Low Risk Options Trading Strategy - Option Spreads
- Thread starter AW10
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jassinko,
Sorry, I don't know your exprience/knowledge of option hence making assumption and asking this question about yr choice of Straddle ?
- What are you views about market movement from now till your holding period of the trade. You might trade in June Contract but might not hold the position till June expiry.
- Are u mentioning Short Straddle or Long Straddle trade ?
- Do you know in what condition will u make profit, how much will you make etc?
- Do you know what, and when will you wind-up the positition - when in profit as well as when in loss ?
In short, do you have complete trade plan for this trade or not ?
If you have the plan, then it really doesn't matter what market does. You will anyway, come out in profit or with limited loss.
June end is too long to anticipate at this stage.. so I have no tradable views about that at this moment. So far May month is going as per my anticipation and I am enjoying the ride for now.
Happy Trading
Sorry, I don't know your exprience/knowledge of option hence making assumption and asking this question about yr choice of Straddle ?
- What are you views about market movement from now till your holding period of the trade. You might trade in June Contract but might not hold the position till June expiry.
- Are u mentioning Short Straddle or Long Straddle trade ?
- Do you know in what condition will u make profit, how much will you make etc?
- Do you know what, and when will you wind-up the positition - when in profit as well as when in loss ?
In short, do you have complete trade plan for this trade or not ?
If you have the plan, then it really doesn't matter what market does. You will anyway, come out in profit or with limited loss.
June end is too long to anticipate at this stage.. so I have no tradable views about that at this moment. So far May month is going as per my anticipation and I am enjoying the ride for now.
Happy Trading
Hi AW10,
Your suggestion is interesting. Most of the places have seen stratergy of selling call & put for rangebound. Here you are suggesting to buy further to reduce risk. Pls elobrate more if your suggestion is executed.
1. What will be status if market is at 4900 at expiry?
2. What will be status if market at 5500 at expiry?
3. What will be status if market is at 4900 after 10days?
2. What will be status if market at 5500 after 10days?
Your answers will help me lot in understanding logic.
Rahul
Your suggestion is interesting. Most of the places have seen stratergy of selling call & put for rangebound. Here you are suggesting to buy further to reduce risk. Pls elobrate more if your suggestion is executed.
1. What will be status if market is at 4900 at expiry?
2. What will be status if market at 5500 at expiry?
3. What will be status if market is at 4900 after 10days?
2. What will be status if market at 5500 after 10days?
Your answers will help me lot in understanding logic.
Rahul
Hi
If you buy a put to the existing positions, you will have a put credit spread and a naked call. (Credit spread, because you had more income than costs).
If market falls, you will lose on the 5100 put and you will win on the 5000 put. So you reduced your risk on that side. You also will win on the sold 5400 call.
------
For the moment you will reduce your win from the sold put at 46 rs minus the bought put for 28 rs = 18 rs and the sold call for 65 rs = 83 rs.
In this calculation is not included the actual option prices from today !
and I did not mention your market view for the next few days, which I do not have any idea about it.
------
If your view is, that the Nifty trades in a range then the next thing comes in which AW10 already mentioned :
"If you still want to play safe, then u can also buy 5500 call.Depending on your personality, you might decide to buy this protective leg when u
are opening the trade.. or u might decide to wait and see if there is a chance that your sideways market view is getting negated ..and then u decide
to buy protection."
-----
You now have the put credit spread and you have a sold call.
If you now get a signal from your chart or what ever you use as indicators, that Nifty will turn upwards, you have to protect your sold call.
To protect your sold call, you will buy the 5500 call. You then have a put credit spread and a call credit spread which is by the way a condor.
You will lose money on the bought put and you will win money on the sold put. You will lose money on the ???? and you will win money on the ????
If you already have a problem to answer that ( any kind of trader or person ), then you do not understand the way option work and you should quickly go to a lower level and learn more about what is a call and what is a put option.
------
rrmhatre72. To me it seems, that you have no idea about option software and before you go and trade such strategies, start to learn how to use the right option software.
First : With such software you can test all of your questions.
We can give you all the answers you need, even me, which is not trading the Nifty.
Understanding options and how they work or what you can do with them is one thing ( it is all the same all over the world ), but trading them in reality is an other thing.
Second : As long as you not learn or know how to use option software, you better stay out of such trades.
Take care
If you buy a put to the existing positions, you will have a put credit spread and a naked call. (Credit spread, because you had more income than costs).
If market falls, you will lose on the 5100 put and you will win on the 5000 put. So you reduced your risk on that side. You also will win on the sold 5400 call.
------
For the moment you will reduce your win from the sold put at 46 rs minus the bought put for 28 rs = 18 rs and the sold call for 65 rs = 83 rs.
In this calculation is not included the actual option prices from today !
and I did not mention your market view for the next few days, which I do not have any idea about it.
------
If your view is, that the Nifty trades in a range then the next thing comes in which AW10 already mentioned :
"If you still want to play safe, then u can also buy 5500 call.Depending on your personality, you might decide to buy this protective leg when u
are opening the trade.. or u might decide to wait and see if there is a chance that your sideways market view is getting negated ..and then u decide
to buy protection."
-----
You now have the put credit spread and you have a sold call.
If you now get a signal from your chart or what ever you use as indicators, that Nifty will turn upwards, you have to protect your sold call.
To protect your sold call, you will buy the 5500 call. You then have a put credit spread and a call credit spread which is by the way a condor.
You will lose money on the bought put and you will win money on the sold put. You will lose money on the ???? and you will win money on the ????
