Low Risk Options Trading Strategy - Option Spreads

[simple_trader]

Dear,

Please let me know your view on writing 5200 MAY call & PUT now. Total premium is available 215 (213+103). Position covers 5515 and 4885 spot range.

Expectation is to cover around 140 range in next 15-20 days.

regards

 

[praveen taneja]

In our valuable earth thousands of birds & animals dies because of non avilabelity of water ,they cant able to buy any mineral water from markets . So u all r deeply requested to put some water in a utensil at your reach for them & feel the diffrence in these hot summer .

 

[SwingKing]

I guess next week, would be good for entering straddle. It was was a doji kind of candle on last week, we would see volatility expansion after breaking last week's low or high.

But the risk is volatility can remain low for long time.

Happy trading


regards

Dear,

Please let me know your view on writing 5200 MAY call & PUT now. Total premium is available 215 (213+103). Position covers 5515 and 4885 spot range.

Expectation is to cover around 140 range in next 15-20 days.

regards

Dear in the first message you are expecting the volatility to expand in the coming weeks and in the next message you are wanting to initiate a short straddle. Well, let me tell you something. Short straddles are limited profit, unlimited risk options trading strategies that are used when securities will experience little volatility in the near term. Now, since you are expecting markets to become volatile in coming sessions, how can you use a short straddle ?

I am never a fan of Selling naked Call options / Put options. Leave aside the fact that you want to combine them both to initiate an even more riskier strategy. I am sure you can find a strategy which is less riskier. What you can do is enter a straddle and when you see volatility expansion and a valid breakout, you can close off one leg which is not profitable. Following that you can the continue to ride on the profitable one.

Tc.

 

[simple_trader]

Dear in the first message you are expecting the volatility to expand in the coming weeks and in the next message you are wanting to initiate a short straddle. Well, let me tell you something. Short straddles are limited profit, unlimited risk options trading strategies that are used when securities will experience little volatility in the near term. Now, since you are expecting markets to become volatile in coming sessions, how can you use a short straddle ?

I am never a fan of Selling naked Call options / Put options. Leave aside the fact that you want to combine them both to initiate an even more riskier strategy. I am sure you can find a strategy which is less riskier. What you can do is enter a straddle and when you see volatility expansion and a valid breakout, you can close off one leg which is not profitable. Following that you can the continue to ride on the profitable one.

Tc.

Dear raunakagarwal,

True, I have written about two divergent things in two posts (knowingly). 2nd one is my query to AW10, whereas some point buying straddle would help in this month. Say 5300 call PUT or 5200 PUT and 5400 call.

However we can see the risk like in last Thursday;s trading; premium got contracted by 25 points odd in both pairs. So risk is always there for rapid premium contraction due to low volatility.

My idea of writing 5200 MAY call Put is based on the fact that some point, NIFTY will correct and test 5050 around and bounce back.

Chances more that this month will be range bound. do not expect fall much or rise much. may be rise after a fall would happen.

In this trading strategy, we do not have to rely on any specific SL like NIFTY future shorting.

Sure, it can show loss beyond a point. But that's true for any trade.

I guess last month asked about writing 5100 PUT and 5300 call with 210 premium, now these stands at 125 premium.

All said, I am too learning option trading. Like writing more than buying trades.

happy trading!!

regards

 

[abigbull]

Volatility

One query abt volatility . How do i know that the market is volatile and the option prices are inflated ?

So that if proved that it is inflated i will write some Put / Call depending on the outlook .

 

[prasham]

MY PAPER TRADE

BEAR CALL CREDIT SPREAD:
BUY CE 5400 @ 60
SELL CE 5300 @ 120
NET PROFIT = 60 (If nifty closes below 5300, Am I right?)

Return of about 7-8%.

 

[AW10]

Dear,

Please let me know your view on writing 5200 MAY call & PUT now. Total premium is available 215 (213+103). Position covers 5515 and 4885 spot range.

Expectation is to cover around 140 range in next 15-20 days.

regards

Simple_trader, Correction in premium collected in your post - you would be collecting 315 rs.. for 5200 straddle.

Read your bearish view in other post .. If that is the case, then it is sensible to create a short straddle below the current ATM strike.(assuming that u know very well the risk of naked short option trading and OK with that)..

I might be inclined toward 5100 straddle, giving slightly more premium (370 rs). The upper BEP will be slightly below 5500 (aroudn 5470 or so..) but offers better probablity of enjoying time decay for longer time and gives more room. So even if mkt settles around 5000, your straddle will be worth 100 i.e.giving u about 275 rs of profit..

Compare this with 5200 straddle giving you 315 rs of premium today, and with nifty at 5000, might hit you buy 200 rs..and leaving profit of 115 only.

So it is tradeoff of 30 /40 points of risk on upper side against the better profit on downside..

As pointed out by Raunak, with increase in volatility, u might see premium not dropping as fast as they would have otherwise, but you with Deep ITM call in above two strikes, your impact of volatility is mitigated to some extent. Due to Deep ITM nature of 5100 call/5200 call, you are basically trading more of intrinsic value then just the time value.

Hope this helps..
Happy Trading

 

[AW10]

MY PAPER TRADE

BEAR CALL CREDIT SPREAD:
BUY CE 5400 @ 60
SELL CE 5300 @ 120
NET PROFIT = 60 (If nifty closes below 5300, Am I right?)

Return of about 7-8%.

Nice trade.. And grate way of going contrarian with limited risk.
At this stage, I also feel that odds are against bulls here for next few days atleast. Your BEP is at 5300 + 60 = 5360 level. And max risk is only 40 points in worst case.
So risking 40 rs.. to collect 60 rs of profit, certainly decent trade.

If nifty closes below 5300, u will keep whole of 60 points. If it goes above 5400, then we will have to take the loss of 40 points. You can always cut this loss to lower then 40, but why worry now. Let mkt tell u that you are wrong. Time is your friend here.. so enjoy the time..

Happy Trading.

 

[AW10]

Re: Volatility

One query abt volatility . How do i know that the market is volatile and the option prices are inflated ?

So that if proved that it is inflated i will write some Put / Call depending on the outlook .

Track the NIFTY VIX.. it gives fair idea about Volatility.
There is another thread where we have VIX chart posted.. or u can also see it on NSE site.

Happy Trading

 

[ANMOL]

Re: Volatility

Dear AW10,

Options Oracle is not downloading correct data from NSE for the last 2 days. Do you have any idea what the problem is?

Reagrds
ANMOL