SH's MArket Correction Prediction Strategy
- Thread starter Tradewithhunter
- Start date
Dear observer,
It would have helped if you had been a little more specific. The post you are referring to was in response to the points raised by our friend bandlab2. Are you looking for elaboration on the margin money not taken into consideration in calculating profit percentage or the margin money requirement in selling options. Or the ladder creation part.? In my post 43 I had suggested an alternate whereas the profit percentage could be enhanced by reducing the capital outflow by legging in a short put . The margin money required to sell the put was not taken into calculation. In this kind of trade set up I am more concerned with capital outflow, that is, money flowing out of account and money flowing into my account and base my calculation on that.
Academically [and classically] speaking the entire monetary aspects of a trade setup would be taken into calculation to determine the profit percentage, but personally in this case I will not take the margin money into calculation because it is not flowing out of my account, it is merely blocked, not available for use. When I buy an option the money is flowing out of my account. Capital outflow to me is money flowing out of account. There is however a loss of opportunity aspect that can be taken into consideration for the blocked money. Lets suppose that a person buys a stock worth one lakh and at the end of a year the stock still fetches him one lakh and terms it as no profit no loss, but had the money been parked in a fixed deposit of a bank, the safe return it would have otherwise earned is the loss of opportunity cost. There is loss of opportunity cost on the margin money blocked as the money is unavailable for any other trade. These are the theoretical financial terms one comes across from financial analysts occasionally. But practically speaking if a trader has 1 lakh in his account does he involve the entire money for setting up a trade [leverage traders please excuse]. No we involve only a certain percentage of our trading capital[depending on your money management] Suppose he sets up a trade buying something for 20000/ and sells the same for 25000/, the profit would be 25% on the capital outflow. But theres 80000/ doing nothing, passively lying in the account.Now if a small percentage of that passive money is blocked with possibility of increasing the 25% return and with no chance if incurring a loss on the blocked amount its good, I will take that any day.You see to me it comes across as a matter of perspective and context.
By creating the bear spread [buy 4500sell4300] we are only minimizing the loss possibility and limiting the profit potential to the extent of the spread No way in this set up does the margin amount stand a chance of loss and hence is passive.
Had this been a naked option selling the margin money would have stood a chance of serious loss. At the risk of sounding repetive I must say that it is a matter of individual perspective,your way of looking at things,but having said that classically trade setups would involve all monetary aspects for calculation purpose.
Strategic option set up such as bull call, bear put, are not exceptionally risky as the risk is limited to the debit incurred. But naked call selling is and you must know what you are doing and its implication. But yet nothing to be fearful or shunned completely.Fear creates distortion and effects our ability to comprehend. One must be open to all aspects of money making in the market. Besides other things, the ability to manage risk is directly proportional to our ability to generate profit. Complex option strategies require lot of application to comprehend and eventually when you apply them they will have their own stories to unfold. Intriguing things these options I say. Start by understanding fully one strategy at a time and then you will begin to become what you intend to be.
Margin requirement in selling options is not general like in futures. It would depend upon many factors such as structure etc.If you sell one out of the money call and put simultaneously the margin would be half of what would have been required had you sold only one of them because both the positions cannot get in the money ever. If you sell an in the money call the margin would be higher.If I sell 4000 call of Feb. how can the margin requirement be only of one nifty future whereas the call itself is 1200 points in the money. The margin requirement is not static and will change as the underlying price moves towards or away from strike. No single post can unravel in any measure the potentiality of options. Understanding options should always be considered as 'work in progress
Observer buddy, we must remain alive to fact that this thread has been initiated by SH to unravel his strategies, and we must not turn this into a option promoting/bashing platform or a general option educating fora, but if there are any query relating to options in context to SHs strategies I may attempt to attend.
Apologies SH.
Thanks and cheers
P.S Observer,the length of this post was playing on back of my mind hence the elaboration was curtailed but if you still have something specific, I will attend if I can.
