iCharts Discussions

pkholla · Black Belt Joined: 04 Nov 2010 Posts: 2890

ST: When you have finished with your guidance for us, can we have member queries answered by you?

My query (to be ans when convenient): We usually book profits by partly squaring off as the share reaches a target and square off 100% at the target

eg HDFC Bank spot bot at 660 today, 25% sold at 670, another 25% at 675 and last 50% at 680

Q: Can we book partially in options by buying next strike same quantity and squaring full qty of old strike

eg: We have bot 500 of NPut60 @ 52. NF goes down as anticipated. We simultaneously buy 500 of NF59 @ 45 and sell 500 of NF60@ 115. So we have partially booked profits but retain same qty as OI
Your thoughts: whether feasible, when to do it, how best to switch over?
Prakash Holla

SwingTrader · Posted: Wed Dec 18, 2013 9:57 pm Post subject:

pkholla · Black Belt Joined: 04 Nov 2010 Posts: 2890

ST: Thanks a lot both for prompt reply and for the content. I intend to save the answer as a Word doc for ready reference. Thanks again. Prakash Holla

Gemini · White Belt Joined: 28 Apr 2009 Posts: 166

Dear ST,

Thanks for your quite encouraging post on seemingly (at least till today morning) wrong trade. To be honest, I had taken up the trade (only 2 lots) near close of the day on 17th Dec (and posted question later in evening). In hindsight, it looks to be a wrong decision, as there were two major events lined up (with likley impact on market and definate impact on VIX).

Well, just by sheer luck, may be the trade seems on track today (may completely change by tomorrow morning, such is the movement now a days. ).

In any case. would love to learn from you on how to bail out in situations where trade goes horribly wrong in initial days itself.

I agree with Sh. Prakash. May be we can have another thread to discuss current trades and your / experienced members guidance on the same , while this thread remains pure "Diagonal Option Trading Bible" !.

I am committed to trade diagonal for quite some time !

Sincere thanks again.

SwingTrader · Posted: Fri Dec 20, 2013 11:02 am Post subject:

SwingTrader · Posted: Fri Dec 20, 2013 11:34 am Post subject:

DIAGONALS - LOCKING PROFITS

I have posted adjustments to diagonals that can be used if things go wrong (especially in the first few days after trade is initialized). Most of those adjustments are for reducing the chance of a bigger loss. Now, if a diagonal is in profit, we will have to try and lock at least some of the profits if we are getting closer to expiry. We also need to lock in some profits if profit is around 20%. In most cases greater profits are possible from this point only if volatility explodes.

Profits can be locked by squaring off the short option and initiating another short that is closer to the long option. This bumps up the hedge for the long option thus reducing the chance of profits evaporating if price moves against our position.

This adjustment can be done for losing trades also but I did not highlight in the previous post because this adjustment also restricts further profit potential. If done on losing trades and price recovers then the chance of profit is lesser after the adjustment. But for profitable trades this is effective in protecting part of the profits.

Example: @rk_a2003 had initiated a bullish diagonal on 4th Dec (he had posted about it in the "Market Sentiment" thread) :

Long NF JAN14 6100 CALL @ 317 + Short NF DEC13 6300 CALL @ 118.

He had bought the spread for 199 pts. NF has gone sideways to down since then. The trade is currently at breakeven as the spread is available at around 200-201 pts. But there is downside risk for this trade as the 6300 call is now trading only at 9.40 pts. So it is not going to provide much hedge to the long option. Since there is less than a week left to Dec expiry, one can re-hedge by adjusting the trade by squaring off the short 6300 option and shorting the DEC 6200 CALL @ 38. This will provide some more hedge and still maintain the chance of a possible profit if NF rallies...though less than the original trade.

NOTE: After Dec expiry this trade can continue. To get further hedge just short JAN expiry CALL with higher strike than the long call strike.

The same adjustment would have worked to provide profit protection if the trade was in significant profit.

rk_a2003 · Black Belt Joined: 21 Jan 2010 Posts: 2734

ST,
As you said there is no much hedge value left in 6300 Dec call, to day I covered it around 10.But not entered in to vertical spread just waited with 6100 Jan call naked Just because of my analysis that nifty has to go up today as per FII's action yesterday. It worked and I closed it around 290 now. Not yet calculated the profit. But in good profit. Thanks a lot.

I considered to carry the naked call as market turned bullish or to initiate a vertical spread at the closing but preferred to book profit. Laughing

Update:81 points profit minus brokerage. Even if 6300 jan call is not covered today morning profit will come down by around 24 points by this evening.
What I found with this trade is profit is not that good compared to puts ( I think you already mentioned it some where)

bpsingh · White Belt Joined: 16 May 2008 Posts: 54

ST,
I have downloaded the pdf booklet by Michael Catolico on Trade Adjustments. If anyone wants, I can upload here.
Today, as experiment in diagonals, at eod, I have taken bullish position in Nifty as follows:
Long Feb 6200 call @ 282/50
Short Jan 6400 call @ 98/70 (hedge 34.94%)
Trade Debit is Rs.9190. My target is 35% of this amount.
I intend to continue experimental trade in Nifty Option diagonals with 1 lot pair for 1year.
Thanks for the guidance.

