Low Risk Options Trading Strategy - Option Spreads

[subratdas]

Dear AW Sir,
I am a newbee. I am doing trades throuh anagram. It is charging future Margin for Options sell .Can you please guide if all the brokers are charging like it or any broker charges option margins for option selling? Due to high margin amount , spreads are being costlier for me.

Regards
Subrat

 

[AW10]

Dear experts! Pl. guide.

Yesterday I opened a position with 1 lot of Bear Put spread strategy as follows:
Buy 5200 PE -25 Mar 2010 @30.25
Sell 5100 PE -25 Mar 2010 @ 11.90 anticipating consolidation.
Cost: 917.50
Currently the trend is unfavourable .
Kindly advice what to do immediately or shall I wait for a downtrend. What is the prospcts before expiry?

msri, What is your trade plan when u created this position ?
Where is your stoploss ? Are u prepared to loose complete 20 rs or want to limit that as well ?

Based on the answer of above question, you yourself will know what shd be your next action.

Market doesn't listen to anyone, and your position is not so far away from current market price which can't turn into profit. You will be in profit below 5180 level which is about 100 points from current level. And 100 point move in next 4 days is quite possible.. infact it can happen in 1 day as well.

Important is to have your plan and mentally prepare yourself for various outcomes, hence I asked few questions at start of this post.

Happy Trading

 

[AW10]

Dear AW Sir,
I am a newbee. I am doing trades throuh anagram. It is charging future Margin for Options sell .Can you please guide if all the brokers are charging like it or any broker charges option margins for option selling? Due to high margin amount , spreads are being costlier for me.

Regards
Subrat

Subrat, please search the forum /specially the brokers section to find the right broker for options trading.
Generally, the margin requirement is very close to what u pay for a futures position (about 12% of contract size + few extra %).. but it varies from broker to broker.

Also check out the brokerage for option as well. Cause when u trade spreads, you will be having 4 trades -2 trades to open a spread position and 2 trades to close it, if required to squareoff before expiry.

I haven't heard about Anagram for options trading so can't comment on it. Many people are with RK Global, Sharekhan, Indiabulls etc.

Happy Trading

 

[msri]

msri, What is your trade plan when u created this position ?
Where is your stoploss ? Are u prepared to loose complete 20 rs or want to limit that as well ?

Based on the answer of above question, you yourself will know what shd be your next action.

Market doesn't listen to anyone, and your position is not so far away from current market price which can't turn into profit. You will be in profit below 5180 level which is about 100 points from current level. And 100 point move in next 4 days is quite possible.. infact it can happen in 1 day as well.

Important is to have your plan and mentally prepare yourself for various outcomes, hence I asked few questions at start of this post.

Happy Trading

Dear Sir,
Based on the market rumour that consolidation will take place shortly, I took the position hurriedly. I did not anticipate that it will go up. I did not have specific plan. It is my mistake.As such till today no plan of closing. I shall watch the market tomorrow as suggested and decide. As of now I do not have any SL plan. Thank you very much for your correct,prompt and timely advice.

 

[trader.trends]

As the mkt trades in a narrow range the volatility takes a beating offering a delightful spread for traders. Take a look at the put spread available at low prices. This is for April series

Nifty spot at 5225 and here are the spreads

5200PE at 95.60 5100Pe at 65.10. The debit spread costs 30 to set up with a max profit of 70/-
5200PE at 95.60 5000PE at 44.50. The debit spread costs 50 to set up with a max profit of 150/-
5200PE at 95.60 4900PE at 29. The debit spread cost 65 to set up with a max profit of 235/-.

All this when the series has not yet started. Depending on where you think the mkt can correct to in April you can choose the spread. Alternatively you can work out the call spread if you are bullish.
Good bargains available for either views.

 

[simple_trader]

Dear TT,

Thank you for showing us those possibilities.

regards

 

[abigbull]

Trying to understand . these Debit spreads : I think thsese are for bearish + rangebound moves . In case the Nifty moves up from here so is it that we will post losses of 30 , 50 , 65 pts . ? also what is the rational behind saying that the Nifty can be bearish in coming April Series .

Thanks in advance
Abigbull ( The username because i always feel the market will move up . ;-) & ;-( for sometimes it doesn't )

 

[trader.trends]

Trying to understand . these Debit spreads : I think thsese are for bearish + rangebound moves . In case the Nifty moves up from here so is it that we will post losses of 30 , 50 , 65 pts . ? also what is the rational behind saying that the Nifty can be bearish in coming April Series .

Thanks in advance
Abigbull ( The username because i always feel the market will move up . ;-) & ;-( for sometimes it doesn't )

Spreads are meant for limited profits/limited losses scenario. Yes you are correct, if the Nifty moves up from here and does not come down at all those (30,50,65 pts) will be the losses in the different spreads.

If you are bullish you can work out a similar spreads in calls. Bullish/bearish are our beliefs about the mkts whatever the rationale or the justifications we may have. Depending on your belief of what the mkt will do you take the put/call spread.

AW10 has the most detailed writing on spreads in this thread. You can go through that for further enlightenment.

 

[SwingKing]

Often market participants don't understand that it takes specialization in just one domain in the market to make a living (killing) out of it. Thus if you think you want to trade options, then get your mind, body and soul behind it. This applies to nearly everyone who is either participating in the thread or in this forum.

Market participants often switch from instruments (Equities, Futures and Options) to strategies (time based, MA based, volatility based). They just don't realize that they are paying a very high price for switching so often (switching costs). I think majority of participants aim to try out all the strategies posted here to see which one gives the maximum return. There is no holy grail in markets and despite knowing this, subconsciously participants still try and find it. By switching so many instruments and strategies, participants ideally are not even giving time for law of averages to work in their favor.

The reason I wrote this here is because I have seen many new participants trying to earn quickly by investing in options by seeking Aw10's advise. I am sure Aw10 will help you, but I think new participants have to help themselves. Else, one big loss will come your way and then you will start the process of finding the holy grail all over again.

Hence, it's better for new participants to get properly educated (books, dvd, seminars) about options and then finally come here to refine and enhance your knowledge. Aw10 can increase your learning curve by leaps and bounds, but effort has to be there from your own side. Trading a instrument or a strategy is profitable only when you can virtually live with it. It's all about practice. As someone rightly said, "It's only practice that can make a man (trader) perfect".

Aw10 sorry for the off topic post.

 

[AW10]

Trying to understand . these Debit spreads : I think thsese are for bearish + rangebound moves .

Spreads are directional strategy. For these bearish strategy to show profit, market has to move down. If market stays in a range, or goes up, these strategies will loose.
Ofcourse, due to the way they are constructed, the losses do not accumulate as fast as they would for a naked Long PUT option position.

In case the Nifty moves up from here so is it that we will post losses of 30 , 50 , 65 pts . ?

Yes, you are right. That is the maximum loss that u can have.. but look at potential profit as well.. For risk of 30, you have profit of 70.i.e. reward to risk ratio of 2.3..
And you will achive max loss only when you don't take any action. You can always cut your losses before they reach these levels.

also what is the rational behind saying that the Nifty can be bearish in coming April Series .

As TT has mentioned, it is his view on the market. We all can have different views and agree/disagree with TT but that is OK. Cause market doesn't listen to any of us and we all have been right as well as wrong in reading the market.

Hope this helps.
Happy Trading