Real Time Update :
For setting up now ( at 9:30 am on 02-04-2019 )
5 lots BANKNIFTY PUT 30300 @ Rs. 554.
Total Cost — 55400.
HDFCBANK PUT 2300 2 lots sell @ Rs. 43.00 Credit — Rs. 21500
ICICIBANK 1 lot PUT 400 sell @ Rs. 12.00 Credit — Rs. 33000
KOTAKBK 1 lot PUT 1340 sell @ Rs. 40.00 Credit — Rs. 32000.
Total Credit — Rs. 86500
Net Credit at Set Up : Rs. 31100.
Please read :
We have been discussing Option Buying on this site for almost a year now. That journey has been nicely profitable so far and we expect to close the 12 month period with more than decent gains.
Yet, there are people who are not comfortable with buying options. I do not understand that reservation, but then there are many things in life which I do not understand. Like why the market goes up one day and down next day?
I have nothing against option selling except the fear of unlimited loss.
And that fear is real. One day of bad luck can take away the profits earned over 2-3 years.
But strategies are little different. They can protect from unlimited loss. Not from loss. Nothing can protect from loss except a right trade.
Strategy With Bank Nifty :
The top 3 weighted stocks in BANKNIFTY are:
Lot Sizes are 250, 2750 and 800 respectively.
We sell 2 lots of HDFCBANK PUT 2300 @ Rs. 40.00
We sell 1 lot of ICICIBANK PUT 400 @ Rs. 11.00
We sell 1 lot of KOTAKBANK PUT 1340 @ Rs. 40.00
These were the closing prices yesterday. ( 01-04-2019 )
2 lots are sold in case of HDFCBANK to keep values of trade in the same value range.
We shall get a credit of about Rs. 82000 from these SELL trades.
If the market and these stocks keep going up, we get to keep this money. A very good thought but market cares two hoots for our thoughts and can turn around in a moment like we saw yesterday. We need to protect ourselves.
Hedging Trade :
These 3 stocks have 63% weight in BANKNIFTY. If these move down, BANKNIFTY too goes down.
We buy 5 lots of BANKNIFTY PUT 30300 @ Rs. 500.
At Rs. 300 each lot will cost us Rs. 10000. Total cost for 5 lots will be Rs. 50000.
Profit/Loss Scenario :
Margin Requirement for the SELL trades will be nearly Rs. 610000.
Cost of hedging trades will be nearly Rs. 50000.
We need Rs. 66000 to set up the trades.
We get a credit of Rs. 82000 – 50000 = Rs. 32000 at set up.
If the stocks keep going up and BANKNIFTY goes up with them, all options expire worthless.
Our profit in that case is Rs. 32000.
If these stocks go down, BANKNIFTY too goes down. We lose money in sold options, but our BANKNIFTY PUTS will make some money.
The profit will be reduced and in case of a drastic fall, we are protected because of bought PUTS.
let us see how it works out on daily basis.
All the best to those who trade this and to those too who only paper trade.
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.
Antony Revinson April 2, 2019 at 1:57 pm
Sir, this setup is for weekly or monthly expiryReply
admin April 2, 2019 at 1:59 pm
It is for monthly expiry.
Ananth April 2, 2019 at 5:06 pm
Bold move Pramod Sir. Well hedged as well.Reply
PRAKHAR April 2, 2019 at 7:12 pm
Thanks for bringing new dimension to our trading.Reply
Harish April 2, 2019 at 10:19 pm
Hello Sir, What will be the maximum loss for this strategy?Reply
vishal agarwal April 2, 2019 at 10:48 pm
Sir we can try going long in the stock futures and hedging with bank nifty puts. That ways profit from stocks will not be capped.Reply
admin April 2, 2019 at 11:52 pm
That would be another strategy. Here we are using only Options.