On July 03, 2018 NIFTY closed at 10699.
NIFTY ended up by 42 points.
A day earlier it had fallen 57 points.
These up and down moves may be unnerving for the investors and traders who have open positions in various stocks or indices. But for the purpose of this spread these moves are fine. We want such alternate day moves cancelling out each other so that NIFTY ends hereabouts or a little lower. We do not want it going any higher or too low.
The prices for our PUTS at the close of day were:
NIFTY PUT 10800 —– Rs. 159.00
NIFTY PUT 10700 —- Rs. 115.55
NIFTY PUT 10400 —– Rs. 42.00
If we have to close the options today, we shall receive Rs. 159 for our BOUGHT PUT.
We have to pay out Rs. 157.55 for our two SOLD PUTS.
There is a very small profit of Rs. 1.45 which is insignificant. Profit will come ever so slowly if NIFTY remains range bound.
A word of caution :
One of the readers has pointed out that in case of some unforeseen event market crashes in a big way overnight, then the strategy is not safe.
I agree with him. It will not be safe if NIFTY falls below 10300 overnight.
If the fall is a regular fall we shall get opportunity to manage the trade by closing in a minor loss or buying a protective call.
Readers are requested to post their own views as comments.
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.