Comment on Application of Option Greeks

sunny kataria commented on 17 Jun 2017, 01:01 PM

Hi Karthik ,

Great article and perfect examples .
Even though finding the right strikes is a big task , i have a few doubts plz correct me if i am wrong .

Before the FOMC meeting on 14 june i sold banknifty 23100 PE / 23700 Ce and bought 22900 PE / 23900 CE , ratio 1:1 , my aim was to sell high IVs and hedge it, next day after the news I remember very clearly 23100 PE started falling sharply all of a sudden , it was buying 23100 PE at 125 rs at 920 am and by 1030 – 1045 am was at 110 , kept going further down , next day was at 85 rs . Alll other strikes didnt move that much , and banknifty was not increasing when 23100PE was falling , its just the IV went from 13.5 % on 14 june to 12.75% on 15 june .

1A- MY query here is , i think in bank nifty the right strike for a put is 400 points away and for call is 300 points from the future price , is this the right way to look at it ?

1B – Also if i wanna do vol arb , should i sell 2 x 23100 PE and buy 1x 22900 PE and delta hedge it ? The right way would be buy 23100 PE and sell 22900 PE since high IV is at the lower strike , but i dont see the 22900 vol falling as much as the 23100 vol , so i might make a loss right ?
Both trades are totally different , please guide me individually for both . 1A is only good for events , 1B will be for usual trading .

2A – Your graph tells us what will happen to our trades if we select XYZ strikes and assume X number days and Z prices , but since i am a non directional trader how should i find the right strikes ? Eg : In case of Nifty i should be 100 points OTM or 200 points ? And if i am 100 points away the 2 strikes should be 100 points away from each other or 200 points ? And if i trade 200 points OTM the 2 strikes should be 100 points or 200 points away from each other ?

2B – If the right way is to look for selling high vols and buy low vols and make sure the difference between them is big , So for stocks who can move 10 % on a bad day , what should be difference between 2 strikes that keeps my position safe , i want to put trades in such a way that if they dont give me a profit then it should do a minimum loss not a very big one . Is there a percentage that we can calculate , say for eg Reliance might go up or down 10 % anytime , 1 day or 10 days , i dont know , so how far the strikes should be from each other ?

I am looking for a max 1.75 % return per month , i am not interested in more , please give me a few egs of trades that will be the safest .

I would like to meet you and talk personally also , if possible email me your contact number or you can call me anytime on 9769341771.

Regards

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