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Diagonal Spreads - Discussion, Q&A, etc |
SwingTrader
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Joined: 11 Aug 2006
Posts: 2903
Location: Hyderabad, India
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Post: #256  Posted: Tue Dec 01, 2015 8:49 am Post subject: |
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| chiragbvyas wrote: |
So the thread is live & Thanks for the suggestion ... |
Chirag Ji,
I am always here to reply and continue the discussion 
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Srikanth Kurdukar
@SwingTrader |
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lokreddi
White Belt
Joined: 25 Sep 2015
Posts: 19
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| Post: #257 Posted: Tue Dec 01, 2015 7:17 pm Post subject: |
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Dear ST Sir,
thanks for you help and i am new for trading .. i have query.
1)is strategy for intraday or carry upto expiry
2) when will be book profit or any stop loss.
Thanks icharts also
Lokesh |
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SwingTrader
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Joined: 11 Aug 2006
Posts: 2903
Location: Hyderabad, India
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| Post: #258 Posted: Wed Dec 02, 2015 10:57 am Post subject: |
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| lokreddi wrote: | Dear ST Sir,
thanks for you help and i am new for trading .. i have query.
1)is strategy for intraday or carry upto expiry
2) when will be book profit or any stop loss.
Thanks icharts also
Lokesh |
1. This is not an intraday strategy. Position will have to be carried at least into the expiry week.
2. I keep a SL of 10% (on total locked funds - margin + trade cost). Target - anything above 10% profit is good. Profits above 10% require a significant increase in volatility.
If the position goes against us then there are adjustments that can be done to try and stay in the position until the trend comes back in our favour.
ADJUSTMENTS TO CONSIDER (if position goes against us):
If price goes against us then the short option we are holding will lose premium. Once the short option loses half or more of premium then one can close the short option and short another closer to the long strike. Basically we move the short option closer to long strike by one strike (we narrow the spread).
The first time you bring it closer it becomes a one strike spread, second time you do it the position becomes a calendar spread. You can stop here as the risk from this point will be quite limited. If you continue to lower your strike and the strike goes below the long strike (for call spread), the position becomes a bearish spread (vice versa for put spread).
The idea of adjustments is to lower risk by subsidizing the long position price.
NOTE : If price reverses into your favour after adjustments, we can always adjust back and widen the spread again and turn it back into one or two strike diagonal to ensure we capture future profits.
The above adjustments come naturally with practice in live trading. One must also keep in mind the associated transaction costs.
There are few other possible adjustments, we will discuss later.
Good luck!!!
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Srikanth Kurdukar
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lokreddi
White Belt
Joined: 25 Sep 2015
Posts: 19
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| Post: #259 Posted: Wed Dec 02, 2015 4:25 pm Post subject: |
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| Thanks sir... |
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shashank2
White Belt
Joined: 06 Mar 2013
Posts: 6
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| Post: #260 Posted: Wed Dec 02, 2015 4:58 pm Post subject: |
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Dearest ST Sir,
Today only, I found out about your this system.
If I have to go long, or buy calls, EMA 13,233 on 60 may happen tomorrow.
I want to ask, what will be the pivot, after which I have to take position.
We are looking spot price or future price?
And which expiry should I buy, this month or next month?
Thanks in advance.
Regards,
Shashank |
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SwingTrader
Site Admin
Joined: 11 Aug 2006
Posts: 2903
Location: Hyderabad, India
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| Post: #261 Posted: Wed Dec 02, 2015 5:22 pm Post subject: |
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| shashank2 wrote: | Dearest ST Sir,
Today only, I found out about your this system.
If I have to go long, or buy calls, EMA 13,233 on 60 may happen tomorrow.
I want to ask, what will be the pivot, after which I have to take position.
We are looking spot price or future price?
And which expiry should I buy, this month or next month?
Thanks in advance.
Regards,
Shashank |
Shashank,
The EMA 13-233 was given only as an example, you can use any trend identification method you have. Once you know the trend, you can take a trade in that direction.
Watch NIFTY FUTURES cuurrent month - 1M - price.
Buy next month (2M) ITM (in-the-money) option. This means long option strike price must be below 1M futures price.
Short current month (1M) OTM (out-of-the-money) option. This means short option strike price must be above 1M futures price.
Keep two strike price difference between the long & short options.
Try and make sure short option price is about 25-30% of long option price. This is to get a decent hedge for the long.
Please go through previous posts in this thread for more info. Let me know if you have any more queries.
