LEARNING STRATEGIES

Learning  FINNIFTY Expiry Date 27-02-2024

Sell 20550 CE 1 lot at 23.5

Sell 20550 PE 1 lot at 18.5        

At 2:30 pm Initiated a short straddle in at 20550 with total premium of 34.5 (23+18.5). so that we can get a profit of 

34.5 x 40 = 1360 approx.  After few minutes FINNIFTY started moving up. the PE premium decayed to around 8. Now the oscillations in the PE was around +/-4 rs . whereas the oscillations in the CE were more. The CE was around 30 and PE was around 8.  Since , we are not sure whether the PE option and CE option would compensate  each others fluctuations effectively. Another trade was initiated  at 20600 PE at a premium of 47.
Looking at the trade , we have a NAKED SHORT at 20600 PE (a  slightly ITM option ) and  a hedge below it .
The hedge is nothing but a straddle at 20550  with a premium of 20550.

Existing position  Sell 20550 CE 1 lot at 23.5

Sell 20550 PE 1 lot at 18.5  

New Position Sell 20600 PE 1 lot at 47

If market goes up 

20550 CE  23   and 20600 PE 47  will have to expire with a combined premium of 50 . and 20550 PE will be zero giving  18 points profit.

47+23-50=20. Itm strangle can contribute 20 points for profit . so total 38 points profit. 

Now if market goes down.  then we are in trouble .  20600 PE and 20550 PE will be itm and 20550 CE will not be able to compensate for both.  THis is a big drawback. 
If FINNIFTY Goes down , 

 1) immediate 20500 CE has to be sold or 

2) 20500 straddle has to be sold and 20600 PE has to be exited.

Learning  FINNIFTY Expiry Date 12-03-2024

Sell 20900 CE 1 lot at 45.5

Sell 20950 PE 1 lot at 21.5        

At 2:30 pm Initiated a short strangle with total premium of 67. so that we can get a profit of 

17 x 40 = 680 approx.  After few minutes FINNIFTY started moving down. the CE premium decayed to around 10. Now the price fluctuation in the CE was less when compared to PE. Hence Added another Leg Sell 1 lot 20850 CE. As there was sudden price fall , Another ITM PE Leg premium was available for 54 to lock profit in the itm strangle. Now we have 50 wide ITM Short Strangle and 100 wide ITM Short strangle. 

Existing position  Sell 20900 CE 1 lot at 45.5

     Sell 20950 PE 1 lot at 21.5    Combined premium 67. Time value 17

New Position Sell 20850 CE 1 lot at 72

     Sell 20950 PE 1 lot at 54 Combined premium 120. Time value 26

Finally finnifty expired in 20897 and closed all trades.

Learning  FINNIFTY Expiry Date 26-03-2024

Sell 20650 CE 1 lot at 70.7

Sell 20750 PE 1 lot at 61.25      100 Wide ITM  Short Strangle . Total credit 131.95 . 
Max profit is 31.95.  How ?

Normally when we are selling options ,  the premium of options become zero.  When Both ITM Call and Put is sold , either or both will be non zero during expiry.  Since the Sold options are ITM, the combined premium cannot fall below 100.  Hence the max profit in the ITM Short Strangle is  Premium Received - ITM Strike width = 131.95 - 100=31.95

At 11am  Initiated a short strangle with total premium of 131.95.  After2hours , the status was

Existing position  Sell 20650 CE 1 lot at 70.7  Now at 95

     Sell 20750 PE 1 lot at 61.25 Now at 25    Combined premium 110. Time value Left is 11 points,400

Unrealised P/L =  + 20 points x 40 =  800

Problem - The combined premium has become 110 . but one of the options is 95 and other is 25. P&L swings were more as suddenly when CE increases by +/-6 points, there is not much change in PE. So though the Unrealised P&L is 800 profit. Suddenly it becomes 350 and again back to 600or 700. 

Idea -1 What if we increase width of ITM Strangle

Existing position  Sell 20650 CE 1 lot at 70.7 

     Sell 20750 PE 1 lot at 61.25 Exit at 25  Booked P/L= 36.25

     Sell 20800 PE 1 lot at 65

Changes - 100 Wide ITM SS . Now becomes 150 Wide ITM SS.  The combined premium of  150 Wide Short strangle is Now 70+65 = 135. At expiry, the combined premium is 150. Which means a compulsory loss of 15 points.  Including the booked P/L of 36.25 points . The total max profit is 21.25 points. (Rs.850).

