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.