Low Risk Options Trading Strategy - Option Spreads

[sibumajumdar]

Hy sibumajumdar

Surely a big help is a good option download program ( I use Opvue6 ) which gives you the whole option chains in horizontal ( all months ) and vertical ( all strike ) ways.

It takes some experience to see that, but after time it goes better and better.

During the day, when all prices are moving, it is to difficult.

After market closing, or better before market opening, you check the latest prices and compare them from strike to strike and from month to month.

Concentrate only on one market, so you get a feeling for that with the time.

I do that with option on futures. Do not ask me about option on stocks. Never traded them.

IMO it is not useful for your kind of trading. It makes sense, when implementing strategies, where you leg in and out.

You do credit spreads on the Nifty and you do not need that. Even not sure if you would get so much options prices to do such stuff.

Take care

DanPickUp

Mr DanPickUp, U r right that i dont need such stuff. But hoadley.com/options is suitable for my style of trading. Hence, i need initial help to proceed....Thanks...SLM uncle

 

[gautamparmar]

Hi SibuJi

Hope you doing GREAT.

Can you please email me your strategies to trade mininifty if u can?

I know u guys using BB,RSI,Sto.

I follow columbus's thread on Bollinger band thoroughly .

my email : g a u t a vina @ ya h o o.com

Please remove the space.

Thanks

 

[sibumajumdar]

Hi SibuJi

Hope you doing GREAT.

Can you please email me your strategies to trade mininifty if u can?

I know u guys using BB,RSI,Sto.

I follow columbus's thread on Bollinger band thoroughly .

my email : g a u t a vina @ ya h o o.com

Please remove the space.

Thanks

Dear Gautam, Certainly i will do but plz give me little time. THanks..SLM uncle

 

[AW10]

Dear Sumit, Recently i dn loaded Option Oracle & hoadley.net/options but unable to proceed further. Can u or some other member help me in this regard? I need little initial guidance. Thanks....SLM uncle

SLM Uncle, before we use the tool, we need to know what is our purpose ? what we want achieve ? How the tool will help us in achieveing our goal ? etc.
Otherwise, even the best tool will be of no use.

So before u jump into solving the mystery of "how to use the tool", my suggestion will be to figure out the basic concepts first and then use tool to analyse them. Use either option oracle or Hoadley's.. they both serve the same purpose (will us use both metastock and amibroker for your TA or just one of them). My suggestion will be to go for OptionOracle as it will populate lot of prices for u from NSE.
Don't go for too many strategies.. but just look at call spread which u are already using to analyse. Better to start with basic strategy like buy Call/ Sell Call and try to understand what is shown there.

Forget all the fancy strategies that u have read on this forum. Let people talk those names. IMO, a beginner should ignore them like a wide ball which has gone to wicketkeeper's gloves.

All the best and happy trading

 

[AW10]

hello aw10 i have sold this things on 26/03/2010
s 5000 ce =-90.00
s 4800pe = -99.60
total at 189.60
end of the day premium was 158
well i cant find where my break evean point is 5189
and lower break even point is 4611 is this callculation is right or did i misse something.and one more question if on expirey it will close 4800- 5000 than i will get hole premium or not.

Your calculation of Both BEP is correct. What u are using is Short Strangle strategy. Your max profit zone is when nifty sits between 4800 to 5000.

But while planning this trade, knowing BEP and max profit zone is only partial planning. What about your exits ? At profit or at loss ? Where is your stoploss ? When will u close the position - will u wait till last day or have some other exit criteria ?

Think on these lines and improve your trade planning.. and then just trade your plan.

Happy Trading

 

[AW10]

Mr AW10, On Budget day around 2.45pm (Nifty@4950) bot Bullcallsprd of 4800(221)/4900(156) with max risk of 65 & max gain of 35. Plz reply to undernoted points.....

1) was it wise to buy it on volatile day.

Sorry about the late reply. As you have bought one option and sold another, so volatility effect is compensated to large extent. You might have paid more for long leg, but you also collected more for short leg.. so net net - give a take few points, the effect is neutral.

2) Was there better combination.

There are unlimited combinations of spread u can create like 4700- 4800/ 4700-4900/ 4700-5000 etc. In short, I don't know if there was better combination or not. I would prefer to use Reward to Risk ratio and probablity of making money i.e. price reaching beyond breakeven pt and max profit point as selection criteria.

3) Its prospect in coming days. When to book profit/loss. ( I have not much clear mkt views.). I mean how to handle it to the best result.

I must congratulate you for picking up nice spread which is in profit right from the time u took the trade. Market was above your breakeven pt of 4865. I.e right from that moment, this position will remain in profit. As market moves up, you net value of the position (i.e. diff of premium) will start moving towards 100. To manage this position, always consider net value. Set your profit target / trailing stoploss based on this net value. Max this value that u can get for this spread is 100 so you might think of closing it when price reaches to 90/95 or anything which is in your comfort zone.

All the best. Well done for first spread trade.

Happy Trading

 

[AW10]

Hi SibuJi

Hope you doing GREAT.

Can you please email me your strategies to trade mininifty if u can?

I know u guys using BB,RSI,Sto.

I follow columbus's thread on Bollinger band thoroughly .

Thanks

Gatuam, my appologies in advance if it hurts you.. but want to share my view of going crazy behind strategies..

