iCharts Discussions

[Stockhunter]

Objective : 20% return on capital employed with 2% maximum risk per month by trading NIfty options (writing only)

Trade size = 2 lots per trade, maximum open position 8 at any point.

Capital required : 2-3 Lakhs for writing options plus keeping resrves to hedge if required

Profit Target = 30K-40K per month
Max loss appetite = 5 K per month

Start date 1st September 08.

[Stockhunter]

1st September 08

[color=blue]Sold 4100 puts (2 lots) for 71
Sold 4100 puts again (2 lots) for 55
Sold 4500 Calls (2 lots) for 94

EOD closing position - carrying 6 lots overnight

Realised P&L from the current trade = 0
Realised P&L for this month = 0
Realised P&L since since start of the topic= 0


2nd September 08

Opening Positions : 4 lots 4100 PE short and 2 lots 4500 CE short

Squared off 4100 PE (4 lots) at 27.50 (avg 35.50 point profit per lot)
Sold 4600 CE (2 lots) at 105
Sold 4200 PE (2 lots) at 44

EOD closing position - 2 lots of 4500 calls short, 2 lots of 4600 calls short and 2 lots of 4200 PE short

Realised P&L from the current trade = (35.50 points x 200 = Rs 7100)
Realised P&L for this month = Rs 7100
Realised P&L since start of the topic= Rs 7100

4thSeptember 08

Opening Position : 2 lots of 4500 calls short, 2 lots of 4600 calls short & 2 lots of 4200 PE short

Squared off 2 lots of 4600 CE at 82 (23 point profit per lot)

EOD position : Carrying 2 lots of 4500 CE short and 2 lots of 4200 PE short

Realised P&L from the current trade = (23 points x 100 = Rs 2300)
Realised P&L for this month = Rs 7100+2300 = 9400
Realised P&L since start of the topic = Rs 9400

8thSeptember 08

Opening Position : 2 lots of 4500 CE short & 2 lots of 4200 PE short

Squared off 2 lots of 4200 PE at 30.5 (13.50 point profit per lot)

EOD position : Carrying 2 lots of 4500 CE shorts

Realised P&L from the current trade = (13.5 points x 100 = Rs 1350)
Realised P&L for this month = Rs 9400+1350 = 10750
Realised P&L since start of the topic = Rs 10750

11thSeptember 08

Opening Position : 2 lots of 4500 CE short

Squared off 2 lots of 4500 CE at 62 (32 point profit per lot)
Sold 4200 PE (2 lots) at 83

EOD position : Carrying 2 lots of 4200 PE shorts

Realised P&L from the current trade = (32 points x 100 = Rs 3200)
Realised P&L for this month = Rs 10750+3200= 13950
Realised P&L since start of the topic = Rs 13950

[Stockhunter]

So whats the contingency plan? .. 4200 PE sold at 83 are safe till Nifty trades above 4117. I can hedge by shorting Nifty at 4120 levels and come out unscathed if the blood bath follows. However 4200 on Nifty is an important level and the plan is to write 4200 calls if 4200 is breached (4200 calls should be around 120-130 odd levels at that point).

This would mean that my breakeven would become 4000 odd on the downside and 4400 on the upside. However I will hedge the losing position with NF and book profits on the winning position whenever we have more than 50% profit on any leg. With 11 days to go before expiry, the time decay should also benefit ..hopefully!

[Stockhunter]

NIFTY defied all global markets, low inflation data, high IIP numbers etc today to close at the days low. .. The funny part is the NF premium was right up there all the way through. Anyways, once the EOD H&S was broken, I decided to write some calls as well just in case if we NIFTY continues its southwards journey!

12thSeptember 08

Opening Position : 2 lots of 4200 PE short

Sold 4300 CE (2 lots) at 87

EOD position : Carrying 2 lots of 4200 PE and 2 lots of 4300 CE short

Realised P&L from the current trade = 0
Realised P&L for this month = Rs 10750+3200= 13950
Realised P&L since start of the topic = Rs 13950

[Stockhunter]

The day of reckoning!! Nifty opened at 4050, thats a 4% gap down. The H&S on EOD that I referred to earlier was broken with a vengeance and the target is 3800, though Nifty can bounce to 4200 once more, if at all.