SwingTrader · Posted: Fri Dec 20, 2013 5:13 pm Post subject:

SwingTrader · Posted: Fri Dec 20, 2013 5:17 pm Post subject:

vvsp · White Belt Joined: 10 Nov 2010 Posts: 62

Hello ST,

Your thread is excellent and worth more than other books about options trading available. Please continue the good work.

Just a suggestion, can you please move all the queries and replies to the other thread "Options Q&A" to keep this clean with your inputs only. You may block others from posting in this thread.

Thanks,
vvsp.

rk_a2003 · Black Belt Joined: 21 Jan 2010 Posts: 2734

rk,

In the end you traded the position like you were trading a long option Very Happy

If your timing and trade management is this good every time, you can just trade long option instead of a diagonal...

ST,

This is quite coincidence. Every time we may not get the hints like this or even we get them... may not be able to catch them. I know how foolish it is to think that we will be able to time the market every time...

The timing just enhanced my profits , even if I converted it to vertical the profits might be some what less but still be there.

For getting in big in to the stock market as you said the diagonals should be one of the method we need to chose.

Thanks a lot for guiding us.

SwingTrader · Posted: Fri Dec 20, 2013 9:21 pm Post subject:

SwingTrader · Posted: Fri Dec 20, 2013 9:23 pm Post subject:

chiragbvyas · White Belt Joined: 18 Feb 2010 Posts: 469

Hello S T Sir and friends,

Reading this thread regularly and trying to get courage to trade with safty.
Actually watching Gemini and R k 's trade and assuming that those are my paper trades and would like to know end result of their trades.

S T Sir,
Thanks for starting this practically applicable trade mechanism thread.

With all you senior's positive disscussion,i would like to add my view also.
The trade execution is the most simple and only price of options tell us that where (strike) and when(price of strike/options) to enter the trade. One more plus point is that you can play it in nifty fut as well as in 10 most high volume generating scripts also.

The funda is , add six strike prices of call and put option from current market price of nifty fut. to your market watch. Suppose nifty fut is 6200 then add 5900,6000,6100,6200,6300,6400,6500 call and put options to your market watch. Now watch carefully. which pair of call and put have almost same value in last week below 40 Rs. for example You must have same strikes get almost same prices below 40 Rs , means
it should be 6100 strikes call and put have same price or any other pair. Even you can not use 6100 call and 6000 put or 6000 call and 6100 put for entering the trade. Don't apply mind here or dont try to be smart , If got chance to enter the trade then buy call and put almost at the same time (within a minute) (Sometime people get chance and they buy put in falling markets and think that buy call later when it gets even more cheaper, if it do not happen and markets reverse back with pace then he will be left with put only which will start to falling and call may get costlier). leave rest all to markets till the date of expiry 3.15 p.m.

If you wish to book / protect profits....

For example think that you have got entry at 38 rs for 6100 call and put.
Market blasted for 80-100 points +. here our put will lost its value so either call or put which trade below 7 Rs. we will book loss first.(in this example we will square off put). our costing for trade is 76 / 77 plus brok. & taxes so may be around 79. After booking loss in put we get 7 rupees so 79 less 7 means our call costs us around 70 Rs. now we have call and the market is going up so call price will get gains. if one sided up move continues and you wish to book ..... then let the call be there. we will buy put of higher strike price then 6100 which is around 40-45 or 45-50 Rs. (This is premium we are paying as we are taking insurance of our 6100 call's gain. Protecting profits). On the date of expiery at 3.15 p.m. we will end both the trades. Befor that if any of that trades below Rs.7 we will square up that first. If you are holding one pair and market is range bound in expiery week and both are running Around/below Rs. 20 try to search another pair which is around / below Rs 40.
I have tried and tested this system in nifty and liquid scripts. Mostly when same strike gets same premiums markets / scripts take U-Turn with a Jet speed. On 19 / 20 dec. we may have got chance to enter 6200 call/put at 40 Rs. And now put at 12 and call at 101 if e have invested 40+40 = 80 in this pair we are getting 100+12 = 112 . almost 40% return.

Seniors and experienced option players if you get time pls back test and post the results. Once you get through couple of paper trades i promise you can not stop yourself from trading the same.

S T Sir,
I am not that much knowledgeworthy as you are (even i dont know what it is called what i have discussed ) but i have put my thinking here with best of my vocabulary. Hope this one also help all of us. Coz knowledge grow as much as it is shared with open heart and with thought to help othres.
Thanks.