Cash secured puts, buying after the underlying falls

F&O
11

So this strategy works consistently with Nifty or Banknifty?

Does the second part of the strategy has a place, buying the underlying instrument, or the strategy has only one part, buying cash secured puts?

12

That’s all that I have been saying. That’s all that I do. I have told this in multiple posts also. I don’t trade on the basis of technicals and all. Obviously I don’t understand. Lol.

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13

But do you do the second part, buying the instrument that you are making the cash secured puts for? The person in the video does both.

14

Arey, That’s the exact meaning of cash secured put. Obviously I do that.

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15

I did not know that :neutral_face:

So the person in the video did that for Banknifty, cash secured puts for Banknifty, and buying Bankbees. What do you do on, Nifty, Banknifty, individual stocks?

16

I started with stocks like HUL SBI ITC HDFC Sunpharma TCS HCL Drreddy. All ended up in very good profit but got stuck with drreddy. I still have drreddy in my holdings and now I have been selling 5000calls. I had taken delivery of it at 5000 because my 5000pe came ITM. But if I consider the total premium that I have collected from drreddy is around 800 points in last 2 years. So my net cost is 4200. And that’s the current market price.

Then once stocks went up I felt it’s better to switch to index. So started doing with with banknifty. Came ITM twice. But then since it recovered I do no have any position there.

Wanted to reduce risk further so switched to nifty. Now it’s been almost 1 year. I do this only with nifty. As I mentioned yesterday my 17000pe came ITM and now am long on it. Will close this long position when we go back to 17800 and then sell 17500 put. This is how I keep increasing my levels of strike.

This was posted in July 2021

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17

Don’t get carried away by these. Here are some issues

  1. Most of the people don’t feel like buying when market crash as news media spook everyone
  2. If a rally happens you will just get the premium of PUT which is peanut compared to the buy and hold. You will miss the rally
  3. Everyone is not disciplined. They will just use the cash to do other impulsive strategies.
  4. There are better strategies to make money that this.
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18

Totally agree. It looks all good when you read about it. You really need very good control over your emotions.

Yes. You have strictly stick to your rules. You have to work like a machine. Trust me it’s not easy.

Yes. Especially stocks. With index it’s not a problem for me because I make equivalent return as much as index gives per month in any way.

Yes. You will feel like you should book loss and wait for lower levels.

Agree. Won’t work for everyone.

19

Except for the methodology of how it works, and what should I do, psychological things are easy for me.

Have to look at this :thinking:

20

You mean, work non stop or take decisions like a machine, take mechanical decisions?

21

This. Usually when it comes ITM you feel it will go even lower. And then u will just book loss and wait for lower levels. If I have decided I am addition nifty at this level, then am adding irrespective of what the news is. I don’t see technicals or news. I think like an investor. You might even get to see a loss of 40 percent of your capital.

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22

What is the rationale behind this then? There has to be a logic behind choosing something. Investors belonging to whichever group have a reason for buying, so what is the reason for choosing a level for you, or for anybody, if no technical or news are followed?

23

With what logic do people buy nifty bees? nifty will always see higher levels. May take some time. Some years or a decade. But it will see those levels again. And by the time it comes back to those levels you would have eaten up enough premium.
Please don’t quote Japan example now. :joy::joy:

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24

Sounds alright to me.

So can you tell the worst that could happen, worst possible scenario, and the worst you have seen with the strategy?

25

Watch this , you will understand how premiums in options are why they are . He has explained perfectly the analogy with the housing loan. There are many flavors or it. This videos explains from yearly ( long term perspective). You have to use excel you understand the calculations.

You can even do cash secured put with buying Calls as well each month( as i said there are many flavors of these strategies-coverd calls,cash secured puts, collar , leaps selling, fut -options , endless…). All your answer lies in details of why-what options premiums . Downside /Pros and cons are very personal in nature depends upon Psychology, Money , patience ,fundamentals etc. There is no holy grail here everything is dynamic.

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26

That is the basis of “cash secured put”. Did you think the “cash secure” part is just being able to payup losses ?!? :stuck_out_tongue:

The idea is that even if you have to book loss in Options, you are buying equity at lower levels (with expectation of it rising) - and if the price doesn’t fall, you get regular income from option premiums.

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27

If nifty falls 50 percent from the highest level my portfolio will be down 40 percent. Because I sell puts of lower levels. That’s for now the max I can see. Again as I have mentioned earlier don’t do this if you capital is below 1cr. You can hardly see returns in absolute terms.
Like if you doing it with 30 lakhs even if you generate 30 percent, it comes down to 9lakhs. So absolute value wise it’s not great for smaller capital.

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28

I actually think ~20 lakh is a good number to start with cash secured put, for a learner.

@GB26 If you are an investor, just to get a hang of Options, sell put of a stock you want to buy(anyway) and take physical delivery if you have to. Do this a few times to get the hang of basics.

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29

U can do it only with 2lots then. And if nifty falls 10 percent then you can’t add it at lower levels. If you do it with minimum 1cr then you can take nearly 12 lots. So you can add at lower levels also. Like if you start when nifty is at 17k, I would first sell 16500pe. When nifty comes closer to 16500pe I sell 16000pe and so on. If it goes up then I can double the position at 16500pe. I make a lot of adjustments.

In one of the above post I said I have taken long position yesterday. But if you see the contract size on my capital it’s only 35percent. I have kept my capital for lower levels too.

If it’s just for learning then may be you can try with 20 lakhs. Also why I prefer bigger capital is because once I have taken delivery I pledge them and sell ultra deep OTMs on expiry day. Even if I get 2 points on each side I can collect 4 points weekly. And this I do with max possible lot size and multiples there off. With smaller capital brokerage will eat off your profits.

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30

Thank you @AlgoEye @Jason_Castelino @VijayNair :+1:

I know that there are N number of ways to make money in the markets, each way may have its own disadvantages, pitfalls, risks or limitations, along with the potential. I’m just trying to find those ways, and choose the ways which I can use.

Yet to settle down with the couple of things that I could do for a couple of decades, so all this curiosity, enthusiasm, desire and search :face_with_peeking_eye:

Along with chasing momentum, also searching if any segments, instruments exist, however less profitable they are, which I can work on.

Stones to someone could be diamonds to me, garbage to someone could be manure to me :grin:

Thank you again.