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Delta neutral Theta biased trading
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Author Delta neutral Theta biased trading
Alchemist
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Post: #346   PostPosted: Fri Jul 28, 2017 8:04 pm    Post subject: Reply with quote

great analysis again by skaz sir ... hats off !

Cheers
SH
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Alchemist
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Post: #347   PostPosted: Fri Jul 28, 2017 8:10 pm    Post subject: Reply with quote

SwingTrader wrote:


This is a good thread though. The ideas are good, implementation has to be skillful. I hope followers of this thread do stick and see how trades are handled during volatile times, that will be the key in long term success of this strategy.

Good Luck SH!!!


Thanks ST - This strategy has survived volatility due to Brexit, Surgical strike, various RBI policies, UP elections, Fed rate hikes, Trump win etc etc etc .. and yet finished with profits by month end ... again, barring black swan events, I can bet this strategy will never end up with a loss ever.

The trick lies in appropriate hedging during volatile times, clearly this is not a strategy where once a position is taken its left on its own... proper trade management and risk management makes it a successful low risk but reasonable returns strategy.

Rest, as they say, the proof of the pudding lies in the eating Very Happy

Cheers
SH
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SwingTrader
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Post: #348   PostPosted: Fri Jul 28, 2017 10:35 pm    Post subject: Reply with quote

Alc,

Not sure how long you have traded this strategy live. Never say you have seen all when you trade short options. The volatility during the events you have mentioned was like cool breeze. I am taking about portfolio destroying volatility hurricanes that will almost certainly happen if you trade this strategy long enough.

Take the example of Jan 21st 2008. Market moved 12% that day. On such a day picture you holding from previous day a delta neutral position of ONE LOT LONG BNF FUTURE + 2 LOTS SHORT BNF ATM CALLS. The 10% move will put you in about Rs. 100,000 loss in futures and the options will contribute about Rs. 10,000 profit as they quickly become worthless. Now how may small traders following your trades will be psychologically capable of handling this trade from here? One can argue that we will quickly close out futures and save probably half of the loss etc etc. But most will freeze during such times. Market moved too fast that day. But still suppose the trader swallows this and somehow adjusts the trade, he will be greeted the next day (22nd Jan 2008) with a 11% move. Yes, this is extreme example. But this is what one must be prepared for otherwise that will be the last day you trade this strategy. One must fund the account back and be prepared to go through the brutal rest of 2008 and survive. And then half of 2009 too. From Jan 2008 to Jul 2009 there were 121 days where market moved +/- 5% and these would have been very difficult days.

It doesn't matter how the trade is setup - Long fut with short calls OR short fut with short puts OR short calls with short puts. All of these will go for a toss once a big move happens suddenly. One needs to be strong psychologically and financially to handle these situations and pray that there are traders who will take the other side of your trades (well you need to get out of the wrong short options). During such times one will see that options market will become illiquid.

NOTE: Since 24th Aug 2015 we have had only four days of 5% move on either side (true range), so it has been fun to trade short options. Between Jan 1st 2008 and 24th Aug 2015 there have been around 142 days when market moved +/- 5% (true range). So be prepared for such times if one wants to trade such strategies. A 5% current move on BNF fut will be around Rs. 50,000 and if against the trade, options will only cover about Rs. 10,000 of this move.

I am sure you would have thought about all this when designing this strategy, my only objection is to the "risk free" label when trading such dangerous strategies. One has to psychologically and financially be prepared to handle situations like above example and then trade such strategies. This should be made very clear.

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skaz
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Post: #349   PostPosted: Sat Jul 29, 2017 12:41 am    Post subject: Reply with quote

ST nothing against thread or individuals. If it is primerly based on delta.
I can tell you so many dates in last 3 years were market is not moved much but just because of volatility trade will result in to loss and it will give higer losses compare to gain made.
Unless manage really well. Even when it is managed well it will give many losses.If managing delta would have been so easy smart money would automate most worlds exchange and sip wine in some exotic location.
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Redlionviji
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Post: #350   PostPosted: Sat Jul 29, 2017 10:53 am    Post subject: What is the risk for this strategy? Reply with quote

swing trader mentioned Risk period of this strategy"Take the example of Jan 21st 2008. Market moved 12% that day. On such a day picture you holding from previous day a delta neutral position of ONE LOT LONG BNF FUTURE + 2 LOTS SHORT BNF ATM CALLS. The 10% move will put you in about Rs. 100,000 loss in futures and the options will contribute about Rs. 10,000 profit as they quickly become worthless. Now how may small traders following your trades will be psychologically capable of handling this trade from here? One can argue that we will quickly close out futures and save probably half of the loss etc etc. But most will freeze during such times. Market moved too fast that day. But still suppose the trader swallows this and somehow adjusts the trade, he will be greeted the next day (22nd Jan 2008) with a 11% move. Yes, this is extreme example. But this is what one must be prepared for otherwise that will be the last day you trade this strategy. One must fund the account back and be prepared to go through the brutal rest of 2008 and survive. And then half of 2009 too. From Jan 2008 to Jul 2009 there were 121 days where market moved +/- 5% and these would have been very difficult days. "how to u manage this period for position...and how to hedge overnight risk completely? ple explain MR.Alchemist... Rolling Eyes Sad
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Redlionviji
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Post: #351   PostPosted: Sat Jul 29, 2017 10:58 am    Post subject: how to mange our position in this period? Reply with quote

