We saw both NIFTY and BANKNIFTY moving in a narrow range throughout the day. And at 14:50, all the troubles of previous day were forgotten. A day earlier, 25 basis point cut in the interest rates did not enthuse the markets. On Friday, nothing mattered.
Just look at what BANKNIFTY did in the last part of the day.
Trying to find reasons is just an intellectual exercise which achieves nothing. What could change in a day to make the markets behave in such manner. Probably all the NPAs of banks just became good loans. Or suddenly there is a huge demand of loans from credit worthy borrowers? Forget it, there is no point in discussing. Let us leave it to people on TV.
Strategies are meant to take care of these kind of moves.
And it did.
As the prices of HDFCBANK and KOTAKBANK moved higher, sold PUTS came down in value.
So did the bought PUTS in BANKNIFTY.
We are supposed to make profit from the difference between the two type of trades. And Friday was a day which ended slightly in the green.
As more time is passed with both way movements, the profit will be added.
This is the current status:
Again, we have to just sit tight and do nothing for the day.
Let us just do that.
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
Praveen April 8, 2019 at 1:42 pm
Hi Sir
I feel this may not be a perfect hedge strategy and max loss is unknown here (possibility of max loss is there).
May I know, if this selection is Delta neutral, and how the delta is moving over time ? What is the beginning delta ?
Thanks
Replyadmin April 9, 2019 at 8:17 am
Dear Praveen,
Thanks for your comments.
I had started this blog to demonstrate that option trading can be done without the kind of terminology used in your comment.
To keep things simple, the top 3 stocks in Bank Nifty having a weight of 63% in the Index are hedged by the Index.
Yes, there could be loss at some point but if these stocks move up, Bank Nifty moves up. If these three move down, there is about 10% chance that Bank Nifty does not move down. Looking for a perfect hedge at all times is too time consuming and we will be looking for adjustment trades every day. I know big traders and institutions keep doing it. But we are simple folks who do not have resources of big traders and we have to work in our own humble ways.
The strategy is based on the simple fact– it is actually a fact — a good portfolio outperforms the index most of the time. So we are looking to make profit most of time, not all the time.
It should work and it will work. Let us not be afraid of some loss when and if it comes.
Cheers.
ReplyPraveen April 8, 2019 at 3:41 pm
Hi Sir
ReplyToday, I bought Nifty 11500 CE and 11700 PE 11th Apr Expiry at 133 and 103, Nifty trading around 11610
Here My Max loss is 36 points if Nifty closes in the range 11500 to 11700, 100 points each side.
At 11500, my PE will be 200 points and at 11700, my CE will be 200 points. my break even point +- 36 points, anything above or below, I will be in profit.
Expecting nifty to move more than 136 points in either direction in 3 trading days (Not sure about the probability of success)
Kindly let me know your thoughts