This week we evaluate how you could have a directional trade position which you will manage effectively to make sure that you dont loose a single penny. While this article is written for Indian index Nifty, it is equally applicable to any other market. In US, it works better as you have huge liquidity for far positions…

Beauty of Options

• You have unlimited opportunities to place your trades
• You can modify your positions during to change your position
• You can reduce your risks or even play zero risk game
• You may go completely wrong with direction expectation, yet make profit
• You can convert small risk to reward to high risk to reward
• You can outsmart your opposition

All you need is – A well researched strategy and plan That Works!!!

This article is about one such directional strategy, That works in current low Volatility With very good outcome

Background

On 2nd July I posted on my website that Nifty looks weak on weekly chart. I took a bear position (on 28 Jun on break of daily trend line).  Market did not oblige yet and has moved against me of about 1.5%.  But my position is in profit !!!!

This is really possible and not too difficult…. and I am showing how …

Choice of initial position

When you want to go short, you can go for any of the following implementations-

• Short Futures
• Short Call
• Long Put
• Bear Call spread
• Bear Put spread

But Very few people know about a diagonal spread option. Here is the possible strategy with diagonal spread you could have done on 28th June –

• • Buy Far month ITM/ATM Put (Sep 9600 PE)
  • Sell This month OTM Put (Jul 9400 PE)

Position at beginning when Nifty @ 9520

• Long 9600 PE – Sep for a cost of 185
• Short 9400 PE – Jul for a cost of 80
• Total cost – 105
• Max profit potential – 200 (@ 9400)
• Risk to Reward – Approx 1:2

In this strategy getting 1:3 at beginning is difficult. 1:2 is good enough to start with. As we are going to play to be in profit in every situation, the loss or risk as we see here does not make too much of sense.

First Correction

When Nifty Closed above 9600 on 3 Jul – Next day (or towards end of day) we move Short PE 100 Points up

• 9400 PE Squared for 33.7
• 9500 PE shorted for 54.7

​Current Position after the above correction as of now when Nifty @9665

Nifty has moved 145 points or 1.5% against our direction.

• 20.65 points profit
• Max risk reduced to 84
• In profit of 19.6%
  of initial risk of 105
• In profit of 24.5% of current risk of 84
• Max profit potential of 121.5 @ 9500 Nifty

Rules of the Strategy – Entry

Rules of Strategy – Correction & Exit

When Market moves against you

• For every 100 point move and close above it
  • Move the short position closer by 100 points
• After the adverse move when market hits your short leg (short Call or Put)
  • Close position with booking profit in both the legs

When Market moves in your favor

• When market reaches your target (short call or put)
  • Book profit in both the legs
  • Evaluate going for next same position (Bear diagonal or bull diagonal)

Happy trading…

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Risk Disclosure

Investing in equity or derivatives or any other market is risky and it may not be suitable for all. Please evaluate your risks before doing anything with your hard earned money.

This presentation may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, information, charts or examples contained in the lessons, are for informational and educational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets

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