Conservative Strategy – 1

Posted on by 0 comment

Conservative Bank Nifty Option Strategy – 1

This strategy is the best one in terms of risk and reward. Win Loss ratio is 90:10 in this strategy. This is why currently we use this strategy most of the time for our own trades.  We target profit of about 12-15pts per wk. Even if a trader forgets or unable to close/exit his/her trade before expiry the loss is capped. There is no chance of Unlimited Loss.

In this strategy we rip benefit of 2 option greeks (Theta and Vega) that are up for grab every day. Along with these we take important monthly/weekly Support Resistance (S/R) levels for choosing our entry positions. This strategy needs some understanding how these two greeks work.

Theta is a measure of the rate of decline in the value of an option due to the passage of time. It can also be referred to as the ‘time decay’ on the value of an option, which the option loses as time moves closer to the maturity of the option. The closer the expiry is Theta value of option will erode faster.

Vega is the measurement of an option’s sensitivity to changes in the volatility of the underlying asset. Vega represents the amount that an option contract’s price changes in reaction to a 1% change in the implied volatility of the underlying asset. During high volatility Vega makes option price rise faster and the moment Bank Nifty starts to stabilize the option price drops.

S/R Levels: Traditionally 25000, 25500, 26000, 26500 are support resistance levels for Bank Nifty or every 500 interval of these strikes. These are natural S/R levels. Apart from these there are chart Support and Resistance levels. We try to find the S/R levels from the Bank Nifty spot level while entering. If we don’t get any clear S/R level we consider traditional levels.

Strategy: We use Credit Spread strategy. Credit Spread is formed by shorting a greater value (lower strike call option or higher strike put option) and buying a lower value (higher strike call option or lower strike put option). It is called ‘credit’ spread because we received amount (for selling) is bigger than our paid amount (for buying).

Trade Entry

We start looking for taking position on Tuesday onward upto Thursday morning. For taking entry we wait for some volatility in BankNifty a 200-300-400 pts move and once this move happens we try to find strikes (beyond S/R level) towards the trend where at least 12-15 pts as credit. The shorting strike should be as far as possible from the BankNifty.

Trade Exit

We Exit from the trade whenever our desired profit is achieved or wait for expiry.

Trade Management

Exit from the position when Banknifty touches our buy strike.

NOTE: We modify this trade during holding or expiry day to enhance profit. There are multiple modifications can be applied to increase profit. Novice traders if following this strategy, must do paper trading for as long as they don’t feel good.

Suggestions or queries are most welcome. Please comment or drop us a mail at trademysystem at gmail.com or WhatsApp to 8653812500 (text only).

DISCLAIMER: These are our views and people like to use this strategy should use at their own risk.

Leave a Reply

Your email address will not be published. Required fields are marked *

error: Content is protected !!