It would have helped if you had been a little more specific. The post you are referring to was in response to the points raised by our friend bandlab2. Are you looking for elaboration on the margin money not taken into consideration in calculating profit percentage or the margin money requirement in selling options. Or the ladder creation part.? In my post 43 I had suggested an alternate whereas the profit percentage could be enhanced by reducing the capital outflow by legging in a short put . The margin money required to sell the put was not taken into calculation. In this kind of trade set up I am more concerned with capital outflow, that is, money flowing out of account and money flowing into my account and base my calculation on that.
Academically [and classically] speaking the entire monetary aspects of a trade setup would be taken into calculation to determine the profit percentage, but personally in this case I will not take the margin money into calculation because it is not flowing out of my account, it is merely blocked, not available for use. When I buy an option the money is flowing out of my account. Capital outflow to me is money flowing out of account. There is however a loss of opportunity aspect that can be taken into consideration for the blocked money. Lets suppose that a person buys a stock worth one lakh and at the end of a year the stock still fetches him one lakh and terms it as no profit no loss, but had the money been parked in a fixed deposit of a bank, the safe return it would have otherwise earned is the loss of opportunity cost. There is loss of opportunity cost on the margin money blocked as the money is unavailable for any other trade. These are the theoretical financial terms one comes across from financial analysts occasionally. But practically speaking if a trader has 1 lakh in his account does he involve the entire money for setting up a trade [leverage traders please excuse]. No we involve only a certain percentage of our trading capital[depending on your money management] Suppose he sets up a trade buying something for 20000/ and sells the same for 25000/, the profit would be 25% on the capital outflow. But theres 80000/ doing nothing, passively lying in the account.Now if a small percentage of that passive money is blocked with possibility of increasing the 25% return and with no chance if incurring a loss on the blocked amount its good, I will take that any day.You see to me it comes across as a matter of perspective and context.
By creating the bear spread [buy 4500sell4300] we are only minimizing the loss possibility and limiting the profit potential to the extent of the spread No way in this set up does the margin amount stand a chance of loss and hence is passive.
Had this been a naked option selling the margin money would have stood a chance of serious loss. At the risk of sounding repetive I must say that it is a matter of individual perspective,your way of looking at things,but having said that classically trade setups would involve all monetary aspects for calculation purpose.
Strategic option set up such as bull call, bear put, are not exceptionally risky as the risk is limited to the debit incurred. But naked call selling is and you must know what you are doing and its implication. But yet nothing to be fearful or shunned completely.Fear creates distortion and effects our ability to comprehend. One must be open to all aspects of money making in the market. Besides other things, the ability to manage risk is directly proportional to our ability to generate profit. Complex option strategies require lot of application to comprehend and eventually when you apply them they will have their own stories to unfold. Intriguing things these options I say. Start by understanding fully one strategy at a time and then you will begin to become what you intend to be.
Margin requirement in selling options is not general like in futures. It would depend upon many factors such as structure etc.If you sell one out of the money call and put simultaneously the margin would be half of what would have been required had you sold only one of them because both the positions cannot get in the money ever. If you sell an in the money call the margin would be higher.If I sell 4000 call of Feb. how can the margin requirement be only of one nifty future whereas the call itself is 1200 points in the money. The margin requirement is not static and will change as the underlying price moves towards or away from strike. No single post can unravel in any measure the potentiality of options. Understanding options should always be considered as 'work in progress
Observer buddy, we must remain alive to fact that this thread has been initiated by SH to unravel his strategies, and we must not turn this into a option promoting/bashing platform or a general option educating fora, but if there are any query relating to options in context to SHs strategies I may attempt to attend.
Apologies SH.
Thanks and cheers
P.S Observer,the length of this post was playing on back of my mind hence the elaboration was curtailed but if you still have something specific, I will attend if I can.
Ok Friends,
Nifty seems to be correcting... 100 EMA is at 4940 right now .. are you ready ???
http://www.traderji.com/technical-a...rection-prediction-strategy-3.html#post399161
Cheers
SH
Nifty seems to be correcting... 100 EMA is at 4940 right now .. are you ready ???
http://www.traderji.com/technical-a...rection-prediction-strategy-3.html#post399161
Cheers
SH
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