Musings

Stock Short Strangle option strategy  Background of this strategy  Hedges minimizes our profit and risk. We cannot go blind w/o hedges which is against my principles of trade. However, hedges that we buy on nifty weekly position expires worthless at the expiry- I was thinking how do we replace this expiring hedge to long term hedge which does not decay with time. One option is to buy long expiry hedge at high premium to hedge or to buy underlying stocks.  Buy underlying stock (incase of nifty that can be bought by purchasing 7500 units Nifty Bees) costs almost 7.5 lakhs for each lot of Nifty which hardly gives 500 rs per week and 2 K per month which is very less ROI- hence it it is not worth buying Nifty Bees for hedging purposes  We are comparatively OK to put up  with the losses on the equity since it is notional but losses on Options positions is realizable on expiry - until we do adjustments to keep rolling up options which involves active tracking / trading...

My principles for option trading  1. Sell option not buy irrespective of the of the profit potential buy option offers - because I play by probability and not by luck  2. Always hedge to have piece of mind and not to make losses by wrong trades when the direction of market goes opposite to your trade 3. Square off hedge as soon as it is not required ( when probability of making loss is less than 5% and the expiry is only 2 days away)  4. Buy hedges that are long lasting than the main trade- which means buy hedges which can be used for multiple trades - which means expiry date of hedge should be long or it should not have expiry date at all  5. Always take bi-directional view or if you are view sure take Complementary view (Market will not go above this or market will not below this- due to recent run up or correction)  6. Take calculate risk - "if we keep thinking without action" - we will regret the inaction rather than the regretting the loss by trying out...

Date : 25-06-2020 Time : 11:51 AM Day : 25 Jun 2020 I analyses profitability of the IRON condor positions for the 25 Jun series . Even the +3% to - 3% IC is giving only 0.4% ROI  It very much evident there is not point in taking fresh trade at the the expiry trade for IC- its not worth the effort Also. in order to bring the margin block down, I made a mistake of selling the hedge instead of squaring off the sold position. This is absolutely a oversight mistake which warrants the claim that- do not try to square off in haste Put limit order for 0.05 for squaring off to avoid any penalties from the broker for leaving it to expire without squaring off Time decay through the day in % terms is highest in the last day of expiry session - however the value wise its low as the gap down on the premium on the start of expiry day from the previous day is highest Hence max time decay happend on the gap down in premium from expiry -1 day to expiry day   

Date : 24-06 Time: 12:11 PM I'm analyzing the the profit movement of various IC spread levels from -7% to 7% to - 3% to 3% from Monday morning every hour. Overall based on the intraday movement  the profit keeps moving - however at broad level there is 30% time decay from start of the day till end of day for monday and further 30% decay overnight from monday to tuesday and again on Tuesday  there is 30% decay from morning till end of day.  Throughout the 25 June series - Market is fairly range bound - monday increased by 1% and Tuesday increased by 1% - hence this is a good week for analyzing the time decay and formulate the strategy for flat market  IV on Put side is high due to impending fear of India china war tensions and Covid outburst.  Since Nifty is at 10450. Sold the hedge on put side which i bought on Monday  Learnings: Sell hedges on the untested side on Wednesday which ever is far by 10% - ensure sufficient margin available. Selling of hedges be...

Date: 23-06-2020 Time: 10:30  Nifty is trading at 10300 and the trend is sideways with no concrete reason to fall. However the common consensus among the people is the market has ran up and overbought discounting all the bad news of covid-19. The Put premium is high At 9.45 AM I sold 2 lots of 9600 PE at Rs 7.30 25 June Nifty series without buying the hedge because i thought why should i waste money in hedging the position as there are only 3 more days for expiry including today and market will not fall 700 points which is almost 7% and per day 2% fall. When i sold this market was 10350 range and trading 0.5% higher.  However after selling the 9600 PE at 10.00 AM market went down slightly giving the days gain of 0.5% causing the premim to increase to Rs 8 - i started considering buying the hedge at 9500 PE which was at Rs 5.8 when i sold 9600 PE- since the market gave up day's gain the 9500 PE premium also went to Rs 6. I reconsidered my position and decided to buy the hedge a...