Musings

In the beginning of the month on 2nd august - i did the analysis on the high risk width IC strategy and found selling call & put ~ 10% away from strike and taking hedge 500 points further away will give ROI of 4 to 5% find below the chart- return is 4.28% Tday 29th Aug if i analyse the same setup for september trade - the ROI is for 500 RW is 1.57 % the ROI has decreased from 4.8% to 1.57% - this is because of fall in VIX from 25.1 to 18.3  Find below the Sep IC month chart  This brings the question to our earlier analysis of monthly movement of nifty for the last 5 years purely based on points movement. The analysis has to be done with respect to VIX as well. Having said that is IC is not worth taking on low vix environment- not really. the strike price has to be chosen based on prevailing VIX. which means during higher vix the spread of the trade can be higher and during lower vix spread of the trade can be narrower. What is the formula to find the risk free or minimum risk sprea

In the beginning of the month on 2nd august - i did the analysis on the high risk width IC strategy and found selling call & put ~ 10% away from strike and taking hedge 500 points further away will give ROI of 4 to 5% - I deployed the strategy and kept adjusting the trade by moving the sell positions closer to strike every week and took additional 1% return every week. Learnings from trade  1. The margin when i took the trade was 60000 (base of 40K for 100 point RW + 5.3K every additional 100 point RW) and the margin requirement increased as the strike price moved closer to any side of my sell position- it is safe to assume that we would need 75K margin for 5000 point rw IC strategy 2. Through the month as i moved only the sell position closer to the strike and not the bought hedged position - the margin requirement kept increasing. Beyond 1000 points RW, there is no margin benefit of having hedge position, hence we can as well sell the hedge position and convert it to short strang

Which Strategy gives better ROI in options selling Last week i did the analysis on maximising the ROI on Iron condor and identified that taking 500 to 600 risk width is giving more ROI than the traditional 100 points risk width Iron condor- taking 600 RW IC is very well applicable in our case as our selling strike price is anyway far away (800 to 1000 points) from current market price in case of monthly option. And also since this is monthly, even if the positions go wrong in short term there is time for retracements and its is liquid However my preliminary analysis on short strangle showed that SSG (short strangle) gives less ROI than the IC. I had taken a short strangle over last week and analysed the ROI on that. As you can see below the short strangle ROI and the IC ROI is more or less the same. Infact considering only weekly ROI - the SSG ROI is more than that of IC  However SSG comes with a lower break even spread and unlimited risk which makes you to lose sleep compared to IC. W

  1. Shift to next week expiry for the same value (do before the put option is deep ITM = do when the market is away by 200 points) 2. Shift to next month expiry (incase if you feel the market will reverse the trend or stay same by next month) 3. Square off and sell put in same week which is close to loss 4. Square off - divide the loss by 3 or 4 and sell puts with that premium (in case if you feel the market will reverse before the expiry) 5. Shift the put to lower strike and difference loss - sell call options

After the changes in the margin requirement for option writing in june 2020, hedged positions are required to have limited margin which is a welcome move as it gets closer to the ground reality that loss from the option writing and margin are not way too different, it has come closer. for e.g Bear call spread with 100 point risk width i.e. 10000 PE sell and 9900 PE buy of 1 lot requires 22K margin while the loss is 7.5 K post june adjustment- however prior to june margin was much higher not reflecting the ground reality of loss possible. I did the analysis of Iron condor margin and short strangle margin requirement to aid my choice of strategy for optimal ROI - following are my analysis Iron Condor Date: 2-8-2020 Nifty Spot - 11073.45 IC gives more ROI than deploying one side spread - for e.g bear call or bull put with 100 risk width is 22k margin  while deploying both side spreads (iron condor) will reduce the total margin to 38K instead of 44K thereby increasing ROI - Hence it is alw