{The basic idea of this post came from a comment on another post by Prveen —

Praveen June 27, 2020 at 11:28 am

I always used to wonder, is this so complicated

One Analysis is are we getting money from Sold Options or Bought Put. Which one is giving more Profits.

And I tried to back test , only buying.

Check the details here – https://youtu.be/E99-7lfS0XM }

We had seen in the previous post that simply buying slightly out of money CALLS and PUTS in BANKNIFTY and letting them run till expiry would have made a very handsome profit in the 6 months of the year 2020.

The mouth watering results are due to the crash which happened in March 2020. Take away that month and we are looking at a loss.

That is the nature of profits from option buying. They come as windfalls, not in small trickles. One has to wait for such occasions patiently. And patience is not a virtue traders are blessed with. So they will surely miss such opportunities.

We know and fully understand that the kind of profit seen in March 2020 is once in a decade kind of thing. Let us not expect this to happen very soon again.

Today we shall have a look at the year 2019.

There was no March 2020 like month last year. There were elections, second term for the Modi government, talk of recession, many announcements by the Finance Minister and the market had moved up sedately and touched the all time high in January 2020.

The same way of buying BANKNIFTY CALLS and PUTS in 2019 would have given this result.

The profit of Rs. 32820 appears to be insignificant specially if we look at the year 2020 numbers.

But the results of 2019 present a truer picture of the likely profits.

The profit for the year is almost 100% of the capital deployed. We do not take a 100% annual profit lightly.

Such buying of CALLS and PUTS is known as STRANGLE in option parlance. A big move is needed to make a profit out of such trades. Big moves happen, only we do not know when and we have to be patient with the move to conclude. Who knows when a March 2020 like situation comes again?

Again, the results make a case for options buying. It is not always a loser’s game.

Enjoy the Sunday.

Back here again tomorrow for a trading day.

Disclaimer: This post and examples are for teaching purpose only and are not meant as advice/suggestion to trade in these stocks. Trading in Futures and Options can lead to big losses and should be done with appropriate knowledge and advice only. Mentioning the stocks here does not imply that I have a trading position or likely to take a trade in these stocks.