This document provides strategies for options selling using the central pivot range (CPR) as an entry trigger. It describes entering an at-the-money straddle when the market closes within the CPR, with a stop loss based on the range breakout level. Profits are captured as time decay reduces the options. Adjustments can be made by re-entering losing positions if the range breakout is reversed. Hedging with out-of-the-money options provides margin benefits. The system works best in sideways markets and aims to profit from time decay while managing risk from trending moves. Strict position sizing and following the rules are emphasized.
This document provides strategies for options selling using the central pivot range (CPR) as an entry trigger. It describes entering an at-the-money straddle when the market closes within the CPR, with a stop loss based on the range breakout level. Profits are captured as time decay reduces the options. Adjustments can be made by re-entering losing positions if the range breakout is reversed. Hedging with out-of-the-money options provides margin benefits. The system works best in sideways markets and aims to profit from time decay while managing risk from trending moves. Strict position sizing and following the rules are emphasized.
This document provides strategies for options selling using the central pivot range (CPR) as an entry trigger. It describes entering an at-the-money straddle when the market closes within the CPR, with a stop loss based on the range breakout level. Profits are captured as time decay reduces the options. Adjustments can be made by re-entering losing positions if the range breakout is reversed. Hedging with out-of-the-money options provides margin benefits. The system works best in sideways markets and aims to profit from time decay while managing risk from trending moves. Strict position sizing and following the rules are emphasized.
This document provides strategies for options selling using the central pivot range (CPR) as an entry trigger. It describes entering an at-the-money straddle when the market closes within the CPR, with a stop loss based on the range breakout level. Profits are captured as time decay reduces the options. Adjustments can be made by re-entering losing positions if the range breakout is reversed. Hedging with out-of-the-money options provides margin benefits. The system works best in sideways markets and aims to profit from time decay while managing risk from trending moves. Strict position sizing and following the rules are emphasized.
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OPTION’S EDGE
“ trading is a game of probability , and it’s always better to
be on the right side of probability “ OPTION’S BUYING / SELLING First thing first , where is the edge ? Option selling has an edge as the odds are in your favour.
so it is important to start small , test the water and then scale up when it comes to options buying There is only thing certain in market , and that is time decay , and time decay works in favour of option seller , and works against option buyers. UNDERSTANDING THE EDGE When does option seller make money ? 1. When the market moves in his favour. 2. When the market remains sideways. 3. When the market moves against your entry price , but after long sideways move. When does option buyer make money ? 1. When the market moves in it’s direction with momentum ( Sharp move )
Conclusion – “ Option seller has a inherent chances of
being right close to 70 percent ’’ DID YOU KNOW ? Over the years since 2006 , the movement of NIFTY / BANK NIFTY is as below
movement Range Range Beyonfd
( +/- 8 ) (.8 to 2 range percent ) ( 2 percent ) Days 2314 1004 365 CONCLUSION Market likely to remain range bound 63 percentage of the times Market likely to remain trending 27 percent of the time
Market to remain highly trending only 10 percent of the
time. SHORT STRADDLE – INTRA DAY TRADING Short straddle is basically , selling ATM calls and puts Short strangle is basically engaging with OTM calls and puts We’re talking about a short straddle / strangle as we know we have an edge by selling options However , we’re going to be focused on short straddles , and not strangles so let’s understand why By selling options , we are trying to capture the time decay that happens in options over the entire day. TWO DAY TRADING SYSTEMS
Bank nifty morning straddle
Bank nifty / nifty straddle using CPR ( we have introduced this as the margins are increasing starting from september , and the conventional passive income straddles can’t be hedged for margin benefit due to slippaages ) BANK NIFTY – “ MORNING STRADDLE ’’ We’re going to enter ATM straddle at 09:23 at CMP ( current market price ) We’re going to be placing a SLM order of 40 percent on both the positions. We’re going to exit either at 3:01 PM , or when both side SL is hit Please note that , in cases where one side SL is hit , we keep the other one open until unless SL is hit. We’re going to execute this straddle from Monday to Thursday as the premiums are very high on a Friday which may lead to bigger drawdowns , further time decay happens very close to the expiry. DEVELOPING A SYSTEM The first thing that you must look for in any system is , its Maximum Drawdown. Once you know the max Drawdown , you should now know the Min capital required to deploy a strategy. Capital required shall be – “ Min cap required + Max capital drawdown ’’ Then check for return to MDD , higher the better ( ensure that your strategy has atleast a RMDD of 3:1 ) Then apply stress test on your system ( Remove the top 5 profit’s generated by your trading strategy ) Most important , know your system ( write down each point on a paper and stick to your trading desk or anywhere ) DETAILS OF NIFTY BANK MORNING STRADDLE Entry time – 09:23 Exit time – 03:01