If you already have a problem to answer that ( any kind of trader or person ), then you do not understand the way option work and you should quickly go to a lower level and learn more about what is a call and what is a put option.
------
rrmhatre72. To me it seems, that you have no idea about option software and before you go and trade such strategies, start to learn how to use the right option software.
First : With such software you can test all of your questions.
We can give you all the answers you need, even me, which is not trading the Nifty.
Understanding options and how they work or what you can do with them is one thing ( it is all the same all over the world ), but trading them in reality is an other thing.
Second : As long as you not learn or know how to use option software, you better stay out of such trades.
Take care
Last edited:
Rahul,
for question 1 and 2, I am sure you can do the calculation yourself, after you know the basic concepts of option Value. I give u simple steps
1) If market at xxxx
- what is going to be value of leg 1
- what is gonig to be value of leg 2
- What will be net value of the position
Say result is AA.
This is what you will get from market to close the position.
2) How much you paid to create the position.
Say you paid BB
3) You profit or loss is = AA - BB.
------
For question 3 and 4.
Above steps will still be applicable. Only difference will be that expiry, time value becomes ZERO. But when 10 days are left to expiry, you will have some time component to the options. How much will be this time component ? It is difficult to explain in simple terms.. hence better to use some software, as suggested by DanPickUp.
Chk out option oracle software in TJ or on net.
Happy Trading.
for question 1 and 2, I am sure you can do the calculation yourself, after you know the basic concepts of option Value. I give u simple steps
1) If market at xxxx
- what is going to be value of leg 1
- what is gonig to be value of leg 2
- What will be net value of the position
Say result is AA.
This is what you will get from market to close the position.
2) How much you paid to create the position.
Say you paid BB
3) You profit or loss is = AA - BB.
------
For question 3 and 4.
Above steps will still be applicable. Only difference will be that expiry, time value becomes ZERO. But when 10 days are left to expiry, you will have some time component to the options. How much will be this time component ? It is difficult to explain in simple terms.. hence better to use some software, as suggested by DanPickUp.
Chk out option oracle software in TJ or on net.
Happy Trading.
Thanks Rahul.
I have doubled my position today by selling more 5100 straddle around 225 premium. My net premium collection is 255. This gives me breakeven range of 4850 to 5355 which I am quite comfortable at with. If someone has opened the position, their breakeven point would be at 5100-225 = 4875 and 5100+225 = 5325. That means I have addition buffer of 30 points.
When I opened the position, it had time value of appro 180 points (nifty was at 5305). Today, nifty at 5100, almost whole of premium of 225 (price at close of today) is timevalue. Roughly 15 rs of profit for each passing day due to time decay. So when time decay really works fast, I am holding a position with more higher time decay in hand.
VIX has gone up, Already panic is in the mkt, bulls are doubting their stance, and hence options are at higher price. And as a trader to make money, my goal is to sell pricy stuff (sell higher) and buy under priced stuff ( buy lower). I wouldn't make mistake to buy when options are pricy. specially when position is running in profit. Depending on how market behaves in next few days, I will decide whether to hold it or close the position. I do have stoploss in mind, just in case I need them.
After recent downtrend, it is possible that we might go for sideway market around 5100 +/- 100 points. And hence I have adjusted my positions for sideway conditions (i.e. eat timedecay).
I might be wrong... so plz don't fhink even for a moment that this is what mkt is going to do. Better to form your own views about it.
It depends on your view about the mkt. So decide on your views about the days to come first .. not about what happened in last few days. And then select suitable strategy.
Hope this answers your questions and give you points to think and act on.
Happy Trading
I have doubled my position today by selling more 5100 straddle around 225 premium. My net premium collection is 255. This gives me breakeven range of 4850 to 5355 which I am quite comfortable at with. If someone has opened the position, their breakeven point would be at 5100-225 = 4875 and 5100+225 = 5325. That means I have addition buffer of 30 points.
When I opened the position, it had time value of appro 180 points (nifty was at 5305). Today, nifty at 5100, almost whole of premium of 225 (price at close of today) is timevalue. Roughly 15 rs of profit for each passing day due to time decay. So when time decay really works fast, I am holding a position with more higher time decay in hand.
VIX has gone up, Already panic is in the mkt, bulls are doubting their stance, and hence options are at higher price. And as a trader to make money, my goal is to sell pricy stuff (sell higher) and buy under priced stuff ( buy lower). I wouldn't make mistake to buy when options are pricy. specially when position is running in profit. Depending on how market behaves in next few days, I will decide whether to hold it or close the position. I do have stoploss in mind, just in case I need them.
After recent downtrend, it is possible that we might go for sideway market around 5100 +/- 100 points. And hence I have adjusted my positions for sideway conditions (i.e. eat timedecay).
I might be wrong... so plz don't fhink even for a moment that this is what mkt is going to do. Better to form your own views about it.
It depends on your view about the mkt. So decide on your views about the days to come first .. not about what happened in last few days. And then select suitable strategy.
Hope this answers your questions and give you points to think and act on.
Happy Trading
Hi AW10
Nice way you trade that straddle.
High-risk strategy; not for novices or intermediates.
For those which just follow AW10 and are now in the trade, but do not have a clue what they do, they may lower there risk by buying further out of the money calls and puts. In that way they will have a long Iron butterfly, which is a less risk strategy.
Take care
Nice way you trade that straddle.
High-risk strategy; not for novices or intermediates.
For those which just follow AW10 and are now in the trade, but do not have a clue what they do, they may lower there risk by buying further out of the money calls and puts. In that way they will have a long Iron butterfly, which is a less risk strategy.
Take care
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