Dear SH Sir... Since 24th Aug 2015 we have had only four days of 5% move on either side (true range), so it has been fun to trade short options. Between Jan 1st 2008 and 24th Aug 2015 there have been around 142 days when market moved +/- 5% (true range). So be prepared for such times if one wants to trade such strategies. A 5% current move on BNF fut will be around Rs. 50,000 and if against the trade, options will only cover about Rs. 10,000 of this move. how to mange our position in this period?.. Rolling Eyes Sad ple Reply.....,,,,,,,,,,,,,,,,
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shyampandit
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Post: #352   PostPosted: Sat Jul 29, 2017 1:19 pm    Post subject: Reply with quote

If instead of long futures one were to hold long calls instead, would be safer i guess. Although then have to deal with the evaporating theta on the long call.
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Alchemist
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Post: #353   PostPosted: Sun Jul 30, 2017 5:26 pm    Post subject: Reply with quote

SwingTrader wrote:
Alc,

I am sure you would have thought about all this when designing this strategy, my only objection is to the "risk free" label when trading such dangerous strategies. One has to psychologically and financially be prepared to handle situations like above example and then trade such strategies. This should be made very clear.


ST,

As you have rightly assumed, I have thought about all this and there are so many ways to manage it. And I cant claim I have seen it all, I am just saying I have a plan to manage it whenever it happens thats it. And if it becomes unmanageable, I can exit the trade and wait for some sanity to return to the mkt. I do that even when I am in profits (like exit last week).

Regarding the risk free term, I have already clarified in my previous response to you that the risk is mitigated here but not completely eliminated... but hey ..what is risk free in life? Even the bank FDs are not 100% risk free even when most investors think so.

I have also clarified at multiple points in this thread that the only scenario this strategy may give loss is a black swan event. I consider the example of 2008 you have given as black swan.

Hope this addresses your main concern around me calling it a risk free strategy. As i said, its more in figurative speech than anything .. like when I say I am flying back home I dont mean that the plane will land on the terrace of my home Smile

Now having hopefully addressed that concern, lets deal with the 2008 scenario.

Lets say tomorrow market gaps down 10% ... what will be my loss based on my current open positions... I am long 24500 CE at 591 and short 3 legs of 25000/25500/25500 CE with combined premium of 341 points.... net debit of only 250 points .. so yes I may lose these 250 points per lot if it gaps down 10% or even more. It wont blow my portfolio out of water as I have already made 3600 points per lot in last 1 year. It will be really fullish of me to sell more calls after a 10% crash. The only thing i will probably do is exit all sold calls which will be basically at 5 paisa ... and hold the long 24500 CE (as no point squaring that off for 5 paisa) and if mkts moves up 10% next day .. voila... I am in good profits ! Very Happy ....In any case, I will wait for sanity to return once all bad news is over before opening fresh trades like every sensible trader who is aiming for 5% returns from mkts should do.

Alternatively, what if I had a BNF future long instead of 24500 CE ... I will probably lose 2000 points per lot after adjusting the sold premium... again...much less than what I have earned in last one year. How can I reduce even this risk? Well thanks to the weekly BNF options... I an always keep buying 400-500 points OTM puts for 20 odd points so that I cap my risk to 200-250 point loss instead of 2000 points. Yes but it also would mean I will make 80-100 points less per month trying to buy this insurance 4 times a month. Its not that difficult ST for a smart trader and you know it Smile

Infact I was discussing the same with one of my trading partner recently that as our trade size becomes huge we need to start buying this insurance.

Regarding the number of days of big moves, basically you are saying in last 10 years .. we have had 146 days where mkts moved more than 5% ... so basically in last 2500 trading days, we have had only 6% days of large moves and rest 94% days have been of small moves. I still dont see any reason for a disciplined trader to get too worried about portfolio getting destroyed if he is earning on 94% days and manages the 6% days by adjustments as much as possible.

Note: This strategy requires constant management and is not mechanical at all ... It's not about keeping Delta constant at 1 (and hence it cant be robotised allowing the trader to sip tea/coffee/wine as some traders think so). It is about trader's judgement on volatility, trend cycles and market direction, something I claim to understand slightly better than an average trader.