Stop loss – 40 percent ( Always place a SLM order )
Max Drawdown – 20,000
Return to MDD – “ 7 to 8“
Capital required – 1,60,000 ( 1,40,000 + 20,000 )
Days – “ Monday to Thursday ’’
Max winning streak – 16 / ( 6)
Note – “ The Volatility is higher in the morning , so be calm
while placing orders , use basket order to place the order’s , and yes make use of alarm to remind you to take trades ’’ BEFORE STARTING THE SYSTEM , YOU MUST KNOW THAT... This system requires highest amount of patience. It is very boring
You must know the highest losing streak , to ensure you
don’t panic during bad performance by the system Strictly follow the position sizing so that you have enough cushion to deploy the strategy during tough times. You may feel that the system needs high margin , but frankly you can deploy this by simply pledging your holdings with your broker ( Few broker’s allow pledging of some mutual fund as well ) INTRA DAY STRADDLES IN NIFTY / BANK NIFTY USING CPR ( CENTRAL PIVOT POINT ) CENTRAL PIVOT RANGE ( CPR ) Authors have called the pivot range the “meat of the market”, while others refer to the central pivot point as the “heartbeat of the indicator”. In Frank ocho’s opinion, the central pivot range is the Swiss Army Knife of pivots. At any given time, the range can be support or resistance, it can forecast trending or sideways price behavior, dictate the day’s direction, or serve as an integral part of a trend CPR , is the centre point of the chart , it’s like a magenet , where market may spend most time We’re going to use this quality of CPR to create intraday straddles , which may work as both directional and non – directional trades DIRECTIONAL OPTION SELLING USING CPR ( WITH AND WITHOUT ADJUSTMENTS ) Rules ENTRY TRIGGER A 5 minutes candle should close inside the CPR STRIKE PRICE SELECTION AND FURTHER ACTION.. Once a candle closes , inside the CPR , simply sell ATM straddle As we know that PDH / PDL , is an inflection point , you shall stay in the trade , until unless market stays inside the range For the purpose of safety ( to save yourself from any drastic move ) , we will keep a SL as per the zone breakout range The purpose of putting the SL is to just ensure tht we’re saved from any blackswan event.. We’re also going to initiate a buy hedge for margin benefit’s in this straddle so in worst case scenario we’re taken care by the hedge leg Once the zone is taken out on a closing candle basis , you MUST exit your losing position , and held on to your winning position to eat maximum theta Nifty is less volatile than bank nifty , so you can first start with nifty as it is much calm than bank nifty MOVE OUTSIDE THE RANGE ADJUSTMENT We’re aware , that 50 percent of the zone breakout are false , and well we can advantage of that by a simple trick We know that we’re suppose to exit the losing position , once the market comes outside the range. However , what if the range breakout is Fake ?
Well , once the market , again comes back inside the
range , you can Re – enter into the losing trade ( Which you had exited ) , by initiating ATM options ADJUSTMENT TRICK ( SIMPLE ADJUSTMENTS ) OPTIONS SELLING ( HEDGE FOR MARGIN BENEFITS ) Spot the entry trigger Choose ATM option ( weekly option ) for “ Option selling
Buy a far OTM for hedging purpose , trading between rs10 to rs
20 ( No need to put a Stop loss , keep it open till day end ) Margin required with hedge shall be 50K for day trading.
Whenever you’re hedging , always initiate the buy leg first ,
and then the sell leg When you’re exiting the trade , always exit the sell leg first , and later exit the buy leg Trade shall close in the following ways
1. Market stays inside the range , and you get exit at 3:01 PM
2. Market breaks the range , and remains trending ( Exit triggered
in one leg , another position to be exited at day end ) INSIGHTS OF THE SYSTEM This system works well in sideways market We’re choosing weekly expiry to get maximum theta benefit You’ll make good money most of the time , just make sure you don’t lose much in the trending moves of the market Maximum profit’s are going to be made on EXPIRY days. Always respect your exit trigger , don’t let hope come in your trading decisions BROKER SELECTION In order to take advantage of the hedging benefits with options selling , please choose an alternative broker to zerodha As zerodha doesn’t allow you to buy Deep OTM calls / puts due to open intrest restrictions by sebi A good alternative is Angel broking for the same LAST BUT NOT THE LEAST.. Write down your observation , and conclusion of the system Do a weekly review of your trades , and see whether you’re feeling comfortable Start with one system first , and then move to another system to get a grip on one system We will do live market session to deploy the same in one of my trading account. ( Recording of live market session will not be provided )