Nifty Options Strategy - Sell Deep OTM Puts Apr'11

[shriramoka]

I follow a simple OTM options strategy for good trading gains. When the markets look excessively bearish, one can short the Nifty PUT option for a deep OUT OF THE MONEY strike price 20% below CMP (for eg- short 4500 PE Apr'11 @ 10 rs, for tgt 0) Similarly, when market is excessively bullish , one can short the Nifty CALL options for strike price 20% above CMP. Statistically, NIFTY has gone up/down 20% in 1 month only once in past 25 yrs.

Always operate with a SL, based on max loss that u can digest. Till date this OTM options selling strategy has worked @ 100% accuracy, giving me return of avg 2% RoI per month.

Any one else following this philosophy or some other simple strategy? Am keen to discuss new ideas, pls share if any.

tks
SMO

 

[rkkarnani]

How do we define market is excessively Bullish or Bearish? Rather how do we "know" that the market is excessively Bullish or Bearish, do we use any Indicator for it?
What do you take as risk reward ratio?
Is the "Spread" in Deep out of the money option tradeable? As you have been doing it for some time what is you expirience with it, i.e. the spread available in deep out of maney option pricing.

 

[rajsingh]

I follow a simple OTM options strategy for good trading gains. When the markets look excessively bearish, one can short the Nifty PUT option for a deep OUT OF THE MONEY strike price 20% below CMP (for eg- short 4500 PE Apr'11 @ 10 rs, for tgt 0) Similarly, when market is excessively bullish , one can short the Nifty CALL options for strike price 20% above CMP. Statistically, NIFTY has gone up/down 20% in 1 month only once in past 25 yrs.

Always operate with a SL, based on max loss that u can digest. Till date this OTM options selling strategy has worked @ 100% accuracy, giving me return of avg 2% RoI per month.

Any one else following this philosophy or some other simple strategy? Am keen to discuss new ideas, pls share if any.

tks
SMO

How would u define the market bull/bear, which option should we sell if we do it today???

 

[Vector]

http://www.fusioninvesting.com/2010/02/day-nine-ten-of-the-biggest-mistakes-in-option-trading/

I ve never done naked options but if it suits your temperament...

 

[rajsingh]

I just checked , 20% out put 4400 at the beginning of the March series was going for Rs 9. You'd have to have a pretty high volume to make decent bucks.

Hmm....

 

[rkkarnani]

I just checked , 20% out put 4400 at the beginning of the March series was going for Rs 9. You'd have to have a pretty high volume to make decent bucks.

Hmm....

Yes...
At deep out of the money options there may be sellers at 9 but dont be surprised to find buyers at Rs.7/- or 6/- only!! The spread is tooo BIG and liquidity very small!!!

 

[shriramoka]

Yes, it is illiquid and that's how I choose the stike price, for eg- if CMP is 5450, & sentiment is bearish (i.e 5400, 5300 PE is costlier than 5500, 5600 CE), then we check the OI for successively lower strike PUTS of next month. I usually sell 20 lots & just watch the option melt to 0 over the series. Else, if it comes down to 1 or 2 rs, I buy back to free margin for a new trade.

 

[kaleem1919]

Dear Shriramoka
I am interested in your strategy. Can you provide some more insight wrt present Nifty scenario. What investment is required for say 20 options contract.

kaleem

 

[anup]

@sriramoka: take an example of next month option and explain.... Right now its confusing

 

[nac]

Guys, This is a two yrs old and inactive thread, even the thread starter is not active...

Rs. 10/- for deep (20%) OTM option. May be it was there two yrs ago, but not now. And blocking 30k for a whole month to get 10 points (Rs. 500/-) (that too before brokerage and taxes). It's not a good strategy for a trader with small account or who is expecting better returns than this.

Coming to the current market scenario, we just have bidders @ 0.05 (yes it's 5 paise) for APR 7100 call option and 0.20 for APR 4700 put option. This won't even cover your expenses like brokerage and tax.