Straddle और Strangle #Options #Strategies से #Volatile Market में कैसे #Trading करे? #Learn2Trade 39
Welcoming you all to Learn2Trade video #39 and Options Trading #7 My name is Vivek Bajaj and I’m teaching trading to you and Annapurna Ji. Hello. -Hello sir. -What’s up? -All good sir. -Very good. How are you finding Option's journey? Sir, it’s complicated. But I’m sure with time. -Absolutely. Options take time, but
If you understood options one time, then it’s very interesting. I had done someone’s Face2Face. I do Face2Face on eLearnmarket’s channel. Someone had said Options has a lot of Options. And in Future’s, there is no future because in future, the risk-reward ratio is so unfavorable.
For normal retail, because we come with limited capital. The risk-reward ratio is not so favorable. But in option’s even with small capital, you can do creativity and create money. So, learning about options if you want to become a trader it’s not a bad idea. But in my Learn2Trade series, my scope of training you options will be only to a certain extent.
Because this is such a big river that LEARN OPTIONS is in a way itself a big thing. Meaning I can record 50 videos in this only and that too would be less. So, what am I doing is that you are interested in the cash market and you also want to try options! And enhance your return in the cash market by trading options. In the last video, I told you about Covered-call strategy. That if you have a share, then you can sell the above call and generate money Every month you can make that money. Obviously, you need to be attentive. Because stock can go anywhere, for that you have to see charts.
If you see that the stock will not go anywhere in the chart, then the covered call strategy is a nice strategy. Similarly, if you say I don’t want this share but I’m convinced with the stock. Then some people work on both call & put and don’t take share.
For example, I sold the call and even the put. I haven’t taken the share. And suppose, share price falls down then what will happen? -Sir if you sell both and the price falls Then you would exercise one and one you won’t. -The call that you sold, and the price falls You will get money for that. You won’t exercise it, then it’s an obligation but you had sold the call too
For that money was made, but the put you had sold and price falls then the person taking the put Would exercise it, then it means you have got an obligation that you have to buy the share now. Because you have sold the put. The put who had taken, has bought the right that he wants to sell at the upper strike price. So, you will have to take the share. Then some people, take the share because taking share delivery of this isn’t a problem for me Let’s look at an example. Last time we had discussed ITC. Right? Let’s take some other stock now. Let’s take HDFC. So, I’m using Opstra for this purpose. So, let’s go to option, let’s go to strategy builder. Now over here, I will select HDFC. Do you know what does HDFC do? - Sir, Real-Estate.
It’s a housing finance company. If you think in India, real estate would be fine. Then you should take in HDFC. Because if real estate would be good, people will take more loan & HDFC is a leader in that. Then that would be fine too. Broadly if I’m convinced that investing in HDFC, then there’s no tension.
So, either you buy the share, the share’s price is 2700. Then if you have limited capital, how much you would buy in it? - Not much. -Not much you can buy. Second option, that I told you in options, many people, of a particular strike price Let’s assume at the money of strike price. then call of 2700? - Sold it. I sold the call. Let me add the position. -But why will I sell call sir? -I’m telling you.
And I sold the put too. Just assume I did so. -Okay. -Now, the question comes why would I sell the call? If I am feeling BOOM, then why would I sell the call? I am not feeling very much of BOOM. I feel that it will Boom little bit, but it’s not so it will boom very much. At the money is 2700. Then Ideally, I shouldn’t do this at 2700 because 2700 is now. Why you are doing this? Sell of a little far one. Let’s cancel this trade. Let’s edit this and make this 0. I agreed to you.
Let’s go a little far. Then let’s assume that I feel to sell call of 2800. Not go above 2800. There is a little boom. Let me sell this. Add position and the below put. Sell put of 2800 If I sell put of 2800 and the price going on now is 2700, then already it’s in a loss of 100. Sell the below put. So, lets sell put of 2600 that I don’t feel that it will go below 2600.
