Monthly Income with Options (and/or Futures and/or Equity)

[pannet1]

idea #5
Short Strangle:
Had to take advice from a wise trader. If a monthly income strategy (without much screen time) involves options then it should have time decay (options writing). Thanks denzo for making me realize this.

For swing trading :
Iron condors -> Short Strangles -> Short Straddles -> Naked Option Writing. (Dont go for naked option writing)

 

[pannet1]

Bank Nifty Short Strangle Fast forward:

27 Jun 2016
underlying is currently at trading at 17500ish

1) say we write near month july 18500 CE / 16500 PE short strangle
premium collected approx 200 rs.

2) say underlying moves to 18000.
now buy back 16500 PE at 100 rs (net premium 100 rs)
again sell 17000 PE at 200 rs (net premium 300 rs)

3) say underlying moves to 18500.
now buy back 17000 PE at 100 rs (net premium 200 rs)
again sell 18500 PE at 300 rs (net premium 500 rs)
buy protection 19000 CE / 18000 PE on both sides for protection.

sit and relax till expiry.

this way one could have a passive income month on month. seniors please advise if i have missed out anything in this plan.

 

[tradedatrend]

2) say underlying moves to 18000.
now buy back 16500 PE at 100 rs (net premium 100 rs)
again sell 17000 PE at 200 rs (net premium 300 rs)
.

When at the time of your trade (when BN is at ~17500), 1000 point OTM CE & PE are trading at ~100 each

Then when BN goes to 18000, then 1500 OTM PE i.e. 16500 PE must not be at 100 (actually much less than 100)

AND

1000 points OTM OE i.e. 17000 PE also be less than 100, unless VIX rises dramatically in meantime.


Thus not certain how you arrived at figure to sell 17000 PE at 200

 

[comm4300]

Bank Nifty Short Strangle Fast forward:

27 Jun 2016
underlying is currently at trading at 17500ish

1) say we write near month july 18500 CE / 16500 PE short strangle
premium collected approx 200 rs.

2) say underlying moves to 18000.
now buy back 16500 PE at 100 rs (net premium 100 rs)
again sell 17000 PE at 200 rs (net premium 300 rs)

3) say underlying moves to 18500.
now buy back 17000 PE at 100 rs (net premium 200 rs)
again sell 18500 PE at 300 rs (net premium 500 rs)
buy protection 19000 CE / 18000 PE on both sides for protection.

sit and relax till expiry.

this way one could have a passive income month on month. seniors please advise if i have missed out anything in this plan.

all the very best.

But one correction....there is nothing passive in this strategy.

 

[pannet1]

When at the time of your trade (when BN is at ~17500), 1000 point OTM CE & PE are trading at ~100 each

Then when BN goes to 18000, then 1500 OTM PE i.e. 16500 PE must not be at 100 (actually much less than 100)

AND

1000 points OTM OE i.e. 17000 PE also be less than 100, unless VIX rises dramatically in meantime.


Thus not certain how you arrived at figure to sell 17000 PE at 200

hi tradedatrend,

made several assumptions. i also assumed pessimistically the index went straight up. so if you give and take here and there, we should be fine. i think. what do you say.

 

[pannet1]

all the very best.

But one correction....there is nothing passive in this strategy.

comm4300,

i have just started out from this month and already made 34 trades in the current month BN. For someone like me i think its ok. thats what i meant.

 

[tradedatrend]

hi tradedatrend,

made several assumptions. i also assumed pessimistically the index went straight up. so if you give and take here and there, we should be fine. i think. what do you say.

You made an assumption market will go up, that is fine, market has to go up or down eventually.

But i am pointing out your assumption about option premium at different point in times, say

on 1st June - 1000 points OTM PE is at rs. 100
then on 10th June - 1000 point OTM PE must be less than 100 unless vix rises dramatically in meantime (not 200)
And on 10the June - 1500 Point OTM PE mush be much more less than 100 unless vix rises dramatically in meantime (not 100)

as you are saying below

2) say underlying moves to 18000.
now buy back 16500 PE at 100 rs (net premium 100 rs)
again sell 17000 PE at 200 rs (net premium 300 rs)

 

[pannet1]

You made an assumption market will go up, that is fine, market has to go up or down eventually.

But i am pointing out your assumption about option premium at different point in times, say

on 1st June - 1000 points OTM PE is at rs. 100
then on 10th June - 1000 point OTM PE must be less than 100 unless vix rises dramatically in meantime (not 200)
And on 10the June - 1500 Point OTM PE mush be much more less than 100 unless vix rises dramatically in meantime (not 100)

as you are saying below

:clapping:

i am not denying what you said. is there a sane way of calculating the options price if time and the price of the underlying are known.

 

[heppagudi]

Keeping target between 50 to 100 points keeping stoplos favours from sudden market slumps.

 

[pannet1]

idea #6 Call / Put Diagonal Spread