Low Risk Options Trading Strategy - Option Spreads

[prasham]

So you are suggesting I buy PE 5000 & sell PE 4900? or one step higher?

 

[AW10]

So you are suggesting I buy PE 5000 & sell PE 4900? or one step higher?

Sorry, I am not suggesting you any other spread combination but just trying to draw your attention to various factors that u should consider while selecting the spread.

I belive more in supporting others to take their own decision, rather then giving them tips. If you think 5000-4900 put spread is better, then plz do the calculation for that and compare the two spread. Certainly, 5000-4900 put spread will have higher probablity (market has to cross 4900 before reaching 4800 hence 4900 always has higher probability). But that spread will come at higher price, and hence your reward /risk ratio will be different.

So at the end, it is your choice to evaluate various spread combination on same parameters and make well informed decision.

Happy Trading

 

[prasham]

Sorry, I am not suggesting you any other spread combination but just trying to draw your attention to various factors that u should consider while selecting the spread.

I belive more in supporting others to take their own decision, rather then giving them tips. If you think 5000-4900 put spread is better, then plz do the calculation for that and compare the two spread. Certainly, 5000-4900 put spread will have higher probablity (market has to cross 4900 before reaching 4800 hence 4900 always has higher probability). But that spread will come at higher price, and hence your reward /risk ratio will be different.

So at the end, it is your choice to evaluate various spread combination on same parameters and make well informed decision.

Happy Trading

Sorry for the wrong choice of words. Actually I exactly meant what you've explained above. Thanks for the prompt reply.

 

[rkkarnani]

Have a look at Bajaj Hind : Bought 150 PUT at Rs.3.30 Stop Loss when Spot closes >170 Expect Bajaj Hind to break 130 and may go upto Rs.115.00 in 3/4 weeks!!!

Please suggest some strategy to reduce my risk!!!

 

[trader.trends]

With markets stagnating for yet another day in the 5100-5150 levels, both call spread (5200-5300) and put spread (5100-5000) are available at 26-28. Max Profits on either at 72-75 range. Good RR. Expiry still 15 days away. Good place to initiate a trade for those who need to get their feet wet. Take one based on your belief whether mkt will go to 5000 or 5200 first.

Have an exit strategy in place. Exit when on profits? Exit when on loss?

Pl note this is not a call/tip. This is pointing out an opportunity as market is evenly poised and the RR is decent.

 

[AW10]

Have a look at Bajaj Hind : Bought 150 PUT at Rs.3.30 Stop Loss when Spot closes >170 Expect Bajaj Hind to break 130 and may go upto Rs.115.00 in 3/4 weeks!!!

Please suggest some strategy to reduce my risk!!!

RKK, depends if you want to throw more money to reduce the risk ..
if yes, then buying 160 or 170 call could be an alternative.
If not, then u can sell 140 put, and collect some money back. When stock goes down 130, u will get whole almost 8/9 rs as value of the spread so close the trade.

My only concern is, due to low liquidity and wider spreads, u might end up loosing almost 1 rs in just slippage to close spread trade. While trading spreads, u are actually doing 2 transactions.. hence slippage hits you 4 times, twice while opening the trade and twice while closing it.. and that is fairly big % of profit. Hence I am bit reluctant to suggest spreads on stock options.

Or reduce the contarct size and keep whole investment as your stoploss. So even if you loose all, it is just another stop got hit.

Hope this helps.

 

[prasham]

Have a look at Bajaj Hind : Bought 150 PUT at Rs.3.30 Stop Loss when Spot closes >170 Expect Bajaj Hind to break 130 and may go upto Rs.115.00 in 3/4 weeks!!!

Please suggest some strategy to reduce my risk!!!

I am sure you are more knowledgeable than me but to me it appears that Sugar mills would have clocked large profits this year and hence unless the markets dip BH wouldn't loose too much of value before their Quarterly/Annual reports. This is my OPINION only.

 

[AW10]

With markets stagnating for yet another day in the 5100-5150 levels, both call spread (5200-5300) and put spread (5100-5000) are available at 26-28. Max Profits on either at 72-75 range. Good RR. Expiry still 15 days away. Good place to initiate a trade for those who need to get their feet wet. Take one based on your belief whether mkt will go to 5000 or 5200 first.

Have an exit strategy in place. Exit when on profits? Exit when on loss?

Pl note this is not a call/tip. This is pointing out an opportunity as market is evenly poised and the RR is decent.

TT, you are right, we have got extended consolidation of 2 NR7 days now. Not exactly IDNR.. That means, exapnsion is inevitable. I have collected long strangle (5100 put, + 5200 call) position and waiting for breakout in either direction.
My other analysis does not support lot of upside action, hence I have also sold 5300 Calls to reduce the cost of my bullish strangle leg from 35 to 15.

 

[nayarock]

Doubt

SeniorsJis

I am new to Options. I have a doubt.

1) If we short sell Put/Call at prem Rs.10 at starting of month and if it becomes 0 or <Rs 1 before last day of expiry then should I buy it to squareoff? Will it do automatically? will I get Rs10-Rs1 profit into my account same as equity?
2) If I shortsell Nifty 1 Lot for Rs.10, then how much money in my account will be blocked (Till I buy the same lot).

Please clarify. Thank you

 

[prasham]

NR - You look to be as novice as me in field of Options. Hence I suggest you first of all checkout basics of Option Trading on Investopedia.com. It has a huge pool of articles from experts all over the world. Once you are through with the basics come over and our inhouse experts like AW10, Dan and others shall help you out.