1) Nifty is the most liquid in options.
2) P/E ratio: time taken to double the money. Example: anything more than 8 P/E is very expensive.
3) Option sellers can manage positions, short futures/sell puts/calls/average (hedge)
4) Strategies:
A) Short Straddle: sell both call and put at the money. Eg: Nifty 12,300 (call & put)
Best time to initiate straddle is 45 days before expiry and exit 15 days before the expiry. Expectations: 4% - 5% returns
1st you react after every 200 points and then react after every 100 points. (Nifty)
1st you react after every 500 points and then react after every 300 points. (BN)
Nifty you can trade till 2024 (5 years options) Eg: Nifty 12,000 Dec 2020 (Premium: 1500 points) need a minimum of 1200 points.
Every 500 point you will get liquidity (1.76 lakhs margin money) (March - June - Sept - Dec)
(IMP) Straddle should have a minimum of 400 points premium.
In nifty the max gap down is 400 points in the history. Bank nifty gap down is 1200 points in the history.
Take positions when the markets are in panic or just before the big event.
2-3 months strategy: 12,000 and 12,500
(B) FIRE FIGHTING
1) Shifting: lets say we created nifty at 12,000 (PE, CE) and now spot Nifty is at 12,200. Shift it to Feb (CE, PE).
- in sideways keep enjoying the positions.
- move with the markets, shift positions.
- 200 points for nifty and 500 points for bank nifty. (Monthly expiry)
- make contracts for couple of months in nifty.
- SIP in shifting (10 lots/month) . When in profit do the shifting.
2) Average: current position (12,000)
Spot nifty (12,250)
Make position (12,500)
When you create a position and after 3-4 days there is a violent move then you average it. But mostly you will be doing shifting.
3) Reference Trade: (Tuesday Trades)
- Base trade 32,000 (CE/PE) (800 pts)
- 31,800 PE - sold (60 points) weekly expiry
- 32,000 PE - (100 points) weekly expiry
- go with the market trend (markets high - sell puts when markets low sell calls)
4) Pyramid/Martingale:
- if you loose then go double the bet.
- 50/50 probability
- if reference trade goes in your favor then do pyramiding in weekly expiry.
- base trade: profit (shifting)
loss (averaging)
- reference trade: profit (pyramid)
loss (martingale)
Martingale Example: base trade - 12,000
Spot: 12,200
-1 x 12,000 PE: 50 (square off)
+1 x 12,000 PE: 100 (square off)
-2 x 11,800 PE: 100 (break even)
The premium price should be same, have the same premium.
Summary:
1) Base trade
2) If range bound, enjoy.
3) Significant move: either shifting/averaging
4) Reference trade
5) Reference trade +ve (pyramid)
6) Reference trade -ve (martingale)
5) Exiting: when you are unsure of positions just exit.
2) Strategy: Short Strangle (90% India)
Dangerous
- Sell 1 PE and 1 CE OTM (200 points) and BN (500 points)
- Straddle is better than strangle
- Eg: spot- 12,200 to 12,400
a) 12400 CE. d) 11800 PE
b) 12500 CE. e) 11900 PE
c) 12600 CE. f) 12000 PE
- once it comes to 12,400 make it a Straddle on the same expiry. Go with the market view. Square off below 10 rupees.
- High-risk-high-reward (you won't be able to manage other people's money)
4) Strategy: Covered Call
- start selling call options and keep going on doing the martingale.