So, I’m okay selling put of 2600. Sold it. Then I sold the call as well as put. Why sold call? It won’t go above that, why sold the put? Because it won’t go below that. And if it goes down Then not a problem, we will take delivery. -So, I have identified a range, and in that range, I will trade.
Exactly. Now, when you worked in the range you can earn 16,000 if it remains in this range. What is your confidence? That sir if it falls down, I don’t have any tension because I’m ready to take delivery. If it goes above 2800 then money would start getting used because you don’t have an underlying share. So, you are ready to take in the range. So, if you play in this range, you would have to give margin to exchange Then you have to give a margin of 200,000. You had told me you have 200,000 in bank I suppose. 200,000 is with a broker, then you can use 200,00 for this strategy that 16,000 will come if the stock remains in this range.
So, if you want to trade for a range, either you believe that the range would be in this only or you feel it will increase. Then there is a strategy that you can trade. Today we will discuss that only We now boom. We know how to play boom and recession. But if you want to play in range,
then how will we play is important. It is possible in Options. In the cash market, suppose the stock remains range bound then money will be made? -No sir. Will be made in options? -Yes sir. -That’s the advantage of trading Options. If you remember I had told you about eLearnOptions. Over there we had discussed basic, and this too. It’s a free utility for your understanding. I hope you are looking at this. Because this is a good revision. And the one wants to learn in English, then there are videos over here too.
This strategy at intermediate level, we will discuss about it today. Straddle, Strangle & Gut. There is a spelling mistake of the straddle, it would be double D. So, don’t focus on that. What is straddle? Let’s go under. What is it saying? It is saying that if I have a strategy that
I feel that stock is going to become very much volatile. Its range is going to become big. Then I will buy straddle. And if I think, that the stock would be standing in this price only. Then I would sell straddle. What is straddle? Call option and put option of “At the money”
Then either I’m buying it or selling it. This is a long straddle meaning the more premium I have invested, Long meaning you have invested premium, that much is the loss because you have invested the premium. If the stock remains here only, then it’s an investment. Then when will you long the straddle? When you will believe that it will break the range, It will break the range. The more it will break, the more chances of making profit are high. You understood the pay-off? Let’s take in this example, Premium of call and put, both is 40. And I am taking it, buying it.
Meaning we believe that it will go beyond this range. Stock can become volatile. Then, the maximum loss for me is 80? -Sir, if I think that this will become more volatile, then I will buy call Then I call to sell the put too? -No, in that case, you assume that the price will become high. More volatile towards up. Over here the assumption is that the stock can go up as well as go down. Volatility can be high of both sides. That’s why you are buying both. If you are saying this it will boom only. Buy call too. And sell put too. Then you are playing double BOOM because if the price rises, money will come. Why selling Put? The premium you invested in the call. And by selling the put, the premium negates.
Then from your house, the only margin was used. And boom then your money is made. If there is recession, then you have sold the put. Then money, can be used too. So, buying a straddle means you are playing range breakout either up or below, then this is the pay-off.
If I short this straddle, then the premium coming is that much only but if it goes beyond the range Then money will be used. -Right sir. -Correct? -Yes. Straddle is both call and put at “at the money”. -So, at the same price I will do both? Work in both call & put, then it’ known as a straddle.
And strangle is above and below the strike price. Meaning not “at the money” So, if 5000 is the current market price, in this we have arranged accordingly. If the current market price is of 5000. Then we are taking put of 4950 and call of 5050. This means you are buying a strangle “out of the money”. We are taking call of “out of the money”-the immediate one
And we are taking put of “out of the money”. -Okay. -You are cleared with at the money, in the money and out of the money. Yes. – Why did we do this? Because there is chance that it becomes volatile above or below this price. Before this we had assumed that at “at the money”, it will be volatile.
And here we are making an assumption that we are playing at this range. Then how can we identify in the range? -That’s an art. You will get that view from technical. When you see the price behaviour, draw a trend line. see the range of the stock. Then by looking and doing technical you get a feel that chances of this stock getting volatile is less. I had told you some indicators, ATR, Super-Trend, Price Trend, the initial sessions that I had done with you. Using those sessions, make options a strategy to trade is the best model for a trader. -Okay.
