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Market View and Options Strategy
Market View and Options Strategy
Market View and Options Strategy
Strategy - Buy one lot of Put at slightly out of the money strike price and square it
off 2 days prior to expiry - every month.
Assumptions
• In early March 2008, Nifty decisively broke down below 200 dma; and hence
the strategy begins from March series.
• One cannot time the market, and its difficult to assume that when the real
declines may happen. Hence, a safer strategy - be persistent with strategy of
buying puts when market is below 200 dma.
• Entry Date - The puts are pretty expensive at the start of the series, and
hence it would be better to buy puts at some later date. For the sake of
simplicity - 05th of the month has been picked as date of buying puts. (If 05th
is holiday, then puts should be bought on 4th)
• Strike Price - One should take slightly out of the money puts. Example - if price
on 05th of the month is 4921, then one should buy 4900 puts.
• Markets makes weird moves couple of days before expiry. Hence, position
would be closed on Tuesday, 2 days before expiry.
Closing
Strike
Price on Buy Net
Price of Sell Price
5th of the Price Profit/Loss
Puts
month
September
4352 4300 109 161 52
Series
Net Profit 153
Inve
Starting stme Balan Booked Closing
Cash nt ce Cash Cash
Position Amo Cash Position Balance
unt
2
March Series 50 000 010 29900 6500 36400
0
1
April Series 36 400 300 23400 0 23400
0
9
May Series 23400 13800 25800 39600
600
1
June Series 39600 090 28700 42800 71500
0
1
July Series 71500 850 53000 600 53600
0
1
August Series 53600 410 39500 20600 60100
0
1
September
60100 090 49200 16100 65300
Series
0
Return 30.6%
Formula used above Ü Investment Amount = Buy Price * Lot Size; Balance Cash =
Starting Cash Position - Investment Amount; Booked Cash Position = Sell Price * Lot
Size; and Closing Cash Position = Booked Cash Position + Balance Cash
• There are many ways to make money provided one is persistent and
disciplined with the strategy.
• It is possible to have a trading strategy even when one cannot time the
market
• No trading strategy works 100% of the time. Even if it works - 50% of the
time, it can be rewarding.
The purpose of the article is not to recommend any strategy but to provide food for
thought.