Nifty Options Vertical Spread Trading
- Thread starter ananths
- Start date
Hi Jagan,
Yes. CALL spreads can be useful but my view is that market may find some resistance around 5750 levels...we are almost very near to it hence if any market correction pulls down NIFTY by 100 points, our PUT spread will give good returns and they will be available with low risk.
There is no problem in taking call spread as this is low risk strategy and trading with direction is always good.
Currently I have started with single lot NF trading...by looking at some chart patterns and I have been observing this for few days now and yesterday first time I traded with it and could get 71 points. However I will continue with this option spread trading alongside.:thumb:
Yes. CALL spreads can be useful but my view is that market may find some resistance around 5750 levels...we are almost very near to it hence if any market correction pulls down NIFTY by 100 points, our PUT spread will give good returns and they will be available with low risk.
There is no problem in taking call spread as this is low risk strategy and trading with direction is always good.
Currently I have started with single lot NF trading...by looking at some chart patterns and I have been observing this for few days now and yesterday first time I traded with it and could get 71 points. However I will continue with this option spread trading alongside.:thumb:
Y'day i bot 5900 CE - 39, Sold 6000 CE - 19, Net Risk 20 pts. Expecting good Run till RBI Meet on 20th. 
Last time before the fed meeting FII's were heavy put buyers but no negative news but inspite of that Markets opened possitively went up 60 points and then fell 140 points if my memory is correct.
Wish you good luck.
Following a news is not a good idea...market usually does the opposite because most of the news are already priced in by the time we know the news....Especially for option traders its disaster because vola and time value!...We should just follow the screen. What level we enter the trade makes the difference. So little bit TA knowledge would fine tune our entry and exit.
Hi Ananth
I got a PM from a member which did not know where to place the question. As it is again related to spread trading, in this case a bit some thing out of the box, I post the PM and the answer here, so others which may are also interested in it can profit from that.
Here the PM:
Dear Dan
I am sending you a PM, since I did not know which the appropriate thread to post this query is. Since Sept, nifty options are available with 50 points gap against 100 points earlier, I feel that one can take advantage of this development to play short strangle with better hedging possible.
-If I want to play very safe, I can write Oct 5900 call and Oct 5100 put for a total inflow of 121 + 73 = 194 points.
-I can simultaneously buy Sept 5950 call and Sept 5050 put for an outflow of 34 + 21 = 55. The net inflow therefore will be 194 - 55 = 139 points.
Since the maximum loss before Sept expiry will be 50 -premium received; there will be no possibility of loss since the net premium received is more than 50.
This can be further fine tuned by selling options when the vola is high and buying options when vola is low and by legging in call and put options.
I am thinking of this strategy based on the interaction I had with you in the past and by reading "The Option Trader Handbook" recommended by you.
The "Unlimited Loss" short strangle can become a "NO loss" strategy.
Is there any flaw in this strategy since it sounds to be too good to be true?
Sorry to disturb you during the week end.
Thanks and regards,
Hi
What you talk about is finally a "Long iron calendar condor". You have on both sides a vertical calendar spread, one with the puts and one with the calls. That is the final strategy, even if you talk about a short strangle. But you converted that short strangle by adding a long strangle from this month series and that makes it finally a long iron calendar condor.
This kind of strategy faces the risk with IV and gives us advantage about time decay. Most call that kind of trades: Income strategy. It is also a net credit trade. Best when market moves in a range and vola is not much oscillating. Profit is capped and risk has to be considered as to be watched closely, as outside break evens you could be badly hurt in worst case scenarios.
Now whatever strategy you play, it is the specific trader who makes them safer by knowing when and how to adjust them. To say from my side: Yes it is perfectly a non risk play, would give the wrong impression to that. The way you implement this long iron calendar condor has a huge range. Even then: In case Nifty rushes up from now let’s say 300 points, you will need to know what to do, as your break even on the call side (call calendar spread) is in danger. Be very clear about that and be prepared to act when it comes to that event. So the strategy has its advantage and disadvantage.
As you wrote: This can be further fine tuned by selling options when the vola is high and buying options when vola is low and by legging in call and put options, these steps are also called adjustments’. Here some food for the brain about that: http://highprobabilitytrading.org/a-critical-look-at-option-trade-adjustments/. Adjustments on the break evens have to be tested in advance and to be in place in your head, so you can act quickly if needed and not first have to think what you should do now in case the event knocks on your door.
Take care / DanPickUp
I got a PM from a member which did not know where to place the question. As it is again related to spread trading, in this case a bit some thing out of the box, I post the PM and the answer here, so others which may are also interested in it can profit from that.
Here the PM:
Dear Dan
I am sending you a PM, since I did not know which the appropriate thread to post this query is. Since Sept, nifty options are available with 50 points gap against 100 points earlier, I feel that one can take advantage of this development to play short strangle with better hedging possible.
-If I want to play very safe, I can write Oct 5900 call and Oct 5100 put for a total inflow of 121 + 73 = 194 points.
-I can simultaneously buy Sept 5950 call and Sept 5050 put for an outflow of 34 + 21 = 55. The net inflow therefore will be 194 - 55 = 139 points.
Since the maximum loss before Sept expiry will be 50 -premium received; there will be no possibility of loss since the net premium received is more than 50.
This can be further fine tuned by selling options when the vola is high and buying options when vola is low and by legging in call and put options.
I am thinking of this strategy based on the interaction I had with you in the past and by reading "The Option Trader Handbook" recommended by you.