Like any other strategy ST, this strategy will work only till volatality remains manageable, once it becomes un-manageable, I will start a thread on how to make money by buying options instead of selling them Very Happy

Cheers
SH
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rrsekhar
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Post: #354   PostPosted: Mon Jul 31, 2017 4:01 pm    Post subject: Reply with quote

Alchemist wrote:

ST,

As you have rightly assumed, I have thought about all this and there are so many ways to manage it. And I cant claim I have seen it all, I am just saying I have a plan to manage it whenever it happens thats it. And if it becomes unmanageable, I can exit the trade and wait for some sanity to return to the mkt. I do that even when I am in profits (like exit last week).


Cheers
SH


Nicely explained guru ji.

u continue to amaze me..

regards

rrsekhar
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anika1010
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Post: #355   PostPosted: Tue Aug 01, 2017 5:34 pm    Post subject: thanks all Reply with quote

thanks Skaz/ST for your valuable comments, i would rather stay away from such strategy , Alch sir have developed good strategy but its not my cup of tea.thanks all
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Alchemist
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Post: #356   PostPosted: Thu Aug 03, 2017 4:46 pm    Post subject: Reply with quote

Alchemist wrote:
August strategy opened today

Bought 24500 CE (Aug) at 591
Sold 25000 CE (03 AUG) at 81
Sold 25500 CE (Aug) at 130
Sold 25500 CE (AUG) at 130


M2M profit at day end today is 5 points.

Cheers
SH


A few adjustments made in last 3-4 days as BNF rallied up before the RBI policy and then literally nosedived in last 2 days.

The trades are updated on the excel sheet.

M2M loss at day end today is 23 points.

Cheers
SH



BNF Delta hedging trade book.xlsx
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harsh_85
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Post: #357   PostPosted: Thu Aug 03, 2017 6:10 pm    Post subject: Reply with quote

Alci sir, i have been following your strategies since many years and i use ur 3-15 ema strategy for options trading(writing) in stocks since many years...But i must say sir this "delta neutral theta biased" is a game-changer for me...Thanks a lot sirji!!!
Its definitely a "risk-mitigated" strategy for me which gives me enough leg room for margin of error. I use your strategy with a view in mind but gives me a peaceful sleep at night knowing that i am hedged.. please sir dont feel bad for the naysayers as we small traders definitely and religiously follow your trades on regular basis. So kindly please keep on updating the trades and if possible during market hours.... Very Happy
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SwingTrader
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Post: #358   PostPosted: Thu Aug 03, 2017 6:57 pm    Post subject: Reply with quote

NOTE : It has come to our notice that few users who are posting regular calls in the forums are asking users for phone numbers and email addresses and then enticing them to signup for their tips/calls service for hefty fees. Many users have forwarded us these messages recently. DO NOT FALL TO SUCH TRICKS AND LOSE YOUR HARD EARNED MONEY. None of these would be SEBI registered advisors and are probably running the service illegally.

BE CAREFUL. DO NOT GIVE CONTACT DETAILS VIA FORUM PM OR JOIN WHATSAPP / TELEGRAM GROUPS. THESE ARE JUST WAYS TO SEPARATE YOU FROM YOUR MONEY.

We are in the process of reviewing such threads and will take appropriate action in the near future.

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skaz
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Post: #359   PostPosted: Thu Aug 03, 2017 9:20 pm    Post subject: Reply with quote

Team Ichart it is good move. This will help to sanitised forum. This pest control activity will also save lot of new trader. Who believes such tricksters and conman. who keep changing colours and style every few month.

ST also Pl refers such conman to SEBI and serve legal notice from time to time. 2guns
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sanjayojha
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Post: #360   PostPosted: Thu Aug 03, 2017 9:42 pm    Post subject: Reply with quote

SwingTrader wrote:
NOTE : It has come to our notice that few users who are posting regular calls in the forums are asking users for phone numbers and email addresses and then enticing them to signup for their tips/calls service for hefty fees. Many users have forwarded us these messages recently. DO NOT FALL TO SUCH TRICKS AND LOSE YOUR HARD EARNED MONEY. None of these would be SEBI registered advisors and are probably running the service illegally.

BE CAREFUL. DO NOT GIVE CONTACT DETAILS VIA FORUM PM OR JOIN WHATSAPP / TELEGRAM GROUPS. THESE ARE JUST WAYS TO SEPARATE YOU FROM YOUR MONEY.

We are in the process of reviewing such threads and will take appropriate action in the near future.


ST good.
I chart forums are for healthy discussion and sharing of knowledge. Such kind of murga pakado abhiyan should be nipped in the bud.

Sanjay
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