Even if you get Sibuji's strategy, most likely, it will not make any difference to your trading. Already there are 100s of startegy discussed on TJ and 1000s of them are available freely on Net. But still 90% of trader loose money.
The success of trading is not in searching for strategy .. but developing a strategy that suits you, to your trading personality, to your trading constraints.. You and Sibuji are 2 unique trader and hence what suits Sibuji may not suit you. You will have to adjust /tweak his strategy to meet your requirement..For that u need to konw Yourself as trader, your own requirement and constraints, how to modify a strategy etc.. And if you know them already then you would have got 100s of strategy already.

These are just my experience and sharing so that u don't get lost in the strategy jungle but just pick up one or two plants/strategy for your trading garden and take care of them.

Happy Trading

 

[sibumajumdar]

SLM Uncle, before we use the tool, we need to know what is our purpose ? what we want achieve ? How the tool will help us in achieveing our goal ? etc.
Otherwise, even the best tool will be of no use.

So before u jump into solving the mystery of "how to use the tool", my suggestion will be to figure out the basic concepts first and then use tool to analyse them. Use either option oracle or Hoadley's.. they both serve the same purpose (will us use both metastock and amibroker for your TA or just one of them). My suggestion will be to go for OptionOracle as it will populate lot of prices for u from NSE.
Don't go for too many strategies.. but just look at call spread which u are already using to analyse. Better to start with basic strategy like buy Call/ Sell Call and try to understand what is shown there.

Forget all the fancy strategies that u have read on this forum. Let people talk those names. IMO, a beginner should ignore them like a wide ball which has gone to wicketkeeper's gloves.

All the best and happy trading

MR AW10, Thank u very very much for your suggestion cum advice. Till iam not mastering bull & bear call'put spread i wont do any thing. But continue to acquire knowledge about options. If u can plz help me with the direction abt using opt SW....Thanks....SLM uncle

 

[gurprB2J]

AW10

The ATR as you know is the max of the diff between H-L, PC-H and PC-L. If we take the average of the past seven days ATR, we get the 7ATR. Generally the market tends to respect the ATR to a large extent. When I looked at the 7ATR of the past couple of months on NF, I find that any day's ATR is more or less the same as the previous day's ATR. And when the ATR jumps like it did today due to range expansion, then the 7ATR jumps by a factor of 10. Now the 7ATR stand at around 70. It was around 60 yesterday. If Tuesday the 7ATR has to be around 70 then the days range has to be around 43. (7*70 less the sum of the previous 6 days actual range). This gives us the anticipated high from today's close of 4932 at 4986 and the anticipated low at 4878 after giving a ten point margin.

How valid are 7ATR or 14ATR to judge the anticipated H/L? What is your experience with them. Many trader do use 7ATR or 14ATR of twice the daily ATR as the stops for their trade. If we can judge the anticipated H/L it helps us to wait the day and take a trade at the edge of the day's range. Alternatively when we see the open is same as the H/L in the first few minutes of trade opening, we can anticipate where the market will head if it heads in one direction to reach the 7ATR boundary.

Is there a method to trade using 7ATR? This is different from 7NR, but still dealing with trading ranges hence this post in your home thread.



TT your explanation, understanding and usage of ATR is perfectly on the spot.
Whether u use 7 days or 14 days as look back period, it is individuals choice. You can certainly use it to define probable range of tomorrow..
You can use this to define stops for tomorrow (or on the next bar in case of smaller timeframe). I prefer to use ATR for stop placement and trailing SLoss.
You can design a system using ATR based projected level to decide buy/sell zone and generate signals there.

Only your backtest results will tell u if the system will work or not. If you dig deeper, the floor trader pivot points/ Cams pivot point etc use this info with slight tweak.
So it is possible to define profitable system on this foundation.

If nothing then atleast you can use this to book profit and trail SL. You can use multiplying factor 1 /2 or 3 on 7d-ATR or 14d-ATR but that all is upto your belief and personal choice that suits your mindset.
IMO, there is no single answer to that.. I do use 3 ATR from last swing high/low as my ultimate cut-off point (just in case my system has not given earlier exit).

by the way, don't confuse it with NR7 that is discussed in this thread. Cause the range used in NR calculation is NOT ATR. It is just high-low of each bar. So if there is gap and market remain in small range after the gap, then we might get NR7, but ATR will be very high. Better to use them side-by-side and interpret the market behaviour.

Hope this helps.
Happy Trading.
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Thanks you very much AW10 and Trader-Trends for this useful posts .Sir you are are requested to starts ( If possible ) a new thread regarding various technicals studies and there use specially in option trading as there are large study materials available here in TJ for each and ever one except that of technical studies and there use in option trading
with regards
Gurpreet singh

 

[gautamparmar]

Hi AW10,

Thank you very very much for you valuable advice.

Yes you are absolutely right, I am bombarded with huge information about TA from traderji and else where. I am really confused from where to start.

Another question is how to develop strategy?. I mean what kind of information is required to do so?. What kind of parameter i need to take care of before hand?

So many times , I started making strategy, but all the time i was confused. So do guide me here PLEASE.

YOU, Danipicup,Linkon,shreenath are my remote GURUs as far as TA is concern.

I know you guys are very humble but still let me tell you that any kind of Critisizm about me are always wellcome. I will do my best to improve it in your guidence.

Sibuji : I understand you are busy. Any time you get the chance do email me that.

Again thank you guys very much.

Highly appreciated.

Gautam