Option trading with DanPickUp

[DanPickUp]

Yes TP, that's the one I mentioned in the last post. I even would recommend it when the link would be three foot long.

By the way: Is this kind of foot criteria how you value a book in your country?

I am clear that a book with 255 pages is not a clacks to read. May I ask if making consistent money with option trading is just a clacks?

Knowledge is the power we have to fight the market and for that knowledge we have to work as we have to do in any other job. As more as we climb such mountains like the knowledge given in that book, as higher the chances rises to survive in the market. If we have once climbed such a mountain, the next one will be more easy and the following one even much more easy. Had not problem atoll to go through the book as it was some kind of repetition to what I know and trade. So that is the reason why I even recommended such a high class book.

Good trading / DanPickUp

By the way: An other one I am going quickly through just now when not much is to do: Profit with options from Lawrence G. Mc.Millan. Essential Methods for investing success.

An other mountain of knowledge. No problem. As told: If you start to read such books very often, you not will read them page for page in later stages as you have enough knowledge to be able to exactly know what could be an improvement for your knowledge. All the rest is repetition.

Edit: Just finished the book. Best part for me have been the sections with the very deeply, specific questions about any kind of option strategy trading. To answer them you really need an absolute profound knowledge about it. Had to really think what to answer. But that is Mc.Millan, also called the godfather of option strategy trading.

 

[gmt900]

Dear DanPickUp,
Many thanks for suggesting to read a good Options Trading Handbook. As mentioned in my earlier post to you, I have gone thr' your thread on option trading. It will take some time to go thr' the handbook. But in the meantime I was doing some calculations reg Short Strangle strategy, which I wanted to run by you to know whether my analysis is on right lines.

Today it's a holiday for NSE. Yesterday, nifty spot was @5835.3. IV was 15.07 ( it came down from 16.22 at the beginning of the session)
One can enter short strangle for May series;
5600PE @30.05
6000CE @43.55
Total 73.60 points

Margin required is appr Rs 50,000.

Upper BEP is 6073.60. Lower BEP is 5526.40

In order to hedge the strategy, one can simultaneously buy options as follows;
5500PE @18.35
6100CE @20.85
Total 39.20 points

Margin required is nil.

Thus one makes 73.60-39.20=34.40 points.

If nifty expires between 5600 and 6000, one makes 34.20 points.
If nifty expiers between 6000 and 6073.60, one makes nil
If nifty expires between 6073.60 and 6100, one loses upto 26.4 points
If nifty expires between 5600 and 5526.40 one makes nil
If nifty expires between 5526.40 and 5500, one loses upto 26.4 points.
If nifty expires below 5500 or above 6100, one loses 26.4 points.

If one enters with one lot, maximum gain would be 34.40 * 50 = 1720 which is 3.44% in one month.

Maximum loss would be limited to 26.40 *50 = 1320.

If one does not hedge the position simultaneously with the writing of short strangle, one can make a maximum of 73.60* 50 = 3680 which is 7.36 %.
However, in that case one will have to monitor the trade carefully in ways explained in your thread.

In India one can get interest on fairly safe investment of 1% per month.
Therefore, if one can make about 4% per month by carefully monitoring the trade and not exposing oneself to infinite loss risk, this strategy can give a consistent return which is substantially higher than one gets from debt instruments.

Please give your comments on my analysis and whether I missing any points.

Thanks and regards,
gmt900

 

[DanPickUp]

Hi Gmt900

If you do it with all four legs, you have a long iron condor and if you do it with only two legs (long call and long put), you have a long strangle. So far I not can spot any mistakes you made in your post about the way how to trade it. The numbers seem to be ok, so also here not much to say from my side.

If you want to fine tune it, you can start with a short strangle in case the SV is high on the underlying and then leg in with the long legs at the time it is needed or vice versa when the SV is low you start with a long strangle and sell your short legs when it is needed. Means when market moves toward your BE. That would even improve a bit your profit.

Good trading / DanPickUp

 

[SaravananKS]

Dear DanPickUp,
Many thanks for suggesting to read a good Options Trading Handbook. As mentioned in my earlier post to you, I have gone thr' your thread on option trading. It will take some time to go thr' the handbook. But in the meantime I was doing some calculations reg Short Strangle strategy, which I wanted to run by you to know whether my analysis is on right lines.

Today it's a holiday for NSE. Yesterday, nifty spot was @5835.3. IV was 15.07 ( it came down from 16.22 at the beginning of the session)
One can enter short strangle for May series;
5600PE @30.05
6000CE @43.55
Total 73.60 points

Margin required is appr Rs 50,000.

