A simple but effective option wrting strategy for a monthly income:
Underlying concept :
a) Strategy - Writing nifty call and put options simultaneously.
b) Strike selection - Call and put strikes approximately above / below 100 points from market price at the time of entry.
c) Adjustment post position - For every 100 point or close to 100 point change in nifty, square both call and put and write fresh call and put as per point b. Continue this till expiry.
Example:
A) 01/01/2018 - Nifty at 10435
1) Write 10600 strike call at 76.
2) Write 10300 strike put at 64
B) 05/01/2018 - Nifty at 10558.
3) Square off s.no.1 at 90 with a loss of 14.
4) Square off s.no.2 at 36 with a profit of 28.
5) Write 10700 call at 47.
6) Write 10400 put at 55.
C) 11/01/2018 - Nifty at 10651
7) Square off s.no 5 at 61 with a loss of 14.
8) Square off s.no.6 at 29 with a profit of 26
9) Write 10800 call at 26.
10) Write 10500 put at 44.
D) 15/01/2018 - Nifty at 10740
11) Square off s.no.9 at 43 with a loss of 17.
12) Square off s.no. 10 at 20 with a profit of 24.
13) Write 10900 call at 16.
14) Write 10600 put at 32.
E) 18/01/2018 - Nifty at 10817
15) Square off s.no. 13 at 23 with a loss of 7.
16) Square off s.no. 14 at 15 with a profit of 17.
17) Write 11000 call at 7
18) Write 10700 put at 29.
F) 19/01/2018 - Nifty at 10895.
19) Square off s.no.15 at 17 with a loss of 10.
20) Square off s.no.16 at 12 with a profit of 17.
21) Write 11100 call at 4.
22) Write 10800 put at 23.
G) 23/01/2018 - Nifty at 11083.
23) Square off s.no.21 at 40 with a loss of 36.
24) Square off s.no 22 at 6 with a profit of 17.
and so on.....
Net PnL : -14+28-14+26-17+24-7+17-10+17-36+17 = 31.
Net PnL per lot : Rs 2,325
Margin required per lot (NRML) : Around 1,40,000 for both call and put.
No. of days in the above eg : 23.
Return : 1.6% for 23 days.
Annualised return : 26%.
A capital of Rs 10 lacs would provide an income of Rs 23k plus.
Assumptions :
In the above example, all prices taken at close of the day. Hence actual trading might not replicate the above return. There could be increase or decrease depending on the exact time of trade during the day. The above example assumes current month's maturity. Income can be increased by opting for next month maturity.
Risk factors:
This strategy is naked sale of call and put. Hence theoretically risk is unlimited and unknown while returns are limited and known. However, the unlimited loss scenario is a 6 sigma event, which is the underlying strength of writing options IF RE-ADJUSTMENT IS DONE AS AND WHEN REQUIRED. This strategy might end up in loss if there is a very significant gap up / down beyond the premium received.
Important:
I have not backtested this strategy. Use at your own risk. The objective of this is to share info and not a recommendation to trade.
Underlying concept :
a) Strategy - Writing nifty call and put options simultaneously.
b) Strike selection - Call and put strikes approximately above / below 100 points from market price at the time of entry.
c) Adjustment post position - For every 100 point or close to 100 point change in nifty, square both call and put and write fresh call and put as per point b. Continue this till expiry.
Example:
A) 01/01/2018 - Nifty at 10435
1) Write 10600 strike call at 76.
2) Write 10300 strike put at 64
B) 05/01/2018 - Nifty at 10558.
3) Square off s.no.1 at 90 with a loss of 14.
4) Square off s.no.2 at 36 with a profit of 28.
5) Write 10700 call at 47.
6) Write 10400 put at 55.
C) 11/01/2018 - Nifty at 10651
7) Square off s.no 5 at 61 with a loss of 14.
8) Square off s.no.6 at 29 with a profit of 26
9) Write 10800 call at 26.
10) Write 10500 put at 44.
D) 15/01/2018 - Nifty at 10740
11) Square off s.no.9 at 43 with a loss of 17.
12) Square off s.no. 10 at 20 with a profit of 24.
13) Write 10900 call at 16.
14) Write 10600 put at 32.
E) 18/01/2018 - Nifty at 10817
15) Square off s.no. 13 at 23 with a loss of 7.
16) Square off s.no. 14 at 15 with a profit of 17.
17) Write 11000 call at 7
18) Write 10700 put at 29.
F) 19/01/2018 - Nifty at 10895.
19) Square off s.no.15 at 17 with a loss of 10.
20) Square off s.no.16 at 12 with a profit of 17.
21) Write 11100 call at 4.
22) Write 10800 put at 23.
G) 23/01/2018 - Nifty at 11083.
23) Square off s.no.21 at 40 with a loss of 36.
24) Square off s.no 22 at 6 with a profit of 17.
and so on.....
Net PnL : -14+28-14+26-17+24-7+17-10+17-36+17 = 31.
Net PnL per lot : Rs 2,325
Margin required per lot (NRML) : Around 1,40,000 for both call and put.
No. of days in the above eg : 23.
Return : 1.6% for 23 days.
Annualised return : 26%.
A capital of Rs 10 lacs would provide an income of Rs 23k plus.
Assumptions :
In the above example, all prices taken at close of the day. Hence actual trading might not replicate the above return. There could be increase or decrease depending on the exact time of trade during the day. The above example assumes current month's maturity. Income can be increased by opting for next month maturity.
Risk factors:
This strategy is naked sale of call and put. Hence theoretically risk is unlimited and unknown while returns are limited and known. However, the unlimited loss scenario is a 6 sigma event, which is the underlying strength of writing options IF RE-ADJUSTMENT IS DONE AS AND WHEN REQUIRED. This strategy might end up in loss if there is a very significant gap up / down beyond the premium received.
Important:
I have not backtested this strategy. Use at your own risk. The objective of this is to share info and not a recommendation to trade.
Trading is my passion.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Trading is my passion.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.