Picking up nickels in front of steamroller!!

[rammmeo]

Nice to see you again , we discussed much in PM!

What do you mean by 4400 put to hedge, I dont get it!!

i had bought the 4400 put to protect my positions if suddenly market falls
lets see if it works .

 

[jvblogger]

i had bought the 4400 put to protect my positions if suddenly market falls
lets see if it works .

Ok, I though you had also sold 4400PE!!

 

[rammmeo]

Ok, I though you had also sold 4400PE!!

wht u do to save ur position
first i use to take a put against a call and a call aganist a put
but if market falls than it call has limit place to dec and similarly if market rises put has limited place to dec .
so i hv come up with this that i sell in 3rd month of the series and to protect it i buy one option of the current series with a low price
do u suggest anything u this

 

[jvblogger]

wht u do to save ur position
first i use to take a put against a call and a call aganist a put
but if market falls than it call has limit place to dec and similarly if market rises put has limited place to dec .
so i hv come up with this that i sell in 3rd month of the series and to protect it i buy one option of the current series with a low price
do u suggest anything u this

Thanks for sharing another strategy! Following is the paper trade, as per my understanding, of your strategy. [Note that I have used current month (Dec) and next month (Jan) premiums as premium of the far month (Feb) is not available ]

OPTION SOLD (PAPER TRADE)

SERIES STRIKE PREMIUM UNIT PREMIUM EARNED
JAN'12 4000 PE 18.55 50 927.5
JAN'12 4100 PE 22.15 50 1107.5
JAN'12 4200 PE 32 50 1600
JAN'12 4300 PE 45 50 2250

TOTAL PREMIUM EARNED >> Rs.5885

OPTION BOUGHT FOR HEDGING

DEC'12 4400 PE 28.5 200 Rs. 5700

However, I am aware that you surely have collected more premium by selling January'12 options during November.

However, first thing I notice that by buying option of current month , we pay back certain amount of actual premium collected!

Secondly, the current month's bought option does'nt cover the entire open position entirely. When the current month's option expires you have to buy another option to cover the position. Therefore considering abovesaid example you have to buy 2 months options i.e. 8 lots of NIFTY to cover 4 lots of option sold for Jan'12. (And in your actual trade you would have to buy 12 lots to hedge 4 lots)

So, I wish to understand your strategy elaborately , you can do it perhaps by describing your existing trade/position with data, which will help us to examine it closely.

Thanks for your interest!

 

[rammmeo]

Thanks for sharing another strategy! Following is the paper trade, as per my understanding, of your strategy. [Note that I have used current month (Dec) and next month (Jan) premiums as premium of the far month (Feb) is not available ]

OPTION SOLD (PAPER TRADE)

SERIES STRIKE PREMIUM UNIT PREMIUM EARNED
JAN'12 4000 PE 18.55 50 927.5
JAN'12 4100 PE 22.15 50 1107.5
JAN'12 4200 PE 32 50 1600
JAN'12 4300 PE 45 50 2250

TOTAL PREMIUM EARNED >> Rs.5885

OPTION BOUGHT FOR HEDGING

DEC'12 4400 PE 28.5 200 Rs. 5700

However, I am aware that you surely have collected more premium by selling January'12 options during November.

However, first thing I notice that by buying option of current month , we pay back certain amount of actual premium collected!

Secondly, the current month's bought option does'nt cover the entire open position entirely. When the current month's option expires you have to buy another option to cover the position. Therefore considering abovesaid example you have to buy 2 months options i.e. 8 lots of NIFTY to cover 4 lots of option sold for Jan'12. (And in your actual trade you would have to buy 12 lots to hedge 4 lots)

So, I wish to understand your strategy elaborately , you can do it perhaps by describing your existing trade/position with data, which will help us to examine it closely.

Thanks for your interest!

here is what i do

E.g at the start of the month we try to take position in 3rd month that is jan . the rates i hv taken r examples

SERIES STRIKE PREMIUM UNIT
JAN'12 4000 PE 25 50
JAN'12 4100 PE 30 50
JAN'12 4200 PE 40 50
JAN'12 4300 PE 52 50

now wht we do is to cover our positions is we buy puts in the current month tht is nov. suppose we took 4600 put for 5 we hv to take the lowest poissible amt put so we do not put too much burden on our sold puts

and i try to hold it till end of this month only and take new position in new month

and one more thing by taking positions in third month we stay quite away from spot nifty like 800-700 points so in case of big movement of 500 points also there is some there is not much of a prob . and as per my knowledge 500 points in a month happens only once a year or so

 

[jvblogger]

Okay, I understand that you have sold 4 lots of Jan'12 which earned you Rs. 12,300-00 (as per your example) and you have bought 4 lots 4600 put for Rs. 1,000-00 which is deducted from your profit (here we are still not counting loss of Rs.400 towards brokerage).

Now, what will you do when November'11 series expires? Won't you have to buy another 4 lots of 4600 PE for December'11 series to cover your position? And that would cost you premium of around Rs. 50 (I am reducing premium from Rs.56 for time expired and assuming the market will remain where it is now) that would cost more of Rs.10,000-00 for 4 lots of 4600 PE!!!

And ditto for January'12 series!

So, I dont see any profit this way

I hope I have understood you clearly and not put cart before horse!!

 

[rammmeo]

Okay, I understand that you have sold 4 lots of Jan'12 which earned you Rs. 12,300-00 (as per your example) and you have bought 4 lots 4600 put for Rs. 1,000-00 which is deducted from your profit (here we are still not counting loss of Rs.400 towards brokerage).

Now, what will you do when November'11 series expires? Won't you have to buy another 4 lots of 4600 PE for December'11 series to cover your position? And that would cost you premium of around Rs. 50 (I am reducing premium from Rs.56 for time expired and assuming the market will remain where it is now) that would cost more of Rs.10,000-00 for 4 lots of 4600 PE!!!

And ditto for January'12 series!

So, I dont see any profit this way

I hope I have understood you clearly and not put cart before horse!!

NO BUDDY U R TAKING IT ALL WRONG

i said tht we will close the position in end of the series . that means we will close the jan position in the end of Nov series . we do not wait it to be zero .

what i think is like this tht wht amt of profit want from the investment
i think 2.5-3 % is gnd enough after deduction of all brok.,etc

and i personally checked tht if market has not moved much like 500 or anything than avg the price of option is dec by 4 % avg and may be more in favorable conditions .

here r my calculations :

sold 4 lots : 17500*4 = 70000
profit on sale 4 % = 70000*4% = 2800
loss on buy calls = 1000 rs
less brokerage 8 lots = 400
profit = 1400 rs tht is 2 % on investment

hope this time u get my point

 

[jvblogger]

Alirght, now I seem to grasp your strategy! I will try to do a trade that way!! Thanks!!

 

[rammmeo]

Alirght, now I seem to grasp your strategy! I will try to do a trade that way!! Thanks!!

and forget to mention one more thing is tht buy taking calls in jan series we stay minimum 1000 points away from spot price

Eg

on 4 nov nifty was above 5300 and we took puts of 4300,4200,4100 and 4000

 

[summasumma]

and forget to mention one more thing is tht buy taking calls in jan series we stay minimum 1000 points away from spot price

Eg

on 4 nov nifty was above 5300 and we took calls of 4300,4200,4100 and 4000

By saying the word "we took calls of 4300,4200,4100 and 4000.." , do u mean to say you SHORT 4300,4200,4100 and 4000 calls to open position?