Low Risk Options Trading Strategy - Option Spreads

[VaibhavPRO]

@ vaibhavPRO..

..of my habit of saving daily price history of options i found that whn market closed on 4970 3-4 days back, the total of your position was 347.. so u can accordingly deduct the time value..

n u said u bought the combination for 250.. which i think is very reasonable if u r expecting the markt to b very volatile.. leaving such a position for saturday and sunday is a risky thing but u have in ur favor yesterday's US fall.. so i personally wud suggst u to avoid such positions on weekend.. such a position may b held for maximum 2-3 days on weekdays..

Thanks sir.. will keep it in mind.. next time i will use this strategy on weekdays only and also after 2-3 flat days of nifty(which seem improbable in coming week)

 

[sagarkapoor]

I do not know much mechanics, but I felt it was a better strategy than buying 5100 call+PUT pair.

Your break even point is 4950-60 around.

Just curious as to why you feel that this strategy is a better option than the straddle in this situation?
Please don't take this question in a derogative sense as I was just curious to know why you feel that this was a better strategy than the straddle in this position.

 

[MaxX]

@ vaibhavPRO..

i want to ask one thing also from experienced traders.. that whenevr i have takn such a position in a volatile markt and markt turns bullish and increases say 100-125 points i have never had a reasonable profit n end up breaking even.. but on the contrary if markt turns bearish and falls i earn gud profit.. i have never understud this.. is it because of sentiments or any thing else that price of calls dont increase as desired but prices of puts fall as expected..

When the market goes down the VIX (volatility index, or so called fear index) increases leading to an increase in option prices.. and hence option buyers would benefit. Conversely, When the market is trending uwpards usually the VIX goes down and is good for an option seller.

 

[simple_trader]

Just curious as to why you feel that this strategy is a better option than the straddle in this situation?
Please don't take this question in a derogative sense as I was just curious to know why you feel that this was a better strategy than the straddle in this position.

The only difference in those two positions is that one has 5100 PUT and another has 5200 PUT. Both has 5100 CALL as hedge. Hence one with in money PUT has lesser time value. It would perform better in case of down trending market or range bound market. So I thought 5100 call and 5200 PUT is better than 5100 call put long.

But it would not be day and night kind of difference. But small performance difference would count in this kind of strategy. In case market goes down, 5100-5200 pair will give more return.

Feel free to correct me if my understanding is wrong!

Happy trading.

 

[sagarkapoor]

@simple_trader

I differ a little in the thinking here ... I believe that if the market goes down the 5100 straddle would give better returns since the 5200 put was already in the money hence you're paying more premium for it and so was the 5100 call. With the time decay factored in and for the fact that if the market falls there would be more interest around the 5100 put I'm guessing the 5100 straddle should be more benfecial (just my hunch)

I'm just guessing here and could be horribly wrong

 

[simple_trader]

@simple_trader

I differ a little in the thinking here ... I believe that if the market goes down the 5100 straddle would give better returns since the 5200 put was already in the money hence you're paying more premium for it and so was the 5100 call. With the time decay factored in and for the fact that if the market falls there would be more interest around the 5100 put I'm guessing the 5100 straddle should be more benfecial (just my hunch)

I'm just guessing here and could be horribly wrong

You can check them from real time data now. Do update here, which is having advantage.

thanks!

 

[VaibhavPRO]

booked the strangle @ rs 297. market nearing its recent support.
Total profit 47 points. Lucky day for me

You were right simple_trader
This strangle gave better profit than the 5100 straddle. which is giving profit of 32 points.


AW10 Sir does a volatility index exists for nifty? if yes then where to find it.

can you tell more about the volatility index. and how on market downfalls volatility increases more whereas on market rises volatility may decrease.

 

[MaxX]

India VIX can be found here - http://www.nseindia.com/content/press/prs_vix.htm

Has links to historical data along with charts..

 

[AW10]

AW10 Sir does a volatility index exists for nifty? if yes then where to find it.

You already got the link in MaxX's post above.

can you tell more about the volatility index. and how on market downfalls volatility increases more whereas on market rises volatility may decrease.

Of the two emotions - FEAR and GREED that are dominent in market, FEAR is lot more powerful... So when mkt falls, FEAR goes up, VIX (also known as fear index) goes up,.. and everybody runs to cover /hedging/ safety etc.
As that happens, option writer use this high demand of option and raises their selling price.. That is also required, cause risk of option writer goes up so they need better reward for the risk that they are taking..

Contrary to this, everybody goes complecent in bull market (as it was in March/april month), everybody expects the ride to moon.. and they love seeing the green .. hence there is no reason for higher option premium in such conditions.

In that complecency they forget the basic rule of mkt and hence they wakeup and run for cover on first appearance of bear.

In my view, real option player needs to understand the dynamics of volatility and get the best from it. Let stock and future traders be afraid of volatile mkt.. while we enjoy the high volatility.

Happy Trading

 

[sagarkapoor]

You can check them from real time data now. Do update here, which is having advantage.

thanks!

Yup you were right dude ... bang on :clap::clap: ... I squared off my position @ a profit of 10 points (Trailing SL hit) ...