15 December 2011

OPTION CALL PUT STRATEGY

NIFTY is extremely volatile these days.On account of RBI policy this volatility can be to its peak . further on account of global turmoil  We expect this volatility to continue. To encash this volatility we suggest u strangle strategy in nifty.
                      
The long strangle, also known as buy strangle or simply "strangle", is a neutral strategy in options trading that involve the simultaneous buying of a slightly out-of-the-money put and a slightly out-of-the-money call of the same underlying stock and expiration date.

NIFTY STRANGLE STRATEGY

LEG1: BUY NIFTY 4900 CALL @ 65
LEG2: BUY NIFTY 4700 PUT @ 65
COST =130*50=6500          
 RISK PER LOT = (65+65)*50=6500
RETURN = UNLIMITED


Pay off table

Call Option Price
Strike Price
PUT Option Price
Closing price
Total Investment
Return from call
return from put
Payoff
65
4600
65
3900
6500
0
35000
28500
65
4600
65
3950
6500
0
32500
26000
65
4600
65
4000
6500
0
30000
23500
65
4600
65
4050
6500
0
27500
21000
65
4600
65
4100
6500
0
25000
18500
65
4600
65
4150
6500
0
22500
16000
65
4600
65
4200
6500
0
20000
13500
65
4600
65
4250
6500
0
17500
11000
65
4600
65
4300
6500
0
15000
8500
65
4600
65
4350
6500
0
12500
6000
65
4600
65
4400
6500
0
10000
3500
65
4600
65
4450
6500
0
7500
1000
65
4600
65
4500
6500
0
5000
-1500
65
4600
65
4550
6500
0
2500
-4000
65
4600
65
4600
6500
0
0
-6500
65
4600
65
4650
6500
0
0
-6500
65
4600
65
4700
6500
0
0
-6500
65
4600
65
4750
6500
0
0
-6500
65
4600
65
4800
6500
0
0
-6500
65
4600
65
4850
6500
2500
0
-4000
65
4600
65
4900
6500
5000
0
-1500
65
4600
65
4950
6500
7500
0
1000
65
4600
65
5000
6500
10000
0
3500
65
4600
65
5050
6500
12500
0
6000
65
4600
65
5100
6500
15000
0
8500
65
4600
65
5150
6500
17500
0
11000
65
4600
65
5200
6500
20000
0
13500
65
4600
65
5250
6500
22500
0
16000
65
4600
65
5300
6500
25000
0
18500
65
4600
65
5350
6500
27500
0
21000
65
4600
65
5400
6500
30000
0
23500






The long options strangle is an unlimited profit, limited risk strategy that is taken when the options trader thinks that the underlying stock will experience significant volatility in the near term. Long strangles are debit spreads as a net debit is taken to enter the trade.


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