Low Risk Options Trading Strategy - Option Spreads

[AW10]

Hi AW10,
How do we interpret change in OI, when should we assume it's been written and when should we assume it is bought? Thanks for knowledge sharing, I have been learning a lot from you.
-Talon

Thanks Talon, Good to know that my thread is helping u.

Regarding OI.. In the mkt, buyers and sellers are equal.. To clap, you need both hands, similarly to make a trade (that changes OI) you need both buyer and seller. So they are always equal.

You can make some high level interpretation by looking at change in OI. Options strategies are complex and hence change in OI needs to be intrepreted by keeping many other factors in mind. In my view, it is not a reliable trading input, or probably, I don't know how to use really use it as trade setup.

Plz refer to my following posts to get a glimpse of my views on OI.

http://www.traderji.com/options/34089-tracking-put-call-open-interest-2.html#post371969

http://www.traderji.com/options/34089-tracking-put-call-open-interest-2.html#post372523

Otherwise standard way of interpreting OI is

- If price increases and Open Interest increases, then their is strength behind the price move higher.
- If price decreases and Open Interest increases, then their is strength behind the price move lower.
- If price increases and Open Interest decreases, then their is weakness behind the price move higher.
- If price decreases and Open Interest decreases, then their is weakness behind the price move lower.

Hope this helps
Happy Trading

 

[DanPickUp]

Hi sagarkapoor

Implementing an option trades is some times a tricky thing. Many times, one or two little details are locked over or are just not known and then we hang in the trade and adjustment has to come in place.

One important part is volatility.

I show you here a page, which is easy to understand and has plenty of information about when to implement which strategy.

I wish it helps you and all the other option traders which are interested in it :

DanPickUp

 

[VaibhavPRO]

Hi AW10 sir

I would like to hear from you about the long stradle strategy.
Today i did the following trade. (analysis tells that Fridays ending and mondays have been highly volatile)
Bought JUN 5200 put - 147
Bought JUN 5100 call - 103

Today market was flat in the end so trade is in loss.
Also the combination i choose was becoz i am bearish at the moment as nifty is nearing its resistance area of 5150-5200. so wanted to gain via a down move even though i risk loss on small upmoves.

SIR,How much premium loss is expected over the weekend due to time decay. I could have waited for monday for doing this trade but dint want to loose out on a sharp move today afternoon(which dint happend ) and monday.

Also sir what can be the expected prices of these options if market opens 50 points gap up on monday.

Thanks
vaibhav

 

[AW10]

Hi AW10 sir

I would like to hear from you about the long stradle strategy.
Today i did the following trade. (analysis tells that Fridays ending and mondays have been highly volatile)
Bought JUN 5200 put - 147
Bought JUN 5100 call - 103

Today market was flat in the end so trade is in loss.
Also the combination i choose was becoz i am bearish at the moment as nifty is nearing its resistance area of 5150-5200. so wanted to gain via a down move even though i risk loss on small upmoves.

SIR,How much premium loss is expected over the weekend due to time decay. I could have waited for monday for doing this trade but dint want to loose out on a sharp move today afternoon(which dint happend ) and monday.

Also sir what can be the expected prices of these options if market opens 50 points gap up on monday.

Thanks
vaibhav

Vaibhav,
- The strategy is called Long Strangle (straddle has both legs with same strike price, whreas strangle have different strike price).. but name doesn't matter much.

- If you are bearish, then I don't know why did u go for market neutral strategy. you could have very well gone with bearish directional strategy like buy put or buy put spread.

- Plz plan your trade correctly as mentioned in this post and you will see the points where mkt needs to move in next 14 days to give u any profit.
http://www.traderji.com/options/305...ading-strategy-option-spreads.html#post333543

- In this strategy, one leg is guranteed looser. So winning leg to win more then what other leg is loosing, in order for this to become profitable.

- roughly the time decay will be about 9 to 10 rs for each trading day for complete position. Please refer to my other posts (links given in first few posts of this thread) to get idea of how to calculate rough value of time decay.

- With 50 points gap, it will make no difference to the net value. Cause when one leg will gain (say 25 points with this), other leg will loose 25 points approx. You will only see some gain if mkt crosses 4850 or 5450 levels.
Otherwise, everyday, 8 to 10 rs of loss will keep adding up.

Please please understand your strategy before u risk the money in mkt. If you want to donate it then better to give to many other needy people who deserve it more then the smart option writers in the market..

All the best. Happy Trading

 

[DanPickUp]

Hi

Here an other way to see if you should trade a long straddle or a long strangle.

