A Strategy With Bank Nifty — April 2019

This is how BANKNIFTY performed on April 02, 2019.

It was flat or negative for most of the day and took off in the last one hour of trade.

Our strategy is about selling PUTS in the top 3 stocks in BANKNIFTY with the expectation that these stocks will be moving upwards and we get to keep the premium.

Things can always go wrong. For protection, we buy BANKNIFTY PUTS of almost matching value ( Trade Value ) of the current strike which was 30300 in the morning on 02-04-2019.

After that it is just wait and watch.

This is how the set up was :

Net credit of Rs. 31100 is available on set up. It does not mean that we have earned this profit today. This is the most likely profit if our expectation of these stocks going up comes right. The profit may be less than this number in case these stocks go down sharply. But we are protected against a big loss by our PUTS which will gain some value as the down move in these stocks will take BANKNIFTY also lower.

We shall be reviewing the position on daily basis.

What do we do for the day ? :

Absolutely nothing.

No need even to look at the prices if you so desire. Let the strategy function without any interference. That is what strategies are meant for. Do nothing, relax and let the trade conclude as per the plan.

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.

Comments

bhogendranath Nallan Chakravarthula April 3, 2019 at 8:42 am

Dear Sir,
Not able to understand your underlying plan in banknifty trade.
Is it wise investing 610000 for a profit of about 50000 in one month?

Your stock options give on average Rs 50000 monthly with capital of around 1,10,000.

Kindly give your own opinion

Regards

admin April 3, 2019 at 9:07 am

The most surprising thing is that people are actually happy in making small profits on large capital. Don’t we know the conventional wisdom that only Option Sellers make money ? In this strategy we are doing just that. it seems strange but the fact remains that many people are not convinced with option buying profits. Some say it is not consistent. Why it should be consistent is not answered.
And it is not 50000 profit in a month. It is 31000-32000 on a capital of Rs. 660000. it seems you read the first version which was later edited with correct prices.

Thanks for sharing your thoughts.
Reply
- bhogendranath Nallan Chakravarthula April 4, 2019 at 3:59 am
  
  Thank you very much for your response
  
  I did not understand dynamics of money flow and projections. Now what I understand is profit for above strategy lies between 31,000 to 3,22,000.
  
  Is it ok, if I enter the trade now with all those options mentioned?
  
  Best Regards
  Reply
  - admin April 4, 2019 at 8:24 am
    
    Profit for the strategy is Rs. 31100 in the best case scenario. That is when these stocks stay above the Strike Price at expiry. In such a case all the bought and sold options will become worthless and we get to keep the initial credit amount.
    How you arrive at Rs. 3,22.000 is not clear to me ?
    
    Cheers.
    Reply
  - bhogendranath April 4, 2019 at 10:32 am
    
    Dear Sir,
    
    Assumption of 320000 was taken from your reply.
    
    After your reply and other queries, I understand, you may have meant the profit is 31,000 to 32,000. In your reply I think one zero extra appeared. As I do not have full knowledge of option hedging strategy, I went ahead literally from your reply.
    
    Now it is understood that best case is profit of 31,000. Hence my question still becomes valid that investing 6.5 lakhs and getting best case possibility of 31,000 is inferior compared to average earnings arrived at from equity option in the last 9 months as informed in your blog.
    Kindly correct me if my understanding is wrong.
    Regards
    Reply
    - admin April 4, 2019 at 10:38 am
      
      Thanks for sharing your thoughts.
      
      By mistake I typed 320000 in my reply to your comment. That has now been corrected.
      
      Strategies are protection against loss and one does not have to watch for the moves all the time. The returns are low but then risk is also covered. this is the actually preferred mode of trading with big capital.
      
      Every method has its own plus and minus points.
      