Upper BEP is 6073.60. Lower BEP is 5526.40

In order to hedge the strategy, one can simultaneously buy options as follows;
5500PE @18.35
6100CE @20.85
Total 39.20 points

Margin required is nil.

Thus one makes 73.60-39.20=34.40 points.

If nifty expires between 5600 and 6000, one makes 34.20 points.
If nifty expiers between 6000 and 6073.60, one makes nil
If nifty expires between 6073.60 and 6100, one loses upto 26.4 points
If nifty expires between 5600 and 5526.40 one makes nil
If nifty expires between 5526.40 and 5500, one loses upto 26.4 points.
If nifty expires below 5500 or above 6100, one loses 26.4 points.

If one enters with one lot, maximum gain would be 34.40 * 50 = 1720 which is 3.44% in one month.

Maximum loss would be limited to 26.40 *50 = 1320.

If one does not hedge the position simultaneously with the writing of short strangle, one can make a maximum of 73.60* 50 = 3680 which is 7.36 %.
However, in that case one will have to monitor the trade carefully in ways explained in your thread.

In India one can get interest on fairly safe investment of 1% per month.
Therefore, if one can make about 4% per month by carefully monitoring the trade and not exposing oneself to infinite loss risk, this strategy can give a consistent return which is substantially higher than one gets from debt instruments.

Please give your comments on my analysis and whether I missing any points.

Thanks and regards,
gmt900

Dear GM

The Maximum Risk is 65.6 Not 26.4 as you said

 

[gmt900]

Dear GM

The Maximum Risk is 65.6 Not 26.4 as you said

:lol::lol:

 

[DanPickUp]

@Alphaplustrader

I run only one real active thread in the option section and that is this one. If you look for a thread about any specif calls or trades, I do not support such threads and I do not run such threads.

@SaravananKS

I did not control the numbers in dept. I went in dept through the idea the way it was mentioned to trade the strategy. So I mentioned: Seems, as it came to the numbers. If the numbers have been wrong, thanks to correct that and if not, you may check again the way gmt900 calculated it.

Good trading / DanPickUp

 

[SaravananKS]

@Alphaplustrader

I run only one real active thread in the option section and that is this one. If you look for a thread about any specif calls or trades, I do not support such threads and I do not run such threads.

@SaravananKS

I did not control the numbers in dept. I went in dept through the idea the way it was mentioned to trade the strategy. So I mentioned: Seems, as it came to the numbers. If the numbers have been wrong, thanks to correct that and if not, you may check again the way gmt900 calculated it.

Good trading / DanPickUp

Dan,
I Also not went through the Numbers. From My experience the Iron condor would not give better Risk Reward ratio as GMT900 said( Though it has Higher Probability for gain).

Then I went through the numbers and I found some miscalculation in GMT900 Post.

Please correct me if I am wrong

 

[DanPickUp]

Well dear SaravananKS

As you say: Then I went through the numbers and I found some miscalculation in GMT900 Post.

Now I guess it is really your turn to prove your calculation and not my turn to prove yours. As you came up with the comment, I think that is not more then fair.

DanPickUp

 

[SaravananKS]

OK

If We trade the Iron Condor we would have following Positions



Buy 6100CE may @ 20.85
Buy 5500PEMay @18.35
Sell 5600PE May @30.05
Sell 6000CE May @ 43.55

The nett Credit inflow would be 34.40 Points

OK
if Market closes @ or Below 5500 the Out Flow would be 100 Pts
if Market closes @ or Above 6100 the Out Flow would be 100 Pts

Both case the Net Out Flow would be 100-34.40=65.60 Pts

So the Maximum Risk is this Strategy is 65.60Pts + Expenses Like brokerage,taxs, slippages etc


These are My calculations for my comment

 

[DanPickUp]

Now who is the winner?

Actually Nobody, as it was not a competition. The calculation is a bit tricky when not being careful with every detail at the moment we just fly over the strategy and do not give much to the numbers in detail. And exactly here was the hidden wolf.

If we go a bit deeper, then SKS has nicely explained how it is. So the final maximum risk is: 65.60 Pts.

As the strike levels have 100 point difference, we have to take this in to account and then as told from SKS, we take away the net credit from 34.40 points from this difference of the strike levels, which is 100 point and that will lead us to 65.60 Pts. (Difference in adjacent strike - net credit)

Thanks to SKS to spot on that specific detail.

Well done and very attentive / DanPickUp