PROFIT BOOKED IN IFCI OPTION STRATEGY

IFCI OPTION STRATEGY UPDATE

Profit of 5200 @ investment of 12800

http://optioncallputtradingtips.blogspot.com/2012/01/ifci-strangle-strategy.html

What is Sell Strangle Option Strategy ?

Sell Strangle Option Strategy

When volatility is very high, and the market has just made a dramatic move and you are expecting it to consolidate and take some time to digest its gains, you might consider selling a strangle.
This strategy involves selling an out-of-the-money call option and an out-of-the-money put option on the same asset with the same expiration date. This strategy differs from the Sell Straddle strategy because the options are not at the same strike price. This provides a different profit/loss curve that is worth checking out.
This gives you a known, but limited gain, but does expose you to unlimited risk, so you must be careful with this position and be confident of your assumptions. It is not suitable for all investors.
With this strategy, your gain is composed of the premium you received for the call and the put, less the commissions.
When we sell a Strangle, the put and call that we sell are normally on over-priced options that are out-the- money. We consider doing this after a dramatic move in the market, when we are expecting it to consolidate the move and digest its gains before moving again. Because of the dramatic move that was made, volatility is high, making the options we sell very expensive. Then as the market consolidates, volatility decreases and lowers the price of the options. Decay also works in our favor with this position.
But be ready to buy back one of the options if there is any indication that the market will resume its trend or reverse direction. If it looks like the market will trend up, buy back the call; if it looks like the market will trend down, buy back the put.
It is also important to cover risks and caveats of this strategy.
The risk of this position is unlimited so you must be very careful. Remember that the commission you pay for this position will be higher because you are initiating two related option transactions.
It is important to analyze your expectations for the underlying asset and for the market before selecting your strategy.

IFCI STRANGLE STRATEGY

OPTION CALL PUT STRATEGY

IFCI  is extremely volatile these days. Annulized volatility of IFCI is above 91.We suggest strangle strategy in IFCI to make most of this situation.

                      

The long strangle, also known as buy strangle or simply "strangle", is a neutral strategy in options trading that involve the simultaneous buying of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying stock and expiration date.

IFCI STRANGLE STRATEGY

LEG1: BUY IFCI 25 CALL @ .75

LEG2: BUY IFCI 20 PUT @ .85

COST =12800     

 RISK PER LOT = (.75+.85)*80000=12800

RETURN = UNLIMITED

LOWER BREAK EVEN POINT :18

HIGHER BREAK EVEN POINT 27

Pay off table

Closing price	Lot size	trading cost	Total Investment	Return from call	return from put	Payoff
17	8000		12800	0	24000	11200
17.5	8000		12800	0	20000	7200
18	8000		12800	0	16000	3200
18.5	8000		12800	0	12000	-800
19	8000		12800	0	8000	-4800
19.5	8000		12800	0	4000	-8800
20	8000		12800	0	0	-12800
20.5	8000		12800	0	0	-12800
21	8000		12800	0	0	-12800
21.5	8000		12800	0	0	-12800
22	8000		12800	0	0	-12800
22.5	8000		12800	0	0	-12800
23	8000		12800	0	0	-12800
23.5	8000		12800	0	0	-12800
24	8000		12800	0	0	-12800
24.5	8000		12800	0	0	-12800
25	8000		12800	0	0	-12800
25.5	8000		12800	4000	0	-8800
26	8000		12800	8000	0	-4800
26.5	8000		12800	12000	0	-800
27	8000		12800	16000	0	3200
27.5	8000		12800	20000	0	7200
28	8000		12800	24000	0	11200
28.5	8000		12800	28000	0	15200
29	8000		12800	32000	0	19200
29.5	8000		12800	36000	0	23200
30	8000		12800	40000	0	27200
30.5	8000		12800	44000	0	31200
31	8000		12800	48000	0	35200
31.5	8000		12800	52000	0	39200

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.