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BOOK PROFIT IN NIFTY STRANGLE STRATEGY

Book partial profit in nifty strangle strategy given on nifty option tips on 30 April 2012

Book profit in Nifty 5200 put @ 112 continue to hold Nifty 5400 call

Original strategy

NIFTY STRANGLE STRATEGY

LEG1: BUY NIFTY 5200 PUT @ 70

LEG2: BUY NIFTY 5400 CALL @ 45

COST =115          

 RISK PER LOT = 5750

RETURN = UNLIMITED

UPPER BREAK GIVEN POINT=5515

LOWER BREAK GIVEN POINT=5085

CALL OPTION PUT OPTION

CALL OPTION PUT OPTION

Options (call put) is often considered a segment for advance traders, but if given some consideration, practice and guidance this is most profitable, flexible segment for traders., although not investors. For investors Option writing is better idea which we will discuss in later post.

Here we will give you some insight ,what are benefits of option trading and of course other side of picture too.

Advantages of Options Trading

Limited Risk Unlimited Profit

. Risk is limited to the option premium (except when writing options for a security that is not already owned).

Suits for every kind of market

 Options can be used in a wide variety of strategies, from conservative to high-risk, and can be tailored to more expectations than simply "the stock will go up" or "the stock will go down."

Leverage.

An investor can gain leverage in a stock without committing to a trade.Highly suitable for very short term traders.

Hedging.

 Options allow investors to protect their positions against price fluctuations when it is not desirable to alter the underlying positon.

Disadvantages of Options Trading

Time

Time kills profits in options at a very high rate and act as major disadvantage when u long option, while it is friend when u short option.

Costs.

 The costs of trading options (including both commissions and the bid/ask spread) is significantly higher on a percentage basis than trading the underlying stock, and these costs can drastically eat into any profits.

Liquidity.

 With the vast array of different strike prices available, some will suffer from very low liquidity making trading difficult.

.

Overall Options present a good opportunity to formulate plans which can take advantage of volatility in underlying markets as well as price direction. However for most traders the disadvantages are significant and online futures trading is usually a better option.

OPTION CALL PUT STRATEGY

OPTION CALL PUT STRATEGY

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Nifty is being trading in a range bound session since a long time, a break out is  at this point. We suggest nifty strangle strategy  is as follows

.

NIFTY STRANGLE STRATEGY

LEG1: BUY NIFTY 5200 PUT @ 70

LEG2: BUY NIFTY 5400 CALL @ 45

COST =115          

 RISK PER LOT = 5750

RETURN = UNLIMITED

UPPER BREAK GIVEN POINT=5515

LOWER BREAK GIVEN POINT=5085

Pay off table

Strike Price	Call Option Price	Strike Price	Call Option Price	Strike rate	Closing price	Lot size	net investment	Total Investment	Payoff
5400	45	5200	70	50	4550	50	5750	5750	26750
5400	45	5200	70	50	4600	50	5750	5750	24250
5400	45	5200	70	50	4650	50	5750	5750	21750
5400	45	5200	70	50	4700	50	5750	5750	19250
5400	45	5200	70	50	4750	50	5750	5750	16750
5400	45	5200	70	50	4800	50	5750	5750	14250
5400	45	5200	70	50	4850	50	5750	5750	11750
5400	45	5200	70	50	4900	50	5750	5750	9250
5400	45	5200	70	50	4950	50	5750	5750	6750
5400	45	5200	70	50	5000	50	5750	5750	4250
5400	45	5200	70	50	5050	50	5750	5750	1750
5400	45	5200	70	50	5100	50	5750	5750	-750
5400	45	5200	70	50	5150	50	5750	5750	-3250
5400	45	5200	70	50	5200	50	5750	5750	-5750
5400	45	5200	70	50	5250	50	5750	5750	-5750
5400	45	5200	70	50	5300	50	5750	5750	-5750
5400	45	5200	70	50	5350	50	5750	5750	-5750
5400	45	5200	70	50	5400	50	5750	5750	-5750
5400	45	5200	70	50	5450	50	5750	5750	-3250
5400	45	5200	70	50	5500	50	5750	5750	-750
5400	45	5200	70	50	5550	50	5750	5750	1750
5400	45	5200	70	50	5600	50	5750	5750	4250
5400	45	5200	70	50	5650	50	5750	5750	6750
5400	45	5200	70	50	5700	50	5750	5750	9250
5400	45	5200	70	50	5750	50	5750	5750	11750
5400	45	5200	70	50	5800	50	5750	5750	14250
5400	45	5200	70	50	5850	50	5750	5750	16750
5400	45	5200	70	50	5900	50	5750	5750	19250
5400	45	5200	70	50	5950	50	5750	5750	21750
5400	45	5200	70	50	6000	50	5750	5750	24250
5400	45	5200	70	50	6050	50	5750	5750	26750
5400	45	5200	70	50	6100	50	5750	5750	29250
5400	45	5200	70	50	6150	50	5750	5750	31750
5400	45	5200	70	50	6200	50	5750	5750	34250

The long options strangle is an unlimited profit, limited risk strategy that is taken when the options trader thinks that the underlying stock will experience significant volatility in the near term. Long strangles are debit spreads as a net debit is taken to enter the trade.