How to manage strangles dynamically incase of a violent move or IV spike ?

1) Yesterday and infact entire last week if you had created strangles you would have experienced that during upmove only call side were increasing but puts weren’t decaying.

#trading #Options
2)In morning I had created a short strangle
200 lots 25000 PE sell at 102
200 lots 27000 CE sell at 161

You can sell from below image that if I had waited in this strangle till day end I would have lost around -4.5 L

So lets see what all adjustments did I do logically. Image
3)After creating strangles the premiums strarted increasing as puts were not decaying and calls were increasing.
So I had kept 100 lots buy on 26500 CE at 400(day high)
My buy got executed at 400 around 12:15 pm & I exited 25000 PE at 75 Image
4) I had kept more 100 lots buy at 435 (recent high made during upmove till now)

The buy got executed at 12:15 pm
So my current open postions now were

200 lots 26500 buy at average 420
200 lots 27000 CE sell at 161 Image
5) Logic:
As short strangles are basically short vol so if there is a movement on one side with no decay then one can start buying atm calls.
What this does is it converts your strangles into ratio spread and if move continues eventually into a debit spread ImageImageImage
6)So if there is an upmove or IV spike the long atm call controls the MTM and any spike helps you as now you have slowly converted from strangles to ratio spread and finally a debit spread.
7) And that’s how I managed on Friday as per market movements.
(Payoff is not exact as I exited my sold put earlier)

But without adjustment MTM would have been -4.5 L and I ended in slight green due to trade management inspite of a 100 point spike in sold strangles ImageImage
8) What if market reverse ?

As now you are into a debit spread max loss is capped and if market reverses you can sell additional calls to convert position into a ratio spread again

So basically :
26500 CE buy
27000 CE Sell
27500 CE Sell (extra) Image
9) So that’s how you can convert a short strangle into a ratio spread and into a debit spread if market becomes trending and if market again reverse then again into a ratio spread
10) Options Trading is about managing your trades and keeping MTM under control

1) Have a plan before your trade & Know the effect of your adjustments
2) Don’t let sold options become ITM
3) Adjust as per market movements

Hope you found the thread insightful !

#trading #data

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More from @sourabhsiso19

28 Oct

How I managed my short strangles today and ended up in profit.

1) Overnight I had carried

-50 lots 24600 PE sold at 225
-50 lots 25000 CE sold at 170

As I had a bullish view for overnight and was expecting 24600 to hold.

#trading #OptionsTrading
2) In the morning around 9:16 am sold additional

50 lots 24600 CE at 277 &
50 lots 24000 PE at 98
(Counter bearish strangle)

as bnf was down at 9:15 and to save my 24600 PE(overnight sell)
3.But in next 2 candles bnf spiked to 24800
so I sold additional
50 lots of 24200 PE at 102

and kept sell stoploss order on 50 lots of 25000 CE at 135 which got triggered after 5 mins😖

Till now Bnf was very volatile with no clear range and my mtm was in red.
Read 9 tweets
12 Oct
Importance of Risk Management
(Real Life Examples)

1) On 21st Sept 2018, I had sold 330 PE overnight and YesBank opened 10% lower and closed the day at -33%. But I survived as I bought 320 put as protection.

If I had not bought 320 PE then would have lost 10 L

#risk #trading
2) MS. Nirmala Sitaraman Candle

On 21st Sept 2019, BankNifty rallied almost 10% intraday with huge IV spike in calls.

I had 27200 CE sold and booked loss in that at 220. The same option was trading at 2230 few hours later.

Would have lost heavily if I had not exited my calls
- Demonetisation
- Flash Crash in March 19
- Lower Circuit on index in March 20

Have survived all these black swans without any major loss.

After making huge losses at the start of my career, I have realised that good trading is all about managing risk.

Read 5 tweets
10 Oct
Thread on system trading and conviction to follow them.

1) On Aug 2016, I had my highest ever loss of 18 L due to illiquidty risk. I had shorted JustDial 500 CE and was in profit at 3.19 pm but at 3.20 pm lost -18 L due to a risk I wasn’t aware at that time.

#trading #risk Image
2) I had huge qty in Just Dial CE but as my position was huge and Just Dial being an illiquid script. My position got squared from 0 to 10 Rs. I was in 1.3 L profit at 3.19 & 3:20 -18 L.

Lost almost 20 L in a min

Check my email to Zerodha and their reply to understand more. ImageImage
3) I was totally upset as I never thought that I could lose so much due to illiquidity.

There was nothing wrong with system or risk management but this was a risk which I was never aware.

This made me believe in risk management ever then before. Image
Read 6 tweets
28 Aug
Thread :

How I managed my today’s option selling trade inspite of spike on the call side

Overnight position :
I had carried overnight 23000 PE ( sell at 155) & 24200 CE (sell at 135)

In the morning I booked profit in 23000 PE and shifted to 23200 at 120

(1) ImageImage
24000 was a resistance for BNF and above that good spike was expected. So I kept SL in 24200 CE at 200 (as per system)

The SL in 24200 got hit at 200 around 10:30 am and I shifted to next resistance level 25000 CE at 63

Open now(Sell) :
23200 PE at 120
25000 CE at 63

(2) Image
Calls were rising rapidly so I sold additional 23200 PE and also bought 25000 CE (10th sept expiry at 200)

The 25000 CE bought in next week was managing the deltas and MTM.

(3) Image
Read 6 tweets
14 Aug
Today was a testing day for option sellers & robustness of their systems.

Glad to have done reasonably good & ended in green😊

How did I end up in green via option selling inspite of the crazy fall and spike on put side premium ?

Check the entire thread !

#trading #data
At around 12 pm, I had 22200 straddle and was in a profit of 35
points per lot.

But around 1:30 pm markets fell sharply and I had an otm buy stop on 21700 PE at 145 (I keep these orders in the system to protect mtm if there’s a big directional movement)

The protective order got executed at 145 and BNF also broke 22000 (crucial support)

I sold additional calls of 22000 at around 220 with a SL as system had turned bearish.

(3) Image
Read 6 tweets
23 Jun
Thread on trading lessons & mistakes:

I always keep my mistakes & lessons learnt in front of my screen while trading.
Bcz we as traders tend to commit the same mistakes everytime.

So seeing your learnt lessons everyday ensures that you avoid them.
#trading #mistakes
In 2017, I analysed all my trades and saw that I have majorly lost in stock futures and profits came only via index trading.

I accepted that I am not great at stock trading and been trading index only majorly since then.

I decided to adjust all of my past losses to 1 % of capital to see what the effect of capping the downside.
I would have had a gain of more than 230 % if I had capped losses at 1% of cap.

Lesson: Keep losses less than 1% of capital

But still sometimes losses are >1 R😓

Read 8 tweets

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