--
Srikanth Kurdukar
@SwingTrader |
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chiragbvyas
White Belt
Joined: 18 Feb 2010
Posts: 469
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| Post: #262 Posted: Wed Dec 02, 2015 6:07 pm Post subject: |
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| SwingTrader wrote: | | shashank2 wrote: | Dearest ST Sir,
Today only, I found out about your this system.
If I have to go long, or buy calls, EMA 13,233 on 60 may happen tomorrow.
I want to ask, what will be the pivot, after which I have to take position.
We are looking spot price or future price?
And which expiry should I buy, this month or next month?
Thanks in advance.
Regards,
Shashank |
Shashank,
The EMA 13-233 was given only as an example, you can use any trend identification method you have. Once you know the trend, you can take a trade in that direction.
Watch NIFTY FUTURES cuurrent month - 1M - price.
Buy next month (2M) ITM (in-the-money) option. This means long option strike price must be below 1M futures price.
Short current month (1M) OTM (out-of-the-money) option. This means short option strike price must be above 1M futures price.
Keep two strike price difference between the long & short options.
Try and make sure short option price is about 25-30% of long option price. This is to get a decent hedge for the long.
Please go through previous posts in this thread for more info. Let me know if you have any more queries.
--
Srikanth Kurdukar
@SwingTrader |
35 % hedge on excel is also good indicator to choose pair ... |
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chiragbvyas
White Belt
Joined: 18 Feb 2010
Posts: 469
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| Post: #263 Posted: Wed Dec 02, 2015 6:20 pm Post subject: |
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| chiragbvyas wrote: | | SwingTrader wrote: | | shashank2 wrote: | Dearest ST Sir,
Today only, I found out about your this system.
If I have to go long, or buy calls, EMA 13,233 on 60 may happen tomorrow.
I want to ask, what will be the pivot, after which I have to take position.
We are looking spot price or future price?
And which expiry should I buy, this month or next month?
Thanks in advance.
Regards,
Shashank |
Shashank,
The EMA 13-233 was given only as an example, you can use any trend identification method you have. Once you know the trend, you can take a trade in that direction.
Watch NIFTY FUTURES cuurrent month - 1M - price.
Buy next month (2M) ITM (in-the-money) option. This means long option strike price must be below 1M futures price.
Short current month (1M) OTM (out-of-the-money) option. This means short option strike price must be above 1M futures price.
Keep two strike price difference between the long & short options.
Try and make sure short option price is about 25-30% of long option price. This is to get a decent hedge for the long.
Please go through previous posts in this thread for more info. Let me know if you have any more queries.
--
Srikanth Kurdukar
@SwingTrader |
35 % hedge on excel is also good indicator to choose pair ... |
Is this calculation Correct ? 33.20 % hedge .. |
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SwingTrader
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Joined: 11 Aug 2006
Posts: 2903
Location: Hyderabad, India
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| Post: #264 Posted: Wed Dec 02, 2015 7:26 pm Post subject: |
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| chiragbvyas wrote: |
Is this calculation Correct ? 33.20 % hedge .. |
Yes, it is correct (short option premium divided by long option premium).
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Srikanth Kurdukar
@SwingTrader |
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chiragbvyas
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Joined: 18 Feb 2010
Posts: 469
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| Post: #265 Posted: Wed Dec 02, 2015 7:35 pm Post subject: |
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| SwingTrader wrote: | | chiragbvyas wrote: |
Is this calculation Correct ? 33.20 % hedge .. |
Yes, it is correct (short option premium divided by long option premium).
--
Srikanth Kurdukar
@SwingTrader |
Thanks for the quick confirmation .. |
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lokreddi
White Belt
Joined: 25 Sep 2015
Posts: 19
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| Post: #266 Posted: Wed Dec 02, 2015 10:24 pm Post subject: |
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hi Chirag,
nice to share your view..kindly provide exel sheet if you want only.it may help like me of new traders..
Thanks and good night.
T/Regards,
Lokesh |
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chitrgupt
White Belt
Joined: 20 Feb 2015
Posts: 10
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| Post: #267 Posted: Fri Dec 04, 2015 10:24 am Post subject: |
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Hi SwingTrader,
How to manage the 7900CE Jan Long/8100 CE Dec Short Diagonaal trade. The trade has gone against our initial direction....Your guidance will help us to be with the trade/adjust the trade |
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SwingTrader
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Joined: 11 Aug 2006
Posts: 2903
Location: Hyderabad, India
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| Post: #268 Posted: Sat Dec 05, 2015 7:25 pm Post subject: |
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| chitrgupt wrote: | Hi SwingTrader,
How to manage the 7900CE Jan Long/8100 CE Dec Short Diagonaal trade. The trade has gone against our initial direction....Your guidance will help us to be with the trade/adjust the trade |
I have posted info on adjustments in a recent post below. But I would like to point out that consider adjustments if you plan on doing such trades regularly. This is because adjustments are part of a long term trading plan and they work out on the whole over many trades. If you are not seriously looking to trade diagonals in the future then just keep a mental stop loss (% of margin basis) and exit trade. Or if you feel the direction of Nifty has reversed to the downside then exit and reverse the trade.
