Thread by @paststat

too many poppy seeds in that oliga , bit sleepy , but as students asked for , we will do an online seminar , per students choice we will be learning debit spreads #optionseminar

after searching bit of literature online and dialing into tom sosnoff ( which i believe is a popular cut copy paste site, sorry inspiration if you call that way , for our india's master option trainers ) , correct me if iam wrong

debit spread is apparently a favorite strategy for directional plays in low implied volatility environments

decoding the above stuff , what we understand is assuming bank nifty is above 20 dma it is lightly bullish , and research confirms to it , as well , because for the time being our reverse b-s ( black scholes that is ) calculator is tired, we resort to VIX as a proxy for IV

so what we do , since bnf wkly options started , on thu cls , if bnkidx close is above 20 -dma , it is bullish , and if vix close is below 20 -dma , it is considered as low vol environment

a recent example trade is on 20 mar 2019 close , bnidx was at 29832 , and close is above 20-dma and bix is at 16.02 and below 20-dma , so the setup is ripe a for a debit spread

so we buy an ATM 29800 CE at 328 , and short atm-1% strike at 30100 CE for 182 , and we let it expire , for simplicity sake , you might also recall a quote by leonardo da vinci "simplicity is the ultimate sophistication " we ignore STT , brkrge et.al

on 28 mar 2019 , bnkidx closed at 30420 ( that 420 is no pun intended , you can check bnidx close from nse website) so our bull call debit spread , gave us 615( 29800 CE close on 28 mar , minus 328 investment = 287 bucks , & our short 30100 ce 182 closed at 321 a loss of 138 pts

and 287 minus 138 = we are up by 149 pts or about 20*150 , 3k , not bad for say 100K margin we are up by 3k , giving us 3% ROI and for 4 weeks , 12% and for 12 months 144% ??

and here is our trade ledger ->
part 1) ->

part 2 ->

part 3 ->

and our equity , we consider 1 lot , since jun 2016 and a margin of 1 lak , would be at 129581 , not bad 30% CAGR for less than 3 yrs , about 10% p.a low risk strategy and add 6% bond returns so about 18% returns ->

also the 72 trades results at ->
n72
wins35
avg410.85
med-521.00
avg win2575.63
avg loss-1636.92
max4968.00
min-2682.00

now if only we hadnt shorted that OTM CE and just bought one lot of naked ATM call each week , our equity would have been at 209503 ,

and our trades ->
n72
wins31
avg1521
med-1943
avg win7535
avg loss-3026
max19035
min-4509

conclusion : -> am sure JPM trading desk must be doing some thing differently about these debit spreads

all parts in one png ->