Yesterday I made the first post of the series explaining with the working out of trades in RELIANCE and ASIANPAINTS.
Because of the price fluctuations, the strike prices were changed for RELIANCE trades. For ASIANPAINTS the same strikes were kept.
These were the trades actually taken and the position at the end of day.
Initial credit for RELIANCE set up is Rs. 7398.25 and for ASIANPAINTS it is just Rs. 2535.
Margin blocked is Rs. 255480 and Rs. 98200 respectively.
Logic for the trades:
Both these stocks had made 52 week highs on Thursday indicating the strength. In case of RELIANCE that was the all time high.
If the strong trend continues and the stock price ends above our bought PUT price, all the PUTS shall end up worthless.
In that case, we get to keep the initial credit amount.
Why call it — Bucking The Trend?
Because we make money if the strong trend stops and reverses. I am not a big fan of Supports and Resistances but surely some selling always comes when a stock reaches a high point.
If the stock price moves down, we are having a PUT which is In The Money and that shall gain some value.
We have sold 2 out of money PUTS, one of them by just 40 points and the second one much further away.
We are banking on the fact that a stock which has been a strong performer may not fall very significantly.
The profit will be 40 points in case RELIANCE closes between Rs. 2220 and Rs. 2300.
In case of ASIANPAINTS profit will be 40 points if it closes between Rs. 1980 and Rs. 2020.
Profit will vary from Rs. 0-40 in the range Rs. 1980-2340 for RELIANCE and 1940-2060 for ASIANPAINTS.
These are quite decent ranges in the current market scenario.
As we can make profit if the stocks reverse from the current trade, I thought Bucking The Trend would be an appropriate name.
Probability of Success:
Jargon apart, it is simply one debit spread combined with one naked PUT sell.
The naked sell PUT is at around 4% away in case of RELIANCE and 3% away in case of ASIANPAINTS.
We have 9 days remaining till expiry.
In our Option Buying series, we BUY options with such strike differences in week no. 3 and hope to make profit.
How many times we succeed?
Around 30% overall.
That means there is a 30 % chance of sold PUT becoming ITM and causing a loss.
By that time, the debit spread would become profitable and we are protected up to further 40 points which should be a big relief.
That improves our likely success rate by at least another 10%.
We should be successful about 80% of the time.
In fact it could be better than that. We shall find out with real trades over next few months.
As always, the trades shall not be too many. The aim is to trade cautiously and profitably.
I hope readers will enjoy yet another series of trades.
It maybe another step in — Taking Your Options Trades To Next Level.
Let us hope this strategy too works like Money In The Bank and Weekly Warrior.
Thanks for reading.
Enjoy the holiday. Please visit again tomorrow for more trading thoughts over the weekend.