Here are the ways to adjust:
1. As I mentioned in one of the recent posts, you can close DEC 8100 CE and short DEC 8000 CE. This is basically narrowing the spread to one strike. This reduces the risk a bit if price continues downward. You will have to continue doing this if price keeps moving down. The next adjustment after this will convert the position to a calender and then one after that will make the trade bearish. Basically you move with the trend and make your trade bullish / bearish as price moves.
If you choose to make the above adjustment, then do so for every trade consistently. You will see the effect of these adjustments over time / over trades.
2. If you want to reduce risk further just convert the position into a calendar straight away. This means close short DEC 8100 CE and initiate short DEC 7900 CE. You will be in a call calendar spread. If price continues to drop further down you can lower the short option further down to 7800 or 7700 to make the trade bearish. If price reverses up you can change it back to a bullish spread.
3. Another way is to short another DEC 8100 CE and go long DEC 8300 CE. This will convert the position into a butterfly (but not a regular one as we are long a Jan option). This will be a Long 1 lot JAN 7900 CE - Short 2 lots DEC 8100 CE - Long 1 lot DEC 8300 CE butterfly. This will reduce the downside risk significantly. Further adjustments can be made if price continues downward (you could move the shorts one strike lower). You can remove the adjustment if price reverses back to upside.
There are many more adjustments. All require focus and a clear idea of what you want to accomplish. They also require practice. If you do these adjustments regularly then it becomes clear how these work.
Also note that adjustments do not work all the time. If price suddenly reverses then the adjustment you just made will lose money. But that is the price for reducing risk. Do stay consistent with the adjustments and use the ones you are comfortable with on a regular basis.
More later...
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Srikanth Kurdukar
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SwingTrader
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Joined: 11 Aug 2006
Posts: 2903
Location: Hyderabad, India
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| Post: #269 Posted: Sat Dec 05, 2015 7:56 pm Post subject: |
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chitrgupt,
Please note that the discussion below is for a hypothetical trade. The example trend identification system given by me (60 min NS chart, EMA 13 - EMA 233 crossver with breakdown confirmation) in previous posts did not give the bullish signal. The EMAs on 60 min NS chart around Dec 1st / 2nd were on the verge of crossover but it failed right there, confirmation not even in question. If the previous signals were being monitored then NS is bearish since Nov 5th. So if diagonals where being traded using these signals then one would be in a bearish trade both in Nov from 5th and Dec (after Nov expiry). See chart image posted below for details.
But, of course, if one is really in a bullish diagonal at the moment then one of the adjustments would certainly help.
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Srikanth Kurdukar
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chitrgupt
White Belt
Joined: 20 Feb 2015
Posts: 10
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| Post: #270 Posted: Sun Dec 06, 2015 4:23 pm Post subject: |
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Thanks SwingTrader for clear explanation.
I have one doubt. We had the Bear Diagonal Trade (Short Nov/Long Dec) and Nov expiry is over which result in Closing the Nov trade leg but the 13 - 233 cross over still indicated bearish signal. So does that mean we will close the Dec Long leg and then Open a new diagonal with (Long Dec/ Short Jan) legs.
Basically how to carry over the trades from one expiry to another
Thanks,
Anuprem
| SwingTrader wrote: | chitrgupt,
Please note that the discussion below is for a hypothetical trade. The example trend identification system given by me (60 min NS chart, EMA 13 - EMA 233 crossver with breakdown confirmation) in previous posts did not give the bullish signal. The EMAs on 60 min NS chart around Dec 1st / 2nd were on the verge of crossover but it failed right there, confirmation not even in question. If the previous signals were being monitored then NS is bearish since Nov 5th. So if diagonals where being traded using these signals then one would be in a bearish trade both in Nov from 5th and Dec (after Nov expiry). See chart image posted below for details.
But, of course, if one is really in a bullish diagonal at the moment then one of the adjustments would certainly help. |
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