Coming back to our options, the gap down made me cover the profitable 4300 calls at 30, however my 4200 puts were in deep loss. As the gap down meant I could not short at breakeven, I shorted at 4048. Now the positions has become a covered short. In any case, this trade will give atleast 5K loss which will be offset by the 5K gain made on the calls.

15thSeptember 08

Opening Position : 2 lots of 4200 PE short & 2 lots of 4300 calls short

Squared off 4300 CE (2 lots) at 30
Hedged 4200 PE with shorting 2 lots of NF at 4050

EOD position : Carrying 2 lots of 4200 PE and 2 lots of NF short
Realised P&L from the current trade = 5700
Realised P&L for this month = Rs 13950+5700= 18650
Realised P&L since start of the topic = Rs 18650

[Stockhunter]

The global turmoil continues and the H&S target of 3800 is quite possible this series itself. However, there is a possibility of a small correction upto 4200 which can come anytime now... however my NF shorts from 4600 levels were booked at 3900 and I will open fresh shorts only after a correcttion. My final target or bottom for this year is 3400 levels as per technicals and I hope the technicals are proved wrong as I would hate to see the stock market in such a soup!

Coming back to the options position...didn't touch these positions either today or yesterday since there is still approx 3K of time value left if 4200 puts that I want to decay before we close the position with a 5K loss. Planning to write some calls on Friday though....

Cheers

[Stockhunter]

We are ... in the final phase.... of the bear run ! Do I see some bulls clapping? Well I am. The bear run will end with commodities bottoming out .. which should happen withinin next 6 months....

My view is , there is probably 10% more pain in the markets left and at 3400-3500 levels we will bottom out.. later half of 2009 will mark the process of recovery.

Coming back to the shorter time frame, NIfty made a low of 3799.50 today and achieved my target of 3800 from the H&S which I have been talking about since past few days. 3800 was an oversold zone hence I longed NF which paid huge dividends intraday... I can see 100-200 more points on the upside from here before I start shorting again for 3400-3500 levels.


Option positions are still held and will hold until expiry, will write some OTM calls tomorrow.

Cheers

[Stockhunter]

and... we did get the bounce back above 4200 levels today. I said 3800 this series and we got it ... I said pullback to 4200 and we got it .. now the third estimation is about the final bottom at around 3400-3500 .. will that come true as well...?

In any case, I think upside should be capped upto 4300-4350 max above which I will go long. Today i starting shorting small amounts once we crossed 4250.

Coming back to the option positions, the 4200 puts shed all the notional loss however the NF shorts ran into losses, with 3.5% gap up today against 5-6% in the other markets.. I decided to square off my shorts at 4164 levels since the move above 4200 was evident during the day.
19thSeptember 08

Opening Position : 2 lots of 4200 PE short & 2 lots of NF short

Squared off NF shorts at 4164

EOD position : Carrying 2 lots of 4200 PE short
Realised P&L from the current trade = -15200 (loss)
Realised P&L for this month = Rs 18650-15200= 3450
Realised P&L since start of the topic = Rs 3450

[vdilip]

Hello Stockhunter,

I am not an expert in trading options like how you do, but I feel, a better trade would have been to exit 4200 PE(which you hedged with NF) when nifty gapped down, book profit in 4300 CE and re write new position like 4100 CE and 3800 PE this positon would have given sufficient margin to due to increased volatality. Hedging with future is good, but could create trouble incase of a fast reversal. Please let me know your comments.
All the best

Dilip

[svkum]

Dear Stockhunter,

More or less i follow the same technique of writing options.
How you are adopting SL strategy in case of options(liquid ofcourse)
because i dont find you have mentioned about SL ,if the move goes against your view.
Hedging with opposite action doesnt always prove successful, since lossy options goes on incurring losses.
In calculating profit one has to consider brokerages, bcz in options brokerages are more.
I move on to next level ,by booking profit in current option sold.
But i find it difficult to exit lossy position ,or i hve to wait for it to correct, and in the prosess loss mounts up.
I play this game in 3 weeks from start of the new month, and in last week i buy in the money options ,instead of selling , since the difference in futures and options reduces .
I have made more profits in options rather than in futures.
Pl discuss your views on this.

