Paper Trading Nifty Straddles

[bandlab2]

Should we still have a stop loss as 50% here? I think it would be a good idea to exit cost-to-cost than to have a stop

You can try changing that 50% to 40, 30, 0 based on your risk appetite. we will collect the stats for 6 months to know better. sometimes maket reverse the direction thats why we need to give us a chance to come out of losing position to winning

 

[bandlab2]

Update on Jan 27

Strategy 1:

Sold Straddle for 327 premium. Right now total premium = 295. Profit = 32

Strategy 2:

Not Initiated yet

 

[dumdum20008]

Hi,

Have a look at

http://www.traderji.com/derivatives...trading-part-2-positional-560.html#post267811

http://www.traderji.com/derivatives...trading-part-2-positional-563.html#post269508

http://www.traderji.com/derivatives...trading-part-2-positional-564.html#post269876

and today its

27-01-2009(Tue)
------------
[CE(2800)+PE(2800)] credit = 21+54= 75
NF = 2765

they work but be cautious of crashes, which are unavoidable and if u believe in statistcs ( you should) then 2 months out of 12 in a year will shake you certainly. In that case deep out of put ( say 300-350 points down) should be buy to hedge from crash. Option pain is usefull in deciding the strike price of which call and put to be sold in last fortnight.

 

[bandlab2]

thanks dumdum for your views.

buying deep put/call out of the premium collected is not a bad idea. but the question is when to buy.

 

[AW10]

Re: Paper Traing Nifty Straddles

Yes, as coolboy (thanks cb) mentioned its 50% of combined premium collected. If we collected 300 rs and if combine premium goes up to 450 rs then close the position. this 50% is losely defined now, after collecting the stats fo 6 months then we will know the min, max, deviation etc

Thanks CB/ Bandlab for clarifying the stoploss level for 1st strategy i.e. when net premium value becomes 150% of the premium (i.e. 50% more then that we have collected). That means in above case, when net premium becomes 450 (i.e. 150% of 300approx that we have collected). In my view, to reach that level, NIFTY has to move atleast 350 points on either direction (very low probability of this move in short period and hence it gives us sufficient time to monitoring our position before NIFTY). That is fair enough.
As you clearly mentioned, other people can use different stoploss based on their risk appetite.
Just to put the risk in Rs terms calculation I am giving the example here. Correct me if I am wrong.

We are risking 50*150 = 7500 Rs. for a reward of 300*50 = 15000.
I.e. if someone wants risk only 5000 (which is 100*50) .. so he needs to close the position when combined premium becomes 300+100 = 400 rs.

Happy Trading.

 

[AW10]

thanks dumdum for your views.

buying deep put/call out of the premium collected is not a bad idea. but the question is when to buy.

Generally it is suggested to buy insurance as soon as we have risk in our hand. So, many people will buy the protective OTM put and calls immediately (i.e. convert short straddle to iron condor position).

Another approach will be to live with the risk but manage it via right position size. So even if position goes against us, account is not blown. . And as the trade moves against us, buy the protective put/calls at appropriate time. So, it depends on individual.

Happy Trading.

 

[bandlab2]

Re: Paper Traing Nifty Straddles

Thanks CB/ Bandlab for clarifying the stoploss level for 1st strategy i.e. when net premium value becomes 150% of the premium (i.e. 50% more then that we have collected). That means in above case, when net premium becomes 450 (i.e. 150% of 300approx that we have collected). In my view, to reach that level, NIFTY has to move atleast 350 points on either direction (very low probability of this move in short period and hence it gives us sufficient time to monitoring our position before NIFTY). That is fair enough.
As you clearly mentioned, other people can use different stoploss based on their risk appetite.
Just to put the risk in Rs terms calculation I am giving the example here. Correct me if I am wrong.

We are risking 50*150 = 7500 Rs. for a reward of 300*50 = 15000.
I.e. if someone wants risk only 5000 (which is 100*50) .. so he needs to close the position when combined premium becomes 300+100 = 400 rs.

Happy Trading.

in our case it is 1:1, on 300 rs , gain is 150 rs and stop-loss is 150 rs

 

[bandlab2]

Generally it is suggested to buy insurance as soon as we have risk in our hand. So, many people will buy the protective OTM put and calls immediately (i.e. convert short straddle to iron condor position).

Another approach will be to live with the risk but manage it via right position size. So even if position goes against us, account is not blown. . And as the trade moves against us, buy the protective put/calls at appropriate time. So, it depends on individual.

Happy Trading.

if the fall is as steep as we have seen in oct 20-23, then we need to be vey much agile. some brokers dont allow stop-loss orders on options.

 

[Capricorn]

thanks dumdum for your views.

buying deep put/call out of the premium collected is not a bad idea. but the question is when to buy.

Since we are not betting on direction here , i would suggest buying when the IV drops.

 

[AW10]

if the fall is as steep as we have seen in oct 20-23, then we need to be vey much agile.

You are right. But it depends if you want to design whole system for that event which falls in 6sigma range or define a system with 3sigma range. If we ask the question, what is the statistical probabilty of oct 22-23rd happening again, then it will give us the answer. I will prefer to use +ive expectancy over a period of time, rather then 1 single event to decide my risk mgmt.
And ofcourse of top of that, we have position size which ensures the sufficiently big enough position size, that my years earning is not at the risk on one single trade.

some brokers dont allow stop-loss orders on options.

That should be important point in selecting the broker. ICICIDirect has the facility of putting SL orders / after mkt hour orders on options.. Their brokerage is high.. but it is tradeoff. Who stops us iin using ICICI a/ct for short straddle strategy and use anyother trading acct for other strategies.

Bottomline, if we realise the problem, and use our creativity, the there are solutions possible. Being a trader, we know that we have to take risk, but we know it well how to manage it.

Happy trading.