Idea -2 What if we decrease the width of ITM Strangle

Existing position  Sell 20650 CE 1 lot at 70.7  Exit at 95.7   Booked P/L= -25

     Sell 20750 PE 1 lot at 61.25 

     Sell 20700 CE 1 lot at 60

Changes - 100 Wide ITM SS . Now becomes 50 Wide ITM SS.  The combined premium of  50 Wide Short strangle is Now 60+61.25 = 121.25. At expiry, the combined premium is 50. Which means a compulsory profit of 71.25 points.  Including the booked Loss of 25 points . The total max profit is 46.25 points. (Rs.1850).

Learning  FINNIFTY Expiry Date 26-03-2024

Sell 20650 CE 1 lot at 70.7

Sell 20750 PE 1 lot at 61.25      100 Wide ITM  Short Strangle . Total credit 131.95 . 
Max profit is 31.95.  How ?

Normally when we are selling options ,  the premium of options become zero.  When Both ITM Call and Put is sold , either or both will be non zero during expiry.  Since the Sold options are ITM, the combined premium cannot fall below 100.  Hence the max profit in the ITM Short Strangle is  Premium Received - ITM Strike width = 131.95 - 100=31.95

At 11am  Initiated a short strangle with total premium of 131.95.  After2hours , the status was

Existing position  Sell 20650 CE 1 lot at 70.7  Now at 95

     Sell 20750 PE 1 lot at 61.25 Now at 25    Combined premium 110. Time value Left is 11 points,400

Unrealised P/L =  + 20 points x 40 =  800

Problem - The combined premium has become 110 . but one of the options is 95 and other is 25. P&L swings were more as suddenly when CE increases by +/-6 points, there is not much change in PE. So though the Unrealised P&L is 800 profit. Suddenly it becomes 350 and again back to 600or 700. 

Idea -1 What if we increase width of ITM Strangle

Existing position  Sell 20650 CE 1 lot at 70.7 

     Sell 20750 PE 1 lot at 61.25 Exit at 25  Booked P/L= 36.25

     Sell 20800 PE 1 lot at 65

Changes - 100 Wide ITM SS . Now becomes 150 Wide ITM SS.  The combined premium of  150 Wide Short strangle is Now 70+65 = 135. At expiry, the combined premium is 150. Which means a compulsory loss of 15 points.  Including the booked P/L of 36.25 points . The total max profit is 21.25 points. (Rs.850).

Idea -2 What if we decrease the width of ITM Strangle

Existing position  Sell 20650 CE 1 lot at 70.7  Exit at 95.7   Booked P/L= -25

     Sell 20750 PE 1 lot at 61.25 

     Sell 20700 CE 1 lot at 60

Changes - 100 Wide ITM SS . Now becomes 50 Wide ITM SS.  The combined premium of  50 Wide Short strangle is Now 60+61.25 = 121.25. At expiry, the combined premium is 50. Which means a compulsory profit of 71.25 points.  Including the booked Loss of 25 points . The total max profit is 46.25 points. (Rs.1850).

Learning  SENSEX Expiry Date 12-04-2024 -ITM Strangles & OTM Strangles.

At 10:30AM  Assume spot at 74550

Sell 74500 PE 1 lot at 175

Sell 74600 CE 1 lot at 140      100 Wide OTM  Short Strangle . Max Profit  315 . 

Sell 74500 CE 1 lot at 190

Sell 74600 PE 1 lot at 225      100 Wide ITM  Short Strangle . Total credit 415 . Since It  is 100  points ITM, the net credit

is  315 points.   

NOTE1 -At any given specific time. The conclusion is  the max profit of 100 / 200 wide short strangle  , whether it is ITM or OTM The max profit is same.  

HOW can we make use of above learning ?

when sensex fall suddenly, we can shift any one leg and convert our short strangle in short straddle. 

For example  Sell 74500 PE 1 lot at 175,  Sell 74600 CE 1 lot at 140      100 Wide OTM  Short Strangle . can be converted to Sell 74500 CE  & Sell 74500 PE  which is a short straddle . If sensex falls even more suddenly, , we can convert our short straddle to itm short strangle.  

Let us discuss trade of the day

100 wide short strangle was  deployed  in morning. 

After trade, market went up slowly from 74669 to 74800 . However the trade was balanced . Suddenly when the sensex fell from 74800 to 74500 and below , the call and put premium were more than entry price . How to manage the above trade . ? The only thought that runs into our mind is .. " In next 3 to 4 hours sensex has to expire and the options have to loose all their extrinsic value .  The reason for above scenario is the put premiums increased drastrically when compared to the fall in call premium. Within  15 minutes of sideways movement the same position was giving profit as shown below