Options Trading Strategies

[orderflow13]

Another Strategy that can be used near expiry.(obv risk will be very less here, and maybe the reward therefore may be a bit less..)

I usually use this Between Wed-Fri of the 2nd last week of expiry and i only trade in nifty cause of liquidity..

1)Sell OUT of the money Option (of the direction market will go, i.e if you are bearish, Sell a Put) And
2)Buy the next month's Buy same Option(i.e Put in the above case) of the same strike Price.


Aim:- Eat all the Out of the money Premium with only a few trading days remaining and at the same time try and earn from the next month's Option That you Brought.

Chances of Loss :- If the Market Moves up heavily in the Opposite Direction and you lose more in the Next Month's Option than the Premium you received in the Current Month's Option you Sold.

Max Profit :- Nifty closes @ the strike Price(on expiry) of which you brought and sold the Option.

Even if Nifty Moves a Bit in the Opposite Side of the side you were betting on, still you would not lose and may easily end in profit only.



Example Say currently you are bearish on the market especially with the break of all recent supports..

Right Now current month 2600 put is trading @ 33 and Next month 2600 Put is trading @ 133.

Now what you do is ..
Sell 100 2600 Current Month Put @ 33
Buy 100 2600 Next month Put @ 133


Rationale --> Nifty closes @ 2600. You gain 30 Points(from 2600 put sold) + Premium from the fall in the next months Put that you brought.
Nifty closes @ 2570 ---> You gain premium from fall of next month's Put. You are break Even in the Current months Put

Below 2570 -- You start loosing one one point in from the current 2600 Put sold but u are simuntaniously earning a bit from the next Month's Put.

If the Market Moves up, Keep a stop of 100 on the next month's Put and you can get out Break-even Cause with so lil time left in expiry, the 2600 Put Of current Month Will expire @ 0 bucks.. (most prolly!!)

now a days calender spread is more attractive than bull days, as lots of brokerages willing to cut down the brokerage ( relligare pro account with yearly fix nonrefundable 10 k u can trade few lacks with no brokerages, m sure other brokerages must be providing same kind of deal breaks )

 

[shahv]

hi
thanks for the collection you have keep
kindly say how we can download it
shahv

 

[ag_fx]

Another Strategy that can be used near expiry.(obv risk will be very less here, and maybe the reward therefore may be a bit less..)

I usually use this Between Wed-Fri of the 2nd last week of expiry and i only trade in nifty cause of liquidity..

1)Sell OUT of the money Option (of the direction market will go, i.e if you are bearish, Sell a Put) And
2)Buy the next month's Buy same Option(i.e Put in the above case) of the same strike Price.


Aim:- Eat all the Out of the money Premium with only a few trading days remaining and at the same time try and earn from the next month's Option That you Brought.

Chances of Loss :- If the Market Moves up heavily in the Opposite Direction and you lose more in the Next Month's Option than the Premium you received in the Current Month's Option you Sold.

Max Profit :- Nifty closes @ the strike Price(on expiry) of which you brought and sold the Option.

Even if Nifty Moves a Bit in the Opposite Side of the side you were betting on, still you would not lose and may easily end in profit only.



Example Say currently you are bearish on the market especially with the break of all recent supports..

Right Now current month 2600 put is trading @ 33 and Next month 2600 Put is trading @ 133.

Now what you do is ..
Sell 100 2600 Current Month Put @ 33
Buy 100 2600 Next month Put @ 133


Rationale --> Nifty closes @ 2600. You gain 30 Points(from 2600 put sold) + Premium from the fall in the next months Put that you brought.
Nifty closes @ 2570 ---> You gain premium from fall of next month's Put. You are break Even in the Current months Put

Below 2570 -- You start loosing one one point in from the current 2600 Put sold but u are simuntaniously earning a bit from the next Month's Put.

If the Market Moves up, Keep a stop of 100 on the next month's Put and you can get out Break-even Cause with so lil time left in expiry, the 2600 Put Of current Month Will expire @ 0 bucks.. (most prolly!!)

