Generally, we have lot
of strategy to discuss but in reality mostly we used at most 8-10 depends on
situation and risk taking mood.
Today I am
going to share very easy but most efficient strategy i.e. call- put strategy
Have I ever
heard without any strong news base market move vertically up except few pending
news yet to come? Never
While
negative flow of news always uncertain in nature and seen many times market
crashes much.
Thing here we
discussing is about negative news always uncertain like surgical strike,
demotazation, any big political uncertainty and many more.
So this
strategy is perfect to use constant where no big surprise pending like election
result, result announcement, policy decision etc
Here how
strategy work.....
Motive:
To limit loss
downside or big profit
Max profit :
index expiration near put strike or below put strike up to max zero.
Max risk:
Downside no
risk or big profit while upside unlimited risk
Strategy
formulation:
Buying put of
10500 @ 30 RS @ 0.50 delta
Selling call
of 11000 @ 30 RS @ 0.50 delta
Nifty trading
around 10750 buy 1 lot for hedging.
So, buy nifty
as per necessary hedging with nifty future as per delta of both strike.
Here we are
buying put option so nifty hedging will be buy nifty future while we are
selling call so hedging will be buy of nifty future. So do hedge
as per total delta.
Here, if you
have observed yesterday due to air strike by Indian air team nifty was only 100
point down but put of 10500 strike moved from 5 RS. To 17 and made 27 RS. high. WHY? Answer is Uncertainty while downside always big panic happen.
So, when some
uncertainty arises call- put strategy is most useful.
When market
moves slowly upside one should shift either strike or book profit as premium
daily depreciate.
Posting live
quote for more clarity.
Here, taking example of above selling call of 10900 strike 3 lot @ 20.8 and buying put of 10600 strike 2 lot @24.5 with buying of 1 lot of nifty future @ 10826.
Calculation of delta of call and put as per above strategy:
3 call of 10900 @ 0.23 delta so, 3*0.23 = 0.69
2 Put of 10600 @ 0.19 delta so, 2* 0.19= 0.38
so, Buy one lot of nifty @ 10826 i.e. 1 delta out of 1.17 (0.69+0.38)
Implied volatility is 19 for CE and 27 for PE
Let's say next day nifty moved 50+ and Implied Volatility goes down 10%
Vega of both strike is 2.42 for CE and 2.23 for PE, so overall Vega of Position is (2.42-2.23 = 0.19+2.42*75)= 196 Rs. IF Volatility reduce by 2 i.e. 10% fall, we will get Rs. 392(196*2) As Vega Gain.
Even we will Gain Theta as short 3 call v/s 2 put so net to net Theta will be plus (PE theta is 15.83 and CE is 12.44) so, 6 Rs. net Theta per day.
In short, Once market start trading normal, news will absorbed again premium will sooner normal.
On 27 Feb due
to fear at border put option surge almost 200%. So, this strategy is very
useful during such panic time frame. Even one can do every month and earn safe
return.
Thanks
Derivativelearn
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