NIFTY Strategy for March 28, 2018 Expiry– Discussed in Hyderabad F&O Workshop

In the Question and Answer Session at the end of program at Hyderabad on February 11, it was suggested that we form a strategy for trading NIFTY for next month expiry from the live NSE data.

It was explained how to work out the details. Some of the participants had asked for the presentation slides for understanding it in a better way.

It is again explained here with the data of February 12, 2018 for NIFTY March Expiry contracts.

Current NIFTY is 10539.75.

Strategy with CALLS would be:

Net Credit at Setting Up — Rs. 18.20

If one goes absolutely wrong with the direction, there can be no loss and a small profit of Rs. 18.20 would accrue. By going wrong, all the CALLS will expire worthless.

If NIFTY stays in the range 10600-10900, there will be a net profit of Rs. 100.

If NIFTY ends between 10500-10600, profit will range from 0 to 100.

Things will start going bad from 11000 levels. It would be advisable to exit when NIFTY touches 10900 or is near to it.

Strategy with PUTS would be :

Net Credit at Setting Up — Rs. 70.45

If NIFTY moves up and stays up till March Expiry, all the PUTS will expire worthless, still one would end up with a profit of Rs. 70.45

(The price shown in the NSE Option Chain is Last Traded Price (LTP ) whereas the price in the other image is Close Price of the day.)

If NIFTY is in the range 10500-10200, it will result in a profit of 100 points.

If NIFTY expires in the range 10600-10500, the profit will range from 0-100.

Problem begins when NIFTY falls below 10100.

One should exit when NIFTY is approaching 10200.

If both the Calls and Puts were used, the payoff would be like:

I hope this clarifies what was discussed at Hyderabad and earlier at Pune and Bangalore.

I would suggest that let us monitor the status at the end of every trading session by writing about this in our FORUM.

Let us see how NIFTY moves over next few days and how this strategy pans out.

Disclaimer : The above strategy details are for illustrating the lesson and not an advice to trade in NIFTY Option Contracts.

Comments

Sha Navas February 14, 2018 at 10:15 pm

With the closing values of CALL options on 14.02.2018, the net credit would be Rs. 1.20 * 75 = Rs. 90 only if we trade with one lot each. Why this sudden drop?
On the other hand, with the closing values of PUTS options on 14.02.2018, the net credit would remain more or less the same as it was on the previous days. The net credit, as on 14.02.2018, would be Rs. 63.60 * 75 = Rs. 4770.
What is the explanation for this, offered by Pramod ji and other experienced traders?
Is there

admin February 15, 2018 at 8:35 am

Well, Calls lost out due to time decay as well as NIFTY moving down.
PUTS gained some due to NIFTY going down and lost some value due to time decay.
Volatility also has its say o some extent.
It is for us to find out the right time for the trade.
Reply

Sha Navas February 16, 2018 at 4:12 pm

I tried doing Ratio Spread with PUTS today. Plan was to buy a lot of Mar PUTS 10500 and sell one lot each of Mar PUTS 10400 & Mar PUTS 10100. The prices at around 1430 hrs were Rs. 197.00, Rs. 160.45 & Rs. 82.90 respectively. Net credit would be Rs. 43.35 * 75 = Rs. 3476.
I had a little over 50,000 in my account at that time. I thought I would need 75 * (197.00+160.45+82.90) = 75*440.35 = Rs. 33,026.
The first transaction to buy Mar 10500 PUTS got executed. The second transaction to sell Mar 10400 PUTS got rejected. I tried with different limit prices, market price orders etc.., Nothing worked. Later, I got a message that for the order to sell Mar 10,400 PUTS, I would need a margin money of Rs. 60,266 and for the order to sell Mar 10,100 PUTS, I would need a margin money of Rs. 55,371.
Why the margin money required for selling options so high?
What is the basis of margin requirement values?
How much margin would be exhausted for the order to buy Mar 10,500 PUTS?
In total, how much money should I have in my account to execute my plan?
Finally, I gave up placing sell orders and exited the buy position I was having. Luckily, I got a small profit.

admin February 18, 2018 at 12:32 pm

Dear Sha Navas,

I had explained during the session at Pune about the margin requirements for any strategies. In India, strategies are not traded as one unit but as multiple single trades.Selling transactions need margin money and this strategy had two selling legs.

It was good that you could get your buy trade as profitable.

And the lesson about margin was free.
Reply
- Sha Navas February 23, 2018 at 10:15 pm
  
  Dear Pramod Ji,
  Finally I could successfully place orders implementing Ratio spread with PUTS. Delay was due to arranging necessary funds.
  I have bought a lot of 10400 PE, sold a lot of 10300 PE and sold another lot 10000 PE. Net credit is around Rs. 15, amounting to around Rs. 1,100 in total. Since this is my first trade in options, I went ahead and completed the orders though the net credit was small. I just want to make a beginning.
  A mistake I did was, ATM should have been 10500 and not 10400. Anyway, will fine tune things in the coming months.
  Questions is what are the potential risks and warning signs I should look out for since there are two open sell orders.
  Reply

Sha Navas February 24, 2018 at 10:40 pm

The 5 stocks having highest weightage are HDFC Bank, RIL, HDFC, ITC & Infosys.
What are the 5 stocks having the lowest weightage in Nifty50?
How to get the list of Nifty50 stocks with their weightage in the index?