Hi Arnav,
Did you trade this strat for live this time? If you did,kindly let us know when did you use SL? As in when feb 2600 PUT moved under 100, did you cover the feb option and kept the jan option open?I supposedly have read the trade correct..rite?

Thnks

 

[sachuc]

what is the margin requirement for writing straddle and how?
and for writing options is margin calculated by multiplying nos of shares(lotsize50 in nifty)*strike price ?or a 20 percent of this value as in case of futures ie 20%
of the previous multiplication
sach

 

[orderflow13]

what is the margin requirement for writing straddle and how?
and for writing options is margin calculated by multiplying nos of shares(lotsize50 in nifty)*strike price ?or a 20 percent of this value as in case of futures ie 20%
of the previous multiplication
sach

margin for writing 1 nifty option = 1 nifty lot
Theoretically risk in writing any option is equivalent to nifty future.

 

[radha55]

Hi All,

I am new to stock market.

Can anyone provide me link for basic options knowledge.

 

[Sunil]

Arnav,
Continuing our discussion abt. Bearish spreads - whether to use Puts or Calls... :

At around 2550 on Thursday, with good support at 2500 & resistance at around 2640-2660, it was apparent due to Oversold conditions that on Friday & Monday, we would see Nifty nearly making moves in opposite directions. (Atleast I felt that way, and wanted to strategise accordingly).
Since one is not sure what direction will be taken first (down first then up, or vice-versa), I went for Bearish Backspread.

Two alternatives available: Put Backspread or Call Backspread;
Here are the prices of options just before closing on Thursday:

1.
Buy Put 2600 @ 109
Sell Put 2500 @ 67
RESULTING IN NET COST/DEBIT OF Rs 42

2.
Buy Call 2600 @ 65
Sell Call 2500 @ 120
RESULTING IN NET CREDIT OF Rs 55


Strategy devised on Thursday for Friday (6-Mar) and this week (Monday followed by 2 holidays):

Papa 2570 & grand papa 2500 are near....

trying put bear spread:
Sell Call 2500 @ 120
Buy Call 2600 @ 65

Net credit received = Rs 55/-

not for exoiry; not for squaring off on same day; not for squaring off at same level....
if goes near / above 2600, will close Call 2600
if goes near / below 2500, will close Call 2500

On Friday, during the initial 2 hours, 60min bullish divergence became apparent, and a rally was on cards.
This is where my doubt crept in:
For that particular day, which option will give more profit as compared to pointes gained by underlying Nifty:
Sell Put 2500
or
Buy Call 2600
(both are OTM options)

But, as you rightly pointed out, that since they are theoritically same, their returns should also be the same.

Let's see their intraday peak position on Friday (6-Mar)
Long Call 2600 from 65 to 90 (+25pts)
Short Put 2500 from 67 to 40 (+27pts)
Nifty Spot from 2575 to 2625 (+50pts)

obviously, being OTM, they were not expected to give nearly at par returns with Spot - but it clears my doubt that Short Put will outperform Long call.
AS EXPIRY DATE IS STILL FAR, AT THIS STAGE, IT DOES NOT MAKE ANY DIFFERENCE WHETHER YOU SHORT PUT OR LONG CALL ESPECIALLY WHEN YOUR OUTLOOK/POSITIONAL STANCE IS FOR ONLY ONE TRADING WEEK.
- as you rightly concluded...


Only for study purpose:
Long Put 2600 from 109 to 72 (-37)
Short Call 2500 from 120 to 100 (-20)
vs
Spot's +50

Over here too, the extent of ITM determines the extent of loss.



We'll compare these two strategies (Put Backspread vs Call Backspread) at end of this week.