If you see in your analyzing picture a smiling face, then gamma is long and you know that your strategy can work.

You do not need this software, it even works with less complicated tools.

Just remember

Have a nice weekend

DanPickUp

 

[Talon]

Thanks Talon, Good to know that my thread is helping u.

Regarding OI.. In the mkt, buyers and sellers are equal.. To clap, you need both hands, similarly to make a trade (that changes OI) you need both buyer and seller. So they are always equal.

You can make some high level interpretation by looking at change in OI. Options strategies are complex and hence change in OI needs to be intrepreted by keeping many other factors in mind. In my view, it is not a reliable trading input, or probably, I don't know how to use really use it as trade setup.

Plz refer to my following posts to get a glimpse of my views on OI.

http://www.traderji.com/options/34089-tracking-put-call-open-interest-2.html#post371969

http://www.traderji.com/options/34089-tracking-put-call-open-interest-2.html#post372523

Otherwise standard way of interpreting OI is

- If price increases and Open Interest increases, then their is strength behind the price move higher.
- If price decreases and Open Interest increases, then their is strength behind the price move lower.
- If price increases and Open Interest decreases, then their is weakness behind the price move higher.
- If price decreases and Open Interest decreases, then their is weakn ess behind the price move lower.

Hope this helps
Happy Trading

Thanks mate,
I am in market expecting 2% return per month(24% per annum), so for 17500/- I expect 350/-, so need to make 7 points per lot hence usually write deep-out-of-money call options and touch wood it's been successful, mainly I see the max-option-pain above that I take 10% and write only NIFTY call (For call writers there's zero unknown risk as any big surge will be anticipated unlike market drop i.e new life can be anticipated but death cannot be), max-option-pain is based on OI and I have been observing this for at least 10 months and it's been true every month.My strategy is naked writing, so I am not convinced by this one, I want to have a bullet proof strategy for 2% per month and I do not trade on intra day basis, only 5-10 trades per month . I feel if can stand way behind the major of the call option writers with even more risk minimized and with power of compound interest I can make wonders over period of years. Please comment on the above strategy also is there any better way to capitalize 7 points per month consistently with minimum risk and trade.
-Talon

 

[VaibhavPRO]

AW10 sir

Thanks sir for replying.. Actually i did this trade for 2-3days only not looking for expiry.I did this thinking that put will gain more than call will loose if there is a surge downwards.

You are right that if my analysis shows me that market is bearish than it would have been better to take a proper bearish position rather than a delta neutral position.

Actually m still lacking patience to trade till expiry.. trying different things.. sir on Thursday the total premium of these legs was around 270 and around 300 a day back thats wat urged me to do the trade. Will square off the trade on Monday morning booking any loss which i would be having.

THANKS
Vaibhav

 

[simple_trader]

Hi AW10 sir

I would like to hear from you about the long stradle strategy.
Today i did the following trade. (analysis tells that Fridays ending and mondays have been highly volatile)
Bought JUN 5200 put - 147
Bought JUN 5100 call - 103

Today market was flat in the end so trade is in loss.
Also the combination i choose was becoz i am bearish at the moment as nifty is nearing its resistance area of 5150-5200. so wanted to gain via a down move even though i risk loss on small upmoves.

SIR,How much premium loss is expected over the weekend due to time decay. I could have waited for monday for doing this trade but dint want to loose out on a sharp move today afternoon(which dint happend ) and monday.

Also sir what can be the expected prices of these options if market opens 50 points gap up on monday.

Thanks
vaibhav

The way dow closed today, it seems that you would make money in the strategy. In fact I was reviewing this yesterday for myself, but did not do it though (normally I do not keep any position open on weekend. This helps in getting a life).

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.

Compare to 5100 call+put, your strategy has 100 points assured. So only only 150 points time value.

Congratulations!

Also I would say, your plan is much better than naked option if we consider success in long run. I am personally against buying naked option except last 2-3 days of expiry where time value is very less.

I thought total premium was 240 only, did you take it bit early? I think for this kind of position even last 10 points count a lot. So better to wait till last minute, till weekend premium adjustment happens.

 

[born_2_trade]

@ 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..

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..

 

[VaibhavPRO]

yes simple_trader u r right i got in the trade early thinking market will swing in last 1 hour of trade.

yes on monday i may be in profit. but i would not continue to hold this beyond monday. I may change the center of the strangle and then try to job 10-15 points on next move.

lets see what happns

Vaibhav