Venkat March 6, 2018 at 7:03 pm

Any one in this trade??? Put 10200 is under threat.. You can exit or Buy 10100 Put to safeguard the loss…

admin March 6, 2018 at 7:18 pm

Move towards the today’s level happened at a great speed.

One can exit by booking a profit of about 22 points at these levels.

Also 10100 PUT can be bought to stay in the trade. If bought at around Rs. 45, it will protect from a big loss. Best would be to exit as there is no incremental benefit in staying in the trade. However, if a rebound happens, we are in the trade for 100 points.
A toigh choice to make because of the volatility.
Reply
- Venkat March 6, 2018 at 8:31 pm
  
  Yes sir…
  Actually i didn’t enter this trade, was just analyzing it..
  
  Do you suggest to enter now in Put side?? 10200, 10100 and 9800.. with net positive of 23rs at set up….
  Reply

Venkat March 6, 2018 at 8:32 pm

Sir….

Do you suggest to enter now in Put side?? 10200, 10100 and 9800.. with net positive of 23rs at set up….????

Sha Navas February 14, 2018 at 10:15 pm

With the closing values of CALL options on 14.02.2018, the net credit would be Rs. 1.20 * 75 = Rs. 90 only if we trade with one lot each. Why this sudden drop?
On the other hand, with the closing values of PUTS options on 14.02.2018, the net credit would remain more or less the same as it was on the previous days. The net credit, as on 14.02.2018, would be Rs. 63.60 * 75 = Rs. 4770.
What is the explanation for this, offered by Pramod ji and other experienced traders?
Is there
- admin February 15, 2018 at 8:35 am
  
  Well, Calls lost out due to time decay as well as NIFTY moving down.
  PUTS gained some due to NIFTY going down and lost some value due to time decay.
  Volatility also has its say o some extent.
  It is for us to find out the right time for the trade.
Sha Navas February 16, 2018 at 4:12 pm

I tried doing Ratio Spread with PUTS today. Plan was to buy a lot of Mar PUTS 10500 and sell one lot each of Mar PUTS 10400 & Mar PUTS 10100. The prices at around 1430 hrs were Rs. 197.00, Rs. 160.45 & Rs. 82.90 respectively. Net credit would be Rs. 43.35 * 75 = Rs. 3476.
I had a little over 50,000 in my account at that time. I thought I would need 75 * (197.00+160.45+82.90) = 75*440.35 = Rs. 33,026.
The first transaction to buy Mar 10500 PUTS got executed. The second transaction to sell Mar 10400 PUTS got rejected. I tried with different limit prices, market price orders etc.., Nothing worked. Later, I got a message that for the order to sell Mar 10,400 PUTS, I would need a margin money of Rs. 60,266 and for the order to sell Mar 10,100 PUTS, I would need a margin money of Rs. 55,371.
Why the margin money required for selling options so high?
What is the basis of margin requirement values?
How much margin would be exhausted for the order to buy Mar 10,500 PUTS?
In total, how much money should I have in my account to execute my plan?
Finally, I gave up placing sell orders and exited the buy position I was having. Luckily, I got a small profit.
- admin February 18, 2018 at 12:32 pm
  
  Dear Sha Navas,
  
  I had explained during the session at Pune about the margin requirements for any strategies. In India, strategies are not traded as one unit but as multiple single trades.Selling transactions need margin money and this strategy had two selling legs.
  
  It was good that you could get your buy trade as profitable.
  
  And the lesson about margin was free.
  - Sha Navas February 23, 2018 at 10:15 pm
    
    Dear Pramod Ji,
    Finally I could successfully place orders implementing Ratio spread with PUTS. Delay was due to arranging necessary funds.
    I have bought a lot of 10400 PE, sold a lot of 10300 PE and sold another lot 10000 PE. Net credit is around Rs. 15, amounting to around Rs. 1,100 in total. Since this is my first trade in options, I went ahead and completed the orders though the net credit was small. I just want to make a beginning.
    A mistake I did was, ATM should have been 10500 and not 10400. Anyway, will fine tune things in the coming months.
    Questions is what are the potential risks and warning signs I should look out for since there are two open sell orders.
Sha Navas February 24, 2018 at 10:40 pm

The 5 stocks having highest weightage are HDFC Bank, RIL, HDFC, ITC & Infosys.
What are the 5 stocks having the lowest weightage in Nifty50?
How to get the list of Nifty50 stocks with their weightage in the index?
Venkat March 6, 2018 at 7:03 pm

Any one in this trade??? Put 10200 is under threat.. You can exit or Buy 10100 Put to safeguard the loss…
- admin March 6, 2018 at 7:18 pm
  
  Move towards the today’s level happened at a great speed.
  
  One can exit by booking a profit of about 22 points at these levels.
  
  Also 10100 PUT can be bought to stay in the trade. If bought at around Rs. 45, it will protect from a big loss. Best would be to exit as there is no incremental benefit in staying in the trade. However, if a rebound happens, we are in the trade for 100 points.
  A toigh choice to make because of the volatility.
  - Venkat March 6, 2018 at 8:31 pm
    
    Yes sir…
    Actually i didn’t enter this trade, was just analyzing it..
    
    Do you suggest to enter now in Put side?? 10200, 10100 and 9800.. with net positive of 23rs at set up….
Venkat March 6, 2018 at 8:32 pm

Sir….

Do you suggest to enter now in Put side?? 10200, 10100 and 9800.. with net positive of 23rs at set up….????

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