 

[arnav_rulz]

Arnav,
Continuing our discussion abt. Bearish spreads - whether to use Puts or Calls... :

At around 2550 on Thursday, with good support at 2500 & resistance at around 2640-2660, it was apparent due to Oversold conditions that on Friday & Monday, we would see Nifty nearly making moves in opposite directions. (Atleast I felt that way, and wanted to strategise accordingly).
Since one is not sure what direction will be taken first (down first then up, or vice-versa), I went for Bearish Backspread.

*out of topic
1st if your confused.. dont take up a trade .. Especially dont take a bearish spread when you are expecting a bounce back ?

Now current situation, Market is @ 2550, Support @ 2500 Resistance a little far away @ 2650, but expecting a bounce.
At this point i would suggest the best thing to do with the supports and resistance being close is... Sell a 2450 put and 2650 Call especially when you are confused about the direction.

(I dont mean to guide you as what you should do, I know you are already very good at this.. I just want to see what all is in your mind..)

Two alternatives available: Put Backspread or Call Backspread;
Here are the prices of options just before closing on Thursday:

1.
Buy Put 2600 @ 109
Sell Put 2500 @ 67
RESULTING IN NET COST/DEBIT OF Rs 42

2.
Buy Call 2600 @ 65
Sell Call 2500 @ 120
RESULTING IN NET CREDIT OF Rs 55

Now as a told you in Nifty trading thread, the better option is to take the Put spread in this case since the premium we have to pay is less than 45(100-55).

[/QUOTE]For that particular day, which option will give more profit as compared to points gained by underlying Nifty:
Sell Put 2500
or
Buy Call 2600
(both are OTM options)

But, as you rightly pointed out, that since they are theoritically same, their returns should also be the same.[/QUOTE]

I never meant that an selling an OTM put is same as buying a OTM call. Both are different in every way... even the returns. I Said if you plan to take the whole strategy i.e PUT Spread or Call Spread (bear) then Both are same.
Many a times what will happen is OTM(2500) put will say outperform the OTM call by say 10 points. Now the difference btw the return of the ATM put and call(2600) will also be 10 points thus it will nulify the overall effect.

Thus if planning to chose btw what spread you chose, then just checking which one of the 2 (ie OTM put or call) will outperform each other is not the way to look at it.


But if you Where not talking about the spread, and just wanted to see which option is better as you said below..

Let's see their intraday peak position on Friday (6-Mar)
Long Call 2600 from 65 to 90 (+25pts)
Short Put 2500 from 67 to 40 (+27pts)
Nifty Spot from 2575 to 2625 (+50pts)

obviously, being OTM, they were not expected to give nearly at par returns with Spot - but it clears my doubt that Short Put will outperform Long call.
AS EXPIRY DATE IS STILL FAR, AT THIS STAGE, IT DOES NOT MAKE ANY DIFFERENCE WHETHER YOU SHORT PUT OR LONG CALL ESPECIALLY WHEN YOUR OUTLOOK/POSITIONAL STANCE IS FOR ONLY ONE TRADING WEEK.

Then its not necessary that a Short Put is better than a long call.. In this case, since the bounce was not a very big amount thus Short Put outperformed, but had nifty Jumped another 50 odd points, the long call would have given better returns...


Also Don't compare the strategy with the intraday peak level, as sometimes due to a sudden spurt of high demand or supply near HOD or LOD, there may be a lotta Fluctuation in prices which may give a wrong idea.. especially when we are comparing strategies based on such small Margin of profit... Thus Always prefer Live Rates for comaparing..

 

[munde_77]

i am on initial stage of an EXCEL file, where all such strategies are listed....
one will just have to enter the relevant strike prices along with their premiums...
this will give an idea of the resulting profit/loss in each scenario

Sunil, Is trading in option is better than trading in equity and futures?

 

[deekonda]

Hi Sunil,

Thanks for very useful post.

I have a basic question on equity options.

suppose if i bought relcapital 300 CA @12 and now relcapital is trading at 310 and the value of 300 CA is 21.50. I placed a squaroff postion at 22 and no one is buying the 300 CA at this moment. What I can do on this and what if this continue on the expiry day also.

Thanks,
dee