Low Risk Options Trading Strategy - Option Spreads

[prasham]

@ Dan: Nice to see you back again. Please do keep posting & help amateur souls like me

 

[simple_trader]

Dear,

Please let me know your view on writing 5200 MAY call & PUT now. Total premium is available 315 (213+103). Position covers 5515 and 4885 spot range.

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

regards

This position is giving 95 points profit now. Today total premium is 220.

If we do a down move and pull back to 5200 spot, then it can go down further.

 

[AW10]

simple_trader, timedecay has shown its effect. But this trade is open from 3-April i.e. almost 1 month now... and timedecay has given 100 points in this 1 month. Luckily, mkt was range bound hence change in intrinsic value was not much.

If mkt remains in range for next 1 month, then you can get max profit on 5200 short straddle.. but if new trend develops, then effect of change in intrinsic value of option will be nullify the gain due to time decay. So going forward, it will be challange to maintain that trade-off balance and take appropriate decision.

btw, I am holding 5100 short straddle (opened on 23-Apr @ 285..) and will be looking to book profit when mkt reaches 5100 level.. or bounces from 5000 level. It is currently trading at 235 i.e giving me additional buffer of 50 rs of paper profit in 10 days.
It takes zero amount of my time to monitor the trade at this time as it is going perfectly as per plan.
Lets see how it pans out in next few days.

Happy Trading

 

[simple_trader]

simple_trader, timedecay has shown its effect. But this trade is open from 3-April i.e. almost 1 month now... and timedecay has given 100 points in this 1 month. Luckily, mkt was range bound hence change in intrinsic value was not much.

If mkt remains in range for next 1 month, then you can get max profit on 5200 short straddle.. but if new trend develops, then effect of change in intrinsic value of option will be nullify the gain due to time decay. So going forward, it will be challange to maintain that trade-off balance and take appropriate decision.

btw, I am holding 5100 short straddle (opened on 23-Apr @ 285..) and will be looking to book profit when mkt reaches 5100 level.. or bounces from 5000 level. It is currently trading at 235 i.e giving me additional buffer of 50 rs of paper profit in 10 days.
It takes zero amount of my time to monitor the trade at this time as it is going perfectly as per plan.
Lets see how it pans out in next few days.

Happy Trading

you did mention about 5100 pair. I thought it had more risk then. Hence it is giving more return.

May be 5200 pair will give more return on expiry. fingers crossed!!

happy trading!!

 

[prst]

i had bought a call option of sesa goa at str price. 420
. is it a good idea now to buy a put option at same strike price?

 

[DanPickUp]

i had bought a call option of sesa goa at str price. 420
. is it a good idea now to buy a put option at same strike price?

Here a more advanced way to trade your question :

If you think, the share will fall, sell one call one strike closer to the actual strike price of the share.

In that way, you got usually more money back then you paid for the long call.

If the share will fall, you will profit from time decay.

You also can buy a put and if the share falls and reaches his turn point, you sell a put one strike higher of the one you bought.

Trade this only with option software.

Take care

 

[sumitdasjoshi]

If you think, that Nifty is going to rise, buy a call with no value, wait until this call has a value and then sell the future.

In that way, you have an insurance and you can trade the future.

Take care

hey dan it nice to see u here again well i have a question for the above stratgy plz can you explan it briefly plz i want to lern that you can also pm me the details of this stratgy plz wating for u to reply.:clap:

 

[jassinko]

Dear Aw10

what u suggest is a best straddle for JUNE MONTH

i am looking for 5200 straddle with a future as a hedge

what u think and suggest???

 

[darkstar]

2) Lets take an example and construct a spread trade.
First we need to have some idea about the market direction (doesn't matter even if we are proven wrong. nobody is 100% right here) - so as per our current analysis, we find that market is going down since budget day. And we believe that it is going to go down further. That means we want to take bearish position. Our analysis also suggest that market can fall to 3800 level. For simplicity, lets use PUT options to trade.

Direction - Bearish
Construction - Buy 1 - PUT option strike 4000, and Sell 1 - PUT option strike 3900
Cost of trade (or net premium)= taking Friday (9/July price for July expiry) = to buy 4000 Put we have to pay 144 and when we sell 3900 Put market gives us 97.
so our net cost 144 - 97 = 47/-
Max Risk = 47
Max Reward = 4000 - 3900 = 100 rs.
Break-even point = 4000 - 47 = 3953. (that means, if market closes anywhere below 3953, we will be +ive on this trade. If it closes below 3900 we will get max reward of 100 pts. If market closes above 4000 then we will loose 47 which is max that we have put in this trade from our pocket)

----------------------
This part is for addressing the most important components of trade planning - EXITs

Stoploss point - Price = When value of spread falls below 25 (i.e. out of initial investment of 47, we are not ready to loose more then 47-25 = 22 rs)
Stoploss point - Time = When 4 days are remaining for expiry and position is still in loss

Profit taking - Direction = When my view about market's direction has changed from bearish to bullish or sideway.
Profit taking - Price = When atleast 80% of potential max profit is achieved. Better to move on to next opportunity rather then waiting for last bit of profit.

EXITs is something that depends from trader to trader hence there is no single correct solution for it. But above points will help you in preparing in advance for eventuality. Once we are in trade, emotions start impacting our decision making capability hence it is better to think about them right now when there is nothing is at stake.

Happy Trading

friend great article if it is your own writtern than it is too great . even most high profile suited booted analyst or at least they think or media think. are also not introduce option as u introduce great "lagey rhon dost"
thanks

 

[darkstar]

Here a more advanced way to trade your question :

If you think, the share will fall, sell one call one strike closer to the actual strike price of the share.

In that way, you got usually more money back then you paid for the long call.

If the share will fall, you will profit from time decay.

You also can use the left over money, you got from the sold call to buy a put and if the share falls, you sell a put one strike higher of the one you bought.

In that case you will have a condor with unlimited downside win possibility.

Trade this only with option software.

Take care

sir i send pm but u block private message pls allow me to send pm