S V KUMTHEKAR

[vdilip]

Dear Svkum,

On stop - Follow support / resistance of underlying and decide on to stay on or exit/cover.

I generally re align a losing trade, ie if 4200 CE & 4000 PE is what is sold and if 4200 CE is loss making, now book profit in 4000, sq off 4200 and enter a new position, may be 4400 CE and 4100 PE.

I generally book if I see risk reward unfavourable.

Disclaimer : Views expressed are of author,and should not be considered as advice for trading. Please consult an expert before decision making for trade.

[svkum]

vdilip,
Thanks for quick reply.
i do not exit the lossy position is my weakness.
i book profitable position and go on to next level as mentioned by you also.
i shd book lossy position also and take corrective steps.
straddle and strangles are good strtegy when you are not certain abt direction. or to have advantage of gao up or gap down.

sv kumthekar

[Stockhunter]

Dear Dilip and svkum,

Thanks for your comments and views, sincerely appreciated. Let me try and make an attempt on responding on the questions that you have raised.

Dilip -You are right, NF hedging doesnt work if markets move against them suddenly like in this case... however 4 % gap ups and down on 3-4 consecutive days anyways spells doom for an option writer....and doesnt happen every month does it?... it was just one of those month...

In hindsight, probably yes squaring off the losing 4200 puts instead of hedging with NF shorts could have been beneficial however remember its only in hindsight... infact looking at todays picture where 4200 put has actually come into profits one would say booking loss on 4200 put would also have been a mistake.. hindsight is beautiful since it doesnt require decision making....

Had I booked loss on 4200 puts on the first day of gap down and opened short positions on 3800 puts as suggested by you, I would have been forced to book loss on 3800 put too a couple of days back when markets made the recent low....


Svkum - Regarding SL, its depending on the underlying as Dilip said, however if you I suggest the best SL is your money management rule.... lose only that much that you can afford on the current trade depending on your money management rule...

writing the next level is also a good technique which I would be using in future but didnt do it this time since the volatility shot up making option writing unwarranted for the time being.

Please let me know if above is of any help and I welcome your comments ..I hope we all learn as we go along.

Cheers

[Stockhunter]

Indian markets stayed skittish today showing the bears havent lost grips yet. Nifty will be strong for an good upmove above 4300 levels and will stay weak below the same level. Todays EOD candle can give a deadly 100 points fall if days lows are breached this week. I am still bearish in an intermediate term hence decided to square off 4200 short puts and open a vertical bear put spread from October.


22nd September 08

Opening Position : 2 lots of 4200 PE short

Squared off 4200 puts short at 47 (37 point profit)
Bought 2 lots 4200 puts (Oct Series) at 180
Sold 2 lots 3800 puts (Oct series) at 60

Max possible loss on above = 12000
Max possible profit on above = 28000

EOD position : Carrying 2 lots of 4200 PE long and 3800 puts short
Realised P&L from the current trade = 3700
Realised P&L for this month = Rs 3450+3700= 7200
Realised P&L since start of the topic = Rs 7200[/u]

[vdilip]

Dear Stockhunter,

Thanks for the comments, Yes I agree in trading, decisions are based on perceptions at given point in time. With respect to option writing, if a crusial support is broken, it is better to exit that position and re align based on new scenario which I feel is good, in this case 4200 was neckline for h&s also. I am following your trades and you are doing good. Keep it up. Wish you success

Dilip