The "Unlimited Loss" short strangle can become a "NO loss" strategy.
Is there any flaw in this strategy since it sounds to be too good to be true?
Sorry to disturb you during the week end.
Thanks and regards,
Hi
What you talk about is finally a "Long iron calendar condor". You have on both sides a vertical calendar spread, one with the puts and one with the calls. That is the final strategy, even if you talk about a short strangle. But you converted that short strangle by adding a long strangle from this month series and that makes it finally a long iron calendar condor.
This kind of strategy faces the risk with IV and gives us advantage about time decay. Most call that kind of trades: Income strategy. It is also a net credit trade. Best when market moves in a range and vola is not much oscillating. Profit is capped and risk has to be considered as to be watched closely, as outside break evens you could be badly hurt in worst case scenarios.
Now whatever strategy you play, it is the specific trader who makes them safer by knowing when and how to adjust them. To say from my side: Yes it is perfectly a non risk play, would give the wrong impression to that. The way you implement this long iron calendar condor has a huge range. Even then: In case Nifty rushes up from now let’s say 300 points, you will need to know what to do, as your break even on the call side (call calendar spread) is in danger. Be very clear about that and be prepared to act when it comes to that event. So the strategy has its advantage and disadvantage.
As you wrote: This can be further fine tuned by selling options when the vola is high and buying options when vola is low and by legging in call and put options, these steps are also called adjustments’. Here some food for the brain about that: http://highprobabilitytrading.org/a-critical-look-at-option-trade-adjustments/. Adjustments on the break evens have to be tested in advance and to be in place in your head, so you can act quickly if needed and not first have to think what you should do now in case the event knocks on your door.
Take care / DanPickUp
Dear ananths,
Yes, it is true that volumes are low in 50 strike prices. However, I think it is because this change is just introduced. I had no problem in buying sept options of 5950C and 5050P.
I will post the trade which I have taken today along with my plan for your and Dan's comments.
Yes, it is true that volumes are low in 50 strike prices. However, I think it is because this change is just introduced. I had no problem in buying sept options of 5950C and 5050P.
I will post the trade which I have taken today along with my plan for your and Dan's comments.
Last edited:
I took the following trade today:
SOLD OCT 5900C @200
5100P @52.5
BOUGHT SEPT 5950C @80
5050P @14
Total inflow 252.5
Total outflow 94.0
Net inflow 158.5
If I were to buy Oct 5950C and 5050P instead of Sept, there would have been no possibility of loss but net inflow would have been substantially less.
The BEPs are 4847.5 and 6152.5 on the lower and upper side resply.
This trade has to be closed before Sept expiry.
I have taken a fairly safe range of 800 nifty points, since I am trying the strategy for the first time. Even then because of the spectacular run of nifty,
EOD positon is as follows:
Oct 5900C -40
Oct 5100P +6.4
Sep 5950 +38
Sep 5050 -3.2
Total Profit 1.2.
Nifty has been making wild swings last few days. So I will have to wait for a few days before thinking about the adjustment I may have to do to this trade. As for the type of adjustments, I will have to think of alternatives and weigh pros and cons.
My purpose is to use this strategy for` regular income rather than expecting handsome profits. In the event of losses, they should be very small so that over a period of time one should make a decent profit, say at least 4% to 5% per month.
SOLD OCT 5900C @200
5100P @52.5
BOUGHT SEPT 5950C @80
5050P @14
Total inflow 252.5
Total outflow 94.0
Net inflow 158.5
If I were to buy Oct 5950C and 5050P instead of Sept, there would have been no possibility of loss but net inflow would have been substantially less.
The BEPs are 4847.5 and 6152.5 on the lower and upper side resply.
This trade has to be closed before Sept expiry.
I have taken a fairly safe range of 800 nifty points, since I am trying the strategy for the first time. Even then because of the spectacular run of nifty,
EOD positon is as follows:
Oct 5900C -40
Oct 5100P +6.4
Sep 5950 +38
Sep 5050 -3.2
Total Profit 1.2.
Nifty has been making wild swings last few days. So I will have to wait for a few days before thinking about the adjustment I may have to do to this trade. As for the type of adjustments, I will have to think of alternatives and weigh pros and cons.
My purpose is to use this strategy for` regular income rather than expecting handsome profits. In the event of losses, they should be very small so that over a period of time one should make a decent profit, say at least 4% to 5% per month.
It is not clear why do you want to buy sept option and sell oct. option.I think you have already checked the strategy graph . As per my view if nifty at sept expiry goes below 5730, then you will get profit but if you sell sept 5100 put and 5900 call and buy oct 5000 put / 6000 call you will get a wide range 4920-6080 and probability of profit is much higher ,I am be wrong but interested to know any specific reason for your strategy
It is not clear why do you want to buy sept option and sell oct. option.I think you have already checked the strategy graph . As per my view if nifty at sept expiry goes below 5730, then you will get profit but if you sell sept 5100 put and 5900 call and buy oct 5000 put / 6000 call you will get a wide range 4920-6080 and probability of profit is much higher ,I am be wrong but interested to know any specific reason for your strategy
Thanks to jump in with your comment.
Can you kindly post the screen shots from your graphs your software shows, as this would help others to see the trade on a graph. As I use OpVue, which gives all the data from CME, but doe's not support any nifty options data, I not could do that. Would be nice to have an other expert on board which has the software which works with Nifty option data or in general with all option data your exchange offers. Would be also nice if you could tell the place where those software could be bought, as Option Oracle is no choice.
Take care / DanPickUp
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