Low Risk Options Trading Strategy - Option Spreads
- Thread starter AW10
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Hi linkon
Hope you are well.
Jaywings007 already showed the analyse picture. In my view it is a pure time decay play.
The break even points are fare away.
In my opinion, the only negative thing could be a change in the volatility. If it rises, your profit will be less. If it drops, it would work in your favour.
You can rise your risk by choosing short time options and playing the swings.
Just an other way to implement your idea in the market.
Take care
DanPickUp
Hope you are well.
Jaywings007 already showed the analyse picture. In my view it is a pure time decay play.
The break even points are fare away.
In my opinion, the only negative thing could be a change in the volatility. If it rises, your profit will be less. If it drops, it would work in your favour.
You can rise your risk by choosing short time options and playing the swings.
Just an other way to implement your idea in the market.
Take care
DanPickUp
Thanks jaywings007 for sharing the risk graph.
Linkon, In my view, there is enough of safety room in short term, i.e you are safe atleast with 2 week ATR move.
as upper BE is at 5478 level, probably you could have shifted it lower by differnet selection of strikes.. say down to 5400 or 5350 level. With current sentiment, mkt has to prove many factors before it breaks the last high of 5400, whereas that is not the case on downside. By this, probably you would have got 4500 as your lower BEP.
As per rough calculation, your position has intrinsic value of about 200, i.e. 337 rs of timevalue is in your hand. For the remaining life of 40 trading days,
you can approximately look at decay of 8 to 10 points per day.
You are enjoying the timedecay on 4 positions.. but for that you need to show patience and to let it run..
Lets accept the fact, that u are not going to get max profit on this, so you are better of deciding when you would like to take profit off and close the position.. i.e. think about profit exits. It will be a trade-off decision on rate of returns v/s opporunity cost of fund that is tied up here.
As per risk graph, your profit zone is chaning the shape at 4800 and 5300 level so you might like to take action there or slightly before that. As long as mkt is within these points, enjoy the ride of timedecay.
Hope this helps..
Happy Trading
Linkon, In my view, there is enough of safety room in short term, i.e you are safe atleast with 2 week ATR move.
as upper BE is at 5478 level, probably you could have shifted it lower by differnet selection of strikes.. say down to 5400 or 5350 level. With current sentiment, mkt has to prove many factors before it breaks the last high of 5400, whereas that is not the case on downside. By this, probably you would have got 4500 as your lower BEP.
As per rough calculation, your position has intrinsic value of about 200, i.e. 337 rs of timevalue is in your hand. For the remaining life of 40 trading days,
you can approximately look at decay of 8 to 10 points per day.
You are enjoying the timedecay on 4 positions.. but for that you need to show patience and to let it run..
Lets accept the fact, that u are not going to get max profit on this, so you are better of deciding when you would like to take profit off and close the position.. i.e. think about profit exits. It will be a trade-off decision on rate of returns v/s opporunity cost of fund that is tied up here.
As per risk graph, your profit zone is chaning the shape at 4800 and 5300 level so you might like to take action there or slightly before that. As long as mkt is within these points, enjoy the ride of timedecay.
Hope this helps..
Happy Trading
Last edited:
Hi AW10,
One always get wider spread if next month's options are written for rangebound startergy. If we go for current month then range is narrow & possibility of SL trigger is high.
In this case even volatility increase will not affect much as we have higher time decey value. (????)
Is it always better(for rangebound stratergy) to have next month's option written instead of current month's option?
Will this work good if one exit it in couple of weeks instead of waiting till last day? (I mean to say probability of winning trade will be more in next month option as compare to current month's option for rangebound statergy)
Pls share your experience...
One always get wider spread if next month's options are written for rangebound startergy. If we go for current month then range is narrow & possibility of SL trigger is high.
In this case even volatility increase will not affect much as we have higher time decey value. (????)
Is it always better(for rangebound stratergy) to have next month's option written instead of current month's option?
Will this work good if one exit it in couple of weeks instead of waiting till last day? (I mean to say probability of winning trade will be more in next month option as compare to current month's option for rangebound statergy)
Pls share your experience...
Hi
Just my two cent.
Spread widens slightly when written next month options or 200 day options. Gives you maybe a more safe feeling. It is your decision to wait for the money or to rise your risk.
If you rise your risk, SL will be necessary, which is no reason not to trade like that.
I agree with you about the volatility aspect and I never said, that it is significant.
There is no " always better " for a strategy.
It depends on your outlook about the market and on how many ways you know how to convert your implemented strategy into an other one.
You usually never should wait until option expiration day to take your profit in any strategy. Many traders here in this forum have explained, why it is so.
But one thing never was explained from them : If you have an option, which you only used as an insurance and this option has two or three days before expiring no value, then keep this option. In case the market doe's a crazy move, this options can have suddenly a value !
So, now I hope I did not misinterpret any of your valuable thoughts . If so, excuse my bad English.
AW10 anyway will explain his views for the Indian market.
DanPickUp
Just my two cent.
Spread widens slightly when written next month options or 200 day options. Gives you maybe a more safe feeling. It is your decision to wait for the money or to rise your risk.
If you rise your risk, SL will be necessary, which is no reason not to trade like that.
I agree with you about the volatility aspect and I never said, that it is significant.
There is no " always better " for a strategy.
It depends on your outlook about the market and on how many ways you know how to convert your implemented strategy into an other one.
You usually never should wait until option expiration day to take your profit in any strategy. Many traders here in this forum have explained, why it is so.
But one thing never was explained from them : If you have an option, which you only used as an insurance and this option has two or three days before expiring no value, then keep this option. In case the market doe's a crazy move, this options can have suddenly a value !
So, now I hope I did not misinterpret any of your valuable thoughts . If so, excuse my bad English.
AW10 anyway will explain his views for the Indian market.
DanPickUp
Last edited:
Decay of next month sets in once before current months positions starts getting rolled over to next month and then 1-2 weeks before actual expiry...
But playing next months series is tough as BID-ASK is always wide as market moves away from the strike price.
Personally, I prefer next months options since it gives me a chance to off set some of the risk using current months options. But it can back fire also...
I bot 5200 call of this month at 52 (sl 44) to offset some of the possible risk of the shorts i'm carrying of the next month.
But playing next months series is tough as BID-ASK is always wide as market moves away from the strike price.
Personally, I prefer next months options since it gives me a chance to off set some of the risk using current months options. But it can back fire also...
I bot 5200 call of this month at 52 (sl 44) to offset some of the possible risk of the shorts i'm carrying of the next month.
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