Make a view from technical about BOOM, RECESSION & RANGE-BOUND or VOLATILE – the 4th. You can do permutation-combination with all the views. Suppose I’m selling this strangle. Whenever you sell something, your profit is limited and when there is range expansion, money is used. Then in straddle, at the money call-put. And in strangle out of the money call-put. It can be immediate out of the money or it can be out of the money. But sir, there is one more question. I will long only when it will be volatile in a range. Right? – Chances is there that it will breakout the range.
Will break out and – Sorry to interrupt you. I had told you about a technical indicator – Bollinger band. What story it tells? It makes an envelope and if the stock remain there only, it squeezes. And ATR even tells if the volatility is going down. If the Bollinger band is squeezing then sometime or other it will burst only. -Right. -Don’t push someone so much, that he would revolt afterwards. It’s same only. Then after one point, when the volatile becomes less and burst at a time then. Then in stock, if Bollinger band has squeezed, there is a probability.
Then in that stock, you can play a game of high volatility. Then it means straddle or strangle, whatever you want to buy. You can buy it. So, that is when I’m buying. But what when I’m shorting it? -Then you sell it when you know It will be in this range only which is basically very strong demand zone and very strong supply zone And the market will be in this range when the volatility is even falling down. Both parameters. The more you look at chart the better you will understand hot to identify the range or stock range breakout.
You can watch again. Learn2Trade series. From session 1 to 30. You will get an idea. And if you didn’t watch, then watch it. 3rd strategy is, similar kind of strategy is called GUT. In gut what happens? Straddle is ‘at the money’, strangle ‘out of the money’ and gut is ‘in the money’ So, you are working in “In the money” call & put. -okay.
These all are nomenclatures but all have an objective. So how to remember this? Straddle has 2 D. 2 D’s meaning at the money. Strangle is, just assume it’s not straddle so it’s strangle. And gut meaning? To work in “in the money” everybody needs GUT. Not possible for everyone. Why sir? -Because you are already in the money, taking risk. Already taking risk in in the money.
Out of the money, risk is less because it will happen then money will be used. There is clarity in ‘in the money’ You have clarity that this much money is coming and this much is being used. Gutsy is more of the people who work in this. Those who work in Out of the money, work with chance. Then if you deploy such strategies in market in your stocks Then you will have an advantage. Let’s take an example. Example of HDFC. Just see how well Opstra has done.
If you go Options > Strategy Builder which is this page. Here they have already given some strategies. Straddle, Strangle, you can click here only, if you want to do it. As I said, there is no less of strategy. There are so many strategies, in the next video I will cover come. But let’s talk about straddle once Existing position of HDFC, let me show you once, Straddle of options of HDFC, Straddle of 2700 because At the money is 2700. Suppose if I have to buy straddle of 2700 of 30th September. Why? Because I think so it will remain volatile, so let me buy then if I buy then mine 38,000 is used.
And, this much money will only be invested, 39,000. Why? Because I haven’t sold. Margin system says that how much you have bought, that much money will only be blocked. But for the people who sell in that case, exchange gives money. Because sell variant is more.
So, exchange wants to save so it gives margin. So this much money is used because you have bought. Now if it moves, then money will come or else it won’t. Now look at its Greeks. So, delta is 11.58 Why? Because at the money of call delta is even 50 and put delta is -50 Not that much impact of delta in NET. Money won’t be made from DELTA. As you buy, then from theta -188 Every day -188 will be used. Gama 0.48 means you have long options, bought it. Then if Theta impact is minus because you have bought the Options. And Vega is a plus too.
Then Gama meaning you have taken options. If there is movement in premium Because of Theta, Delta, Vega, then money would be made. And Vega is 655 means if the volatility increases then your money will be made. Generally, people do more selling in Options. Because in buying probability of profit is less. See, it’s only 44%. Let me reverse this. Flip the position. Meaning now I’m selling. Then my money will come that was being used before 38,000. And you have to give margin 225,000 Why? Because as a seller exchange takes margin.
