Low Risk Options Trading Strategy - Option Spreads

[DanPickUp]

Well, originally my idea was to place a butterfly at market price (all legs same time) to "bet" the index won't go outside break even points.

I guess in order to obtain a trade over the zero line the strategy must be placed one leg at a time.

I would like to try your strategy on nifty options and futures. Yet, I'm quite newbie to them. Do nifty future and option have the same multiplier?

Thanks

EDIT: in your example did you place the future for first or last?

Hi

- Placing the strategy at once is just one way to do it and it is the way it is shown all over.

- Yes, you can leg in at different levels or you also can combine different strategies to be over the zero line. For example your mentioned long iron butterfly: You start with the put credit spread and later you leg in with the call credit spread. Your final result is an improved LIB.

- No, in this case I did not place the future first or last. It was a step in between other steps. By the way: I do not teach such stuff. It was only meant to show you, that there are really other ways to trade a butterfly compare to what is shown all over in this free pages. That said it also counts for all other strategies.

You need sufficient software like OpVue6 to be in control of such strategies as the software needs to be able to show your picture at any time with futures and options. Option Oracle can only show trades with options, but as you see with the simple example from the LIB, you also can improve any butterfly when trading only the options the right way.

Good luck

DanPickUp

 

[theartofweb]

Hi

- Placing the strategy at once is just one way to do it and it is the way it is shown all over.

- Yes, you can leg in at different levels or you also can combine different strategies to be over the zero line. For example your mentioned long iron butterfly: You start with the put credit spread and later you leg in with the call credit spread. Your final result is an improved LIB.

I understand that the future contract is turning the main figure into a LIB by replacing one of the short put in the middle strike with a short call.

Nifty spot 4714 (29DEC2011 options, LTP)

BUY 1 OTM PUT 4600 @ 17.10
SELL 2 ATM PUT 4700 @ 48
BUY 1 OTM CALL 4800 @ 26.95

At this stage (credit 51,95), the figure above turns out to be a short naked put with infinite downside risk. The long Call provides infinite upside profite as well.

I can combine call and put options for the purpose of mimicking characteristics of the short future contract.

BUY 1 ATM PUT 4700 @ 48
SELL 1 ATM CALL 4700 @ 69.90

(4700 + 69.90 - 48 = short future contract from 4721,90 because of LTP)

As a result, I'm left with the following Long Iron Butterfly:

BUY 1 OTM PUT 4600 @ 17.10
SELL 1 ATM PUT 4700 @ 48
SELL 1 ATM CALL 4700 @ 69.90
BUY 1 OTM CALL 4800 @ 26.95

MAX RISK: 26 / MAX PROFIT: 73,85

Yet, when do you think I should put the short future on the strategy?

As a matter of fact, I can begin the strategy by just placing those two bought options:

BUY 1 OTM PUT 4600 @ 17.10
BUY 1 OTM CALL 4800 @ 26.95

and the wait and see what the market does...

Thanks

 

[theartofweb]

I wish I had in depth knowledge how to go about using butterflies to save a losing strategy

 

[DanPickUp]

Hi

Hope you enjoy your Christmas time with your family or friends. If you need or have some time to sit back, here an off topic:

https://rapidshare.com/#!download|5...s|6627|R~9B0C57D76A26AEC10C0FF534041CDAE0|0|0

To download you just press the green "Download" button.

If the slide show not works on your computer, you just click your left of the mouse to see the next picture and to read the text.

All the best

DanPickUp

 

[theartofweb]

I am opening a new trade to discuss my strategy

 

[rajesh4830]

very useful information for beginers

 

[mmca2006]

Hi

Hope you enjoy your Christmas time with your family or friends. If you need or have some time to sit back, here an off topic:

https://rapidshare.com/#!download|5...s|6627|R~9B0C57D76A26AEC10C0FF534041CDAE0|0|0

------------
DanPickUp

excellent, really touched my heart, thanks lot .

 

[theartofweb]

Expiration Strategy

=======================

NIFTY spot @ 4705.80

1 day to settlement.

Long Put Butterfly.

+1 DEC 4600PE 3/.
-2 DEC 4700PE 26/.
+1 DEC 4800PE 98/.

MAX LOSS: 49
MAX PROFIT: 51

UPSIDE BEP: 4600 + 49
DOWNSIDE BEP: 4800 - 49

=======================

The ATM 4700PE is 26/. So, I understand that market makers are pricing a +/- 26 pts max move (+/- 0,50%) while our breakeven is +/- 49 pts.

Let's see how it is going to end...

 

[theartofweb]

Let's see how it is going to end...

Expiry took place at 4646 while break even was at 4649. Result is -3 loss

NIFTY closed -1,27% while yesterday market makers were pricing a minor % movemenet.

I'll try next time

 

[DanPickUp]

What could be done different the next time you try to trade this strategy, as you surely want to improve the way you trade?

By the way: Your math skills on the subject so far are clear :thumb:

But unfortunately, only that seems not to be enough to make any profit.

Are you able to calculate specific option prices with different volatility's and time frames for different strike levels?