Here is a Nifty option trade that I plan to initiate on 01-March-2022 for the rest of the month. This trade will be initiated around 09:30 AM on 01-March or as soon as the initial volatility settles down.
- Overall view for the month of March is neutral to mild bullish and Nifty is expected to range between 15750 and 18250. We used range calculator with an estimated vix of 25 to reach this level. Though, vix cannot stay that high for the whole month but overestimating vix for this purpose is always better.
- High volatility should come down from here though slowly. But, big gap up and gap down based on news is here to stay
- This trade will be taken with full month’s view but depending on the market directions, we may close the trade before hand. Will keep on providing updates here as well as in telegram channel as long as the trade is live.
This is just a sample trade showing the concept. A combination of ironfly and strangle. We will keep on adjusting both to cover our range. To cover the debits that we are giving, we will sell extra weekly far OTM options. Those will also be provided here and in the telegram channel.
Possible risks and mitigation:
- It is a Vega negative trade and this means we will take some temporary hit if vix goes up unidirectionally from its current level of 26.8. Highly unlikely that it will stay up for near future now that the uncertainty of war is over.
- It is the season of big gap up and gap down. So, temporarily such a strategy may show some M2M loss but that should settle down as and when market retraces.
- Our USP in this trade will be the success of weekly option selling that we will do on top of this. If those keep on giving us some profits along with the necessary adjustments for ironfly and monthly strangle.
- We will try to carry this trade the whole month. Only in case of some unforeseen panic scenario, we will close the trade.
Will put the actual trade in telegram channel against the trade number and also update this post.
Update 28-Feb-2022 03:25PM:
The trade is taken today since tomorrow is holiday. Below is the snapshot from Opstra for the trade. Notice that because of premium imbalance, the strangle has been created as a ratio. So, any sudden upside now might show M2M loss which will be balanced by selling weekly puts.
Total capital required for the strategy is around 2.5 lacs but it is advisable to have around 2.5 lacs as spare for selling the weekly options around this base positions.
Update 04-Mar-2022 03:25PM:
Two adjustments made on 03-Mar (which was put in Telegram). Another two on same line made on 4-March. Mainly, since, the market is going down, the buy wings of the ironfly is being brought inside towards the straddle. Also, constant profit is being booked in the call side of the strangle and that is also being brought in.
We are being aggressive here with call side as the premium in call side is very less compared to put side and once the market starts going up (which it has to anyway to adjust vix/PCR), the premiums on put side will come down drastically and will balance out our loss in call side, if any.
Also since we are bringing in the buy wing of call in ironfly, if market starts going upside, we will not make loss there.
Update 21-Mar-2022 10:30AM:
One existing position closed today as marked in the diagram. Severe turbulence of last two weeks could not dent the position much. We will stay put till most of potential profit is realized.
Update 22-Mar-2022 11:30AM:
No more changes required as of now and we are continuing with the trade.
Update 24-Mar-2022 1:10PM:
No changes still required and we are sitting on good profit even with just one lot. We will continue with that as of now.
Update 25-Mar 2:30PM:
No changes required and we will carry on. Being last week of expiry, unless there is huge movement on any side, we will see good theta decay helping us.
Update 28-Mar 11AM:
Practically the sold options at 16800 have been booked and that is as good as closing the positions with a profit of Rs. 27700 per lot. Main purpose of closing this position was to shift bulk of margin money towards the position of April. Here are the changes in trade and status. I am continuing with the positions that are left since it is virtually loss less now and a big downmove will only increase it further.
Updates to this trade will be provided in telegram first and then here.