As a buyer, it doesn’t take margin from you. But your probability of profit is 56% So, seller will always have a higher probability of making profit. Why? Because over here money is made due to Theta. And typically, as expiry reaches closer, money starts to make in Vega. Because typically volatility starts getting low. This was the story of straddle. So, if I have to do Strangle. In strangle its, asking which strike price call-put This is saying below put. Why? Because below is out of the money and above is in the money for PUT. And for CALL, below is in the money and above is out of the money. So, it’s asking which one to do.
Assuming this is to be done only. Suppose we have to sell strangle, then this is my position selling the strangle. And delete that of 2700 and this too. Selling strangle means, sold call of 2900 which is out of the money. So, in net 10,000 will come in my home. There are 70% chance that I will make profit and margin required is 200,000 This stock if, what does it’s pay-off say? If it remains in this range, where did this range came from? From the strike price of 2550 to 2940. If it remains in this range, then my money will be made. - Okay. It’s very simple. -Since theta has the main role in this. - Absolutely Correct because the more the Theta
The more money you will get or give in daily basis, depending upon whether you are long or short. Absolutely correct. -According to you what would be the correct time to buy? Closer or before to the expiry? So, when you want to buy option, farther to expiry is preferable and if you are closer to expiry then you would prefer a selling strategy.
Preferred. -Okay. -That does not mean you will always sell. Because selling has its own parameters. Now let’s go the same discussion, that you don’t have a share, sold call & put such that you earn return. And if it falls then you are cool, because you know share will come. Price rises then you have tension that upper call has been sold.
And we don’t have the share. Then ideally for your kind of profile, the way you should trade, I’m telling you how to trade now. 10 stocks which have options active and big stocks Whose, fundamental you have to judge and won’t have any issue, because it won’t move much. Reliance, HDFC, ICICI Bank in which Options is active too. I had told you how from Bhaw Copy you can find out options is active.
There is way in Opstra too. They have given in which stocks there is activity going in Options, It’s free. On those 10 stocks, do technical and do tracking of options and do paper trading on strategies that what strategies worked at what time, at least 5-6 months if you do so, then you will have confidence that you can do trading in it. Options Trading is for people who are sure who wants to get into trading with little bit of more mindshare! In Options trading, you have to give approximately 2-3hr daily. Not active options trading, passive options trading! Approximately 15 hours in a week. And if you working only in cash market, then you have to give 5 hours weekly. And if you want to trade actively in future’s as well as options, then 30-35 hours weekly Now how much time and money you have.
little money and less time? Cash Market. little more money and less time? – Options. -No. Cash Market. Why sir? -Little more time and money, then options because time is the most important. Options trading cannot be done in part-time. You will have to give more time. And very much money and time, then full time trading where you can do options multiple complicated strategies To start, less money and time, cash market. Progress to earn more money, not necessary earn from here The more confidence you have, the more money you will deploy from outside too.
People say they have 50,000 only. I say start with 50,000 having confidence in yourself If the 50 remains 50 in 6 months, then you have done nice work. Because after 6 months, You will put more 50 as you are not losing anything. Then more 50,000. Slowly take capital from people
I do good and I can manage. Eventually when you reach the 4-5 Lac capital base Combining your own capital and other capital, then you think cash plus options strategies. Cannot work from 100,000 in Options. From that 1 thing can be done only, video game. Want to play video game? play! What all have been discussed in Options? Basic concepts, Basic structure of options, discussed covered call strategy, synthetic put strategy And intermediate too. In next video I will discuss advanced concepts. Little bit. Not much. Because I know I cannot go much in detail in your profile, because you don’t have much capital. We will discuss basic concept and after wards move on some other after that. -Okay Sir.
This was a try to explain you how you can implement options. Hope you are liking it. If you are, then share with friends, Visit ElearnOptions, a free tool, take benefit of it. And make this concept so strong that when you itself step down in advanced And if your concepts are fine then in advanced you can do it right way. Thank you for watching this video. Stay Tuned & Stay Connected. Bye-Bye.