DLF STRANGLE STRATEGY

Market is eyeing RBI for rate cuts which can have major impact on interest rate sensitive stocks. Dlf has seen consolidation in charts. Betting on huge moves either side in this counter can give a good payoff. We recommend long strangle strategy in DLF with a week’s outlook

DLF STRANGLE STRATEGY

LEG1: BUY DLF 180  PUT @3

LEG2: BUY DLF 210 CALL @3

TOTAL RISK  =(3+3)*1000=6000

OUT LOOK  5-7 Days.

FREE FUTURE OPTION TIPS

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FUTURE VS OPTION

Here we attempt to explain basic difference between Future and Option Contracts

Premium

While you pay a fee called the "premium" when buying stock options, there are no premiums to be paid in a futures contract. The initial amount of money (known as "Initial Margin") paid when you buy a futures contract is a fraction of the price paid for the underlying stock. While wrinting options you receive premium.

Obligations

Buyers of stock options are not obligated to exercise the rights to buy the underlying stock at all while buyers of futures contracts  or option writers are obligated  settle difference with cash market and pay mark to mark daily.

Liability

Buyers of futures contracts  and option writers are exposed to unlimited liability should prices move against them while buyers of stock options lose only the amount of money used to purchase those stock options.

Expiration

Buyers of futures contracts can carry forward  their position by selling current month contract and buying next month or vice versa. Options expire worthless if the options are out of the money.

Versatility

Options trading is a lot more versatile than futures trading as the unique combination of call options and put options along with the premium on each contract made it possible for options strategies that profit in all directions. Apart from arbitraging, futures trading is basically single directional (you make money only when price moves in one direction).

By now, it should be clear that futures and stock options trading are two totally different things with their own trading characteristics. Futures trading is an important risk management and speculative technique while options trading has evolved to become a stand-alone strategic investment. Futures should never be made a replacement for stock options trading and stock options trading cannot replace Futures as well. Both trading instruments serves different purposes and should find their place in every well diversified portfolio. 

OPTION WRITING - 3 MISTAKES

As our markets are becoming mature, the number of option writers is increasing. It is believed than generally 80 % of option buyers loose money so what should we do..Option writing is other way round..

Option writing or in other words option selling means to sell option call and puts for a premium.

But while option selling can be a powerful way to diversify into a non-correlated, non-directional strategy, there is no free lunch. Writing options is one of those strategies that is easy to understand but infinitely more difficult to master.

Experience shows, however, that not doing the wrong things will have as much, if not more, an impact on your portfolio’s ultimate performance than doing all of the right things. Therefore, we can learn a lot from the errors of others. To that end, we’ll explore the three biggest mistakes that option sellers make and, more importantly, discuss simple ways to avoid making them.

OPTION TRADING VS.STOCK CASH

Many traders now a day intend to shift from cash market to option market ,here is a comparison made to make it easy for them.

What is an option?

An option is a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset (a stock or index) at a specific price on or before a certain date.

An option is a derivative. That is, its value is derived from something else. In the case of a stock option, its value is based on the underlying stock (equity). In the case of an index option, its value is based on the underlying index (equity).

An option is a security, just like a stock or bond, and constitutes a binding contract with strictly defined terms and properties.

Options vs. Stocks

Similarities:

1) Listed Options are securities, just like stocks.
2) Options trade like stocks, with buyers making bids and sellers making offers.
3) Options are actively traded in a listed market, just like stocks. They can be bought and sold just like any other security.Differences:
1) Options are derivatives, unlike stocks (i.e, options derive their value from something else, the underlying security
2) Options have expiration dates, while stocks do not.
3)There is not a fixed number of options, as there are with stock shares available.
4)Stockowners have a share of the company, with voting and dividend rights. Options convey no such rights.

for more insights u can read http://optioncallputtradingtips.blogspot.in/2012/05/call-option-put-option.html

IFCI BULL CALL SPREAD OPTION STRATEGY

OPTION CALL PUT STRATEGY

Here we present you Bull call spread option trading strategy which is explained in detail in our earlier post http://optioncallputtradingtips.blogspot.in/ This is very short term strategy with current expiry outlook

IFCI BULL CALL SPREAD STRATEGY

LEG1: BUY IFCI 35 MAY CALL OPTION @.80

LEG2: SELL IFCI 37.5 MAY CALL OPTION @ .20

COST =4800       

 RISK PER LOT = (.80-.20)*8000=4800

MAX RETURN 15200

Pay off table

Strike Price	Call Option Price	Strike Price	Call Option Price	Strike rate	Closing price	Lot size	Payoff
35	0.8	37.5	0.2	0.25	33.5	8000	-4800
35	0.8	37.5	0.2	0.25	33.75	8000	-4800
35	0.8	37.5	0.2	0.25	34	8000	-4800
35	0.8	37.5	0.2	0.25	34.25	8000	-4800
35	0.8	37.5	0.2	0.25	34.5	8000	-4800
35	0.8	37.5	0.2	0.25	34.75	8000	-4800
35	0.8	37.5	0.2	0.25	35	8000	-4800
35	0.8	37.5	0.2	0.25	35.25	8000	-2800
35	0.8	37.5	0.2	0.25	35.5	8000	-800
35	0.8	37.5	0.2	0.25	35.75	8000	1200
35	0.8	37.5	0.2	0.25	36	8000	3200
35	0.8	37.5	0.2	0.25	36.25	8000	5200
35	0.8	37.5	0.2	0.25	36.5	8000	7200
35	0.8	37.5	0.2	0.25	36.75	8000	9200
35	0.8	37.5	0.2	0.25	37	8000	11200
35	0.8	37.5	0.2	0.25	37.25	8000	13200
35	0.8	37.5	0.2	0.25	37.5	8000	15200
35	0.8	37.5	0.2	0.25	37.75	8000	15200
35	0.8	37.5	0.2	0.25	38	8000	15200
35	0.8	37.5	0.2	0.25	38.25	8000	15200
35	0.8	37.5	0.2	0.25	38.5	8000	15200
35	0.8	37.5	0.2	0.25	38.75	8000	15200
35	0.8	37.5	0.2	0.25	39	8000	15200
35	0.8	37.5	0.2	0.25	39.25	8000	15200
35	0.8	37.5	0.2	0.25	39.5	8000	15200
35	0.8	37.5	0.2	0.25	39.75	8000	15200

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