Tuesday, November 17, 2015

How Bank Nifty Options Pair made 5.2% profit in 15 days

Short Strangle is one of the best strategies you can trade if you know the strike prices at which you are selling the strangle.

Short strangle trade wins almost 90 times out of 100. The beauty is that if a short strangle trade is not in your favour due to wrong prediction and you are loosing on that trade, you always have chance to get out of trade with zero loss or very minimal loss.

What is important while trading a short strangle is you should know the right strike where to sell the Options.

Secondly, you need to know when to get out (with profits) of strangle.

On 2nd Nov 15 I had take this Bank Nifty short strangle in my Index Options Portfolio

Sell Bank Nifty 18500 Call
Sell Bank Nifty 16000 Put

I had received following premium for one lot.

Bank Nifty 18500 Call = 65.20*30=  1956
Bank Nifty 16000 Put = 71.4*30 = 2142

Total Premium received is 1956+2142= 4098

I had to pay margin of 66000 for this pair

Lets first talk about why I chose 18500 and 16000 strikes.

Have a look at Banknifty daily chart below:



I decide my Strike priced based on Demand and Supply areas, usually on monthly or weekly charts. These are Supports and Resistances. Based on these area I decide a suitable  strike.

In my 2 days Course on Options I teach how to identify these levels in details. Click here to know more details about this course.
Bank Nifty can trade with high volatility at times. This can put you in losses if strike prices are not carefully chosen. It is worth learning before loosing money......

Since Bank Nifty as expected traded within the range of 18500 and 16000 the premium of both the Options above decayed. 

Today I closed this trade:

18500 Call covered at 6.35
16000 Put covered at 14.9

Profit calculations for 1 lot: 
Profit in 18500 Call = 65.2 (Price at which it was sold on 2nd Nov) - 6.35 (Price at which it is covered today)  = 58.95 * 30 = 1768.50
Profit in 1600 Put = 71.40 (Price at which it was sold on 2nd Nov) - 14.9 (Price at which it is covered today) = 56.50* 30 = 1695

That's the total profit of 1768.50+1695= 3463.50 for one lot of Banknifty

Total Margin I had paid 66000

Returns on last 15 days: 5.24%

Some tips for trading Short Strangles:
1. Select Strike prices very carefully
2. Premium of deep OTM strike price decay fast after first 15 days in near month series
3. Move out and switch to different strike if you feel your strikes chosen originally have risk
4. Book profit after first 17-18 days
5. If you are making 3-5% its good profit too book

If you feel 5.2% is a good return in 15 days (It is good even one gets in one month) why don't you trade relatively safer in Nifty or Banknifty Options with hedging strategies like this one.

Do you trade short Strangles? If yes how do you select the strike price and when do you book the profit?

If you wish to subscribe to this article and many more learning posts through newsletter via email click on this link 

No comments:

Post a Comment