more option thingy.


@AW10,Danipic,Lonkon,Smart_Trade,Pride,columbus : By the way I really enjoy your thread. I am really learning a lot from it.Hats off to you all.

Gautam

 

[trader.trends]

Dear AW10,


I am looking at shorting straddles equidistant from the current spot price. Spot now at 4850. Suppose I short a 250 pts distant straddle then I will short 5100 and 4600 straddle.

5100 CE: 60
5100 PE: 322
Total: 382

4600CE: 322
4600PE: 86
Total: 408

I collect 790 pts for one lot. My max profit is premium collected less the difference between the strike prices, 790-500=290. My risk free range is 800 pts from each strike price that is 4300-5400 ( I am ignoring the 10pts difference). I have to start worrying only when NF crosses 4300 or 5400. Max profit if Nifty expires between the strike prices.

When I do the same exercise for a straddle of 350 and 450 pts away from the spot of 4850 I get the following result

350pts away straddle
5200CE: 37
5200PE: 390
Total: 427

4500 Straddle
4500CE: 63
4500PE: 400
Total: 463

350 pts straddle on both sides yields: 890 pts. Max profit: 190. Risk free range 900 pts 4300-5400

450pt straddle

4400Ce: 470
4400PE: 46
Total: 516

5300CE: 24
5300PE: 477
Total: 501

450 pt straddle on both sides yields 1017 pts. Max profits of 117. Risk free range 1000 pts 4300-5400.

In each of the cases the risk free range remains the same but the maximum profit varies from 290 to 117. In all three cases if you notice, if the mkt ends at the outer perimeter of 4400 or 5300 the profit remains same 90-117 range. In all cases the margins required to short strangle also more or less remains same.

My question is since the risk in all cases remains same but the rewards can vary significantly, have I missed something?

PS: There was an error in calculating the BE level. Please see the post below for clarifications.

 

[trader.trends]

Ok. I figured out my mistake. below the extremes of the strikes, I lose two points for every point move of NF. If it moves below 4600 for instance, I lose a point on 5100pe as well as 4600 pe whereas I have calculated as a one point loss.

Option strategies are not what they seem at first. Leaning against the refrigerator will illuminate the bulb in your head. Alfie used to call it the 'refrigerator moment' for movies. I will delete the post if you wish.

 

[sumitdasjoshi]

I think you should deleat that