      Cheers.
- Madan April 4, 2019 at 8:27 am
  
  Dear Nalan, Where did you get the figure 320000, how you arrived it.
  Reply

Dinesh April 3, 2019 at 8:52 am

Sir,while hedging bank nifty ,how can we arrive at lot size either 10 ,20 or more lots.

admin April 3, 2019 at 9:10 am

Dear Dinesh,

Look at the value of the trades. Value of 1 lot of HDFCBANK is approx Rs. 2300 x 250 = Rs. 575000. 2 lots = Rs. 1150000. Similarly other stocks have a trade value. This is to be balanced by BANKNIFTY to the best extent possible. In this case we get 10 lots.

Cheers.
Reply

Sandeep April 3, 2019 at 2:06 pm

Sir ,
When will be your next seminar in Delhi

bhogendranath Nallan Chakravarthula April 3, 2019 at 8:42 am

Dear Sir,
Not able to understand your underlying plan in banknifty trade.
Is it wise investing 610000 for a profit of about 50000 in one month?

Your stock options give on average Rs 50000 monthly with capital of around 1,10,000.

Kindly give your own opinion

Regards
- admin April 3, 2019 at 9:07 am
  
  The most surprising thing is that people are actually happy in making small profits on large capital. Don’t we know the conventional wisdom that only Option Sellers make money ? In this strategy we are doing just that. it seems strange but the fact remains that many people are not convinced with option buying profits. Some say it is not consistent. Why it should be consistent is not answered.
  And it is not 50000 profit in a month. It is 31000-32000 on a capital of Rs. 660000. it seems you read the first version which was later edited with correct prices.
  
  Thanks for sharing your thoughts.
  - bhogendranath Nallan Chakravarthula April 4, 2019 at 3:59 am
    
    Thank you very much for your response
    
    I did not understand dynamics of money flow and projections. Now what I understand is profit for above strategy lies between 31,000 to 3,22,000.
    
    Is it ok, if I enter the trade now with all those options mentioned?
    
    Best Regards
    - admin April 4, 2019 at 8:24 am
      
      Profit for the strategy is Rs. 31100 in the best case scenario. That is when these stocks stay above the Strike Price at expiry. In such a case all the bought and sold options will become worthless and we get to keep the initial credit amount.
      How you arrive at Rs. 3,22.000 is not clear to me ?
      
      Cheers.
    - bhogendranath April 4, 2019 at 10:32 am
      
      Dear Sir,
      
      Assumption of 320000 was taken from your reply.
      
      After your reply and other queries, I understand, you may have meant the profit is 31,000 to 32,000. In your reply I think one zero extra appeared. As I do not have full knowledge of option hedging strategy, I went ahead literally from your reply.
      
      Now it is understood that best case is profit of 31,000. Hence my question still becomes valid that investing 6.5 lakhs and getting best case possibility of 31,000 is inferior compared to average earnings arrived at from equity option in the last 9 months as informed in your blog.
      Kindly correct me if my understanding is wrong.
      Regards
      - admin April 4, 2019 at 10:38 am
        
        Thanks for sharing your thoughts.
        
        By mistake I typed 320000 in my reply to your comment. That has now been corrected.
        
        Strategies are protection against loss and one does not have to watch for the moves all the time. The returns are low but then risk is also covered. this is the actually preferred mode of trading with big capital.
        
        Every method has its own plus and minus points.
        
        Cheers.
  - Madan April 4, 2019 at 8:27 am
    
    Dear Nalan, Where did you get the figure 320000, how you arrived it.
Dinesh April 3, 2019 at 8:52 am

Sir,while hedging bank nifty ,how can we arrive at lot size either 10 ,20 or more lots.
- admin April 3, 2019 at 9:10 am
  
  Dear Dinesh,
  
  Look at the value of the trades. Value of 1 lot of HDFCBANK is approx Rs. 2300 x 250 = Rs. 575000. 2 lots = Rs. 1150000. Similarly other stocks have a trade value. This is to be balanced by BANKNIFTY to the best extent possible. In this case we get 10 lots.
  
  Cheers.
Sandeep April 3, 2019 at 2:06 pm

Sir ,
When will be your next seminar in Delhi

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