I have always been fascinated by delta neutral option trading. While i trade naked options right now, i have made numerous attempts to master delta neutral strategy. No guesses to say what has been outcome :) I would not be writing this post if i were successful.
However, i have not given up yet. While continue to trade naked options (writing them), i have revived this blog to do some kind of paper trading to apply delta neutral option strategy.
(I am assuming that anybody who reaches this blog page has some understanding of option basics. i am not getting into writing about these. Internet is full of study material on the subject)
I will review the position and balance it at the end of the week again. if you happen to reach here and read this blog post, do leave your comment. i will be motivated to write again.
Till Then, Enjoy your trades.
However, i have not given up yet. While continue to trade naked options (writing them), i have revived this blog to do some kind of paper trading to apply delta neutral option strategy.
(I am assuming that anybody who reaches this blog page has some understanding of option basics. i am not getting into writing about these. Internet is full of study material on the subject)
I have set following ground rules for myself.
0. The strategy involves selling both call sand puts simultaneously and balancing position occasionally to ensure position deltas are same.
1. I will analyse position only at the end of week. (I understand, in real life, end of every day is better option, but at this juncture i just don't have enough time for it)
2. To have safety margin, i will sell options in the next expiry month.
3. Since these are paper trades, i am not getting into tracking margin requirement. i will only keep balancing positions with no focus on margins. However, real trades may not happen this way.
My expectations of return are not very high. i am looking at 5% return every month. If i am able to mange that consistently, i will be richest person in the world in 30 years :) (just kidding...) but 5% compounded return is huge any ways..
Let's now look at possible trade setup:
1. I am selecting 5300 put and 5900 calls as these have highest open interest in current month.
2. I will sell 5300 put and 5900 call of august expiry, traded at Rs 46 and Rs 54.75 as per Friday's closing prices.
3. The delta for these options (for August expiry ) are as below:
5300 Put - Delta 0.18
5900 Call - Delta 0.28
4. This means the put call delta is nearly 1.5 times of put delta. Hence to have delta neutral position, i need to sell 150 puts (3 lots) and 100 calls (2 lots)
5300 Put - Delta 0.18
5900 Call - Delta 0.28
4. This means the put call delta is nearly 1.5 times of put delta. Hence to have delta neutral position, i need to sell 150 puts (3 lots) and 100 calls (2 lots)
5. The net inflow by this position is Rs 12,375. I am ignoring brokerage charges.
I track options using a free program called Hoadley's option strategy tool. I have enclosed screen shots for this position.
The Game is On.
I track options using a free program called Hoadley's option strategy tool. I have enclosed screen shots for this position.
The Game is On.
I will review the position and balance it at the end of the week again. if you happen to reach here and read this blog post, do leave your comment. i will be motivated to write again.
Till Then, Enjoy your trades.
1 comment:
Traders opt for a new "call" when the market looks like it's moving to the larger side. This means the cost of the instrument will should be more when compared on the strike price to gain profits. Binary Trading Options On the various other hand, the trader opts for the "put" providing the prices of your stock are falling. For that reason, the price of your asset should be lower than the strike price.
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