Let’s understand with the example of a new strategy - OptionX 143 Spread.
We will use market conditions in our favor to “Execute a Safe & Easy Option Selling Strategy”, using bracket order with predefined target and stop loss OR automatically trailing stop loss, both at combined strategy premium level.
Strategy configuration:
Underlying = Nifty Bank (Current Price 51135)
Quantity (with ratio 1) = 150 (10 Lots)
Legs: 3 OTM legs at 500, 700 & 900 points away from ATM
Cobimed Net Premium (Sum of Ratio*LTP) is -61.35
Premium Collected (61.35 * 1005) = INR 9,202
Payoff Diagram
- Two safe buffer zones (yellow and orange boxes) until Bank Nifty goes up by 750 points & strategy turns red.
- Zone 1 has a fixed profit and maximum profit comes in Zone 2.
Favorable Conditions
- Stay 500 points away from ATM, to have good enough buffer zone and earn net premium (credit strategy).
- 0DTE or 1DTE - For quicker theta decay.
- Downward trending or sideways market.
- If market rises, two buffer zones provides protection and we can get out of the trade in time.
- Relatively low capital requirement (due to hedges).
Execution- Using Multileg Spread Ladder in OptionX trading platform!
Method 1 - Jobbing - When strategy net premium is rangebound (plot levels in strategy chart).
Objective - Churn 10-15 points on each trade at strategy level, repeat 3-4 times a day.
Steps:
- Create strategy using strategy builder, save strategy and open it’s spread ladder.
- Select OCO (bracket) order, and provide target and SL.
- Place buy side bracket order in strategy, at lower price point of the combined net premium range.
- Target and SL will make sure the risk/reward ratio is in check.
Method 2 - Auto Stop Loss Trailing - When market is downward trending and all legs to become further OTM.
Objective - Potentially earn as many points as possible, until all legs reach close to 0 value (OTMs).
Steps:
- Create strategy using strategy builder, save strategy and open it’s spread ladder.
- Select Single-Limit order, and place order at a favorable price.
- Place Single-SL order 10 points below and start trailing it by clicking on the trailing arrow.
- Trailing SL will ensure that the risk is defined and we also do not loose unrealized profit.
Execution Tools
Benefits
- Ability to place limit, stop loss or bracket orders at multileg strategy level - hence more control over combined premium and much lower slippage.
- Easy to manage - cancel, modify, adjust, roll-up/roll-down strikes quickly in one click.
- Peace of mind - Trading in multileg strategies becomes as easy as scalping in naked options.
Share your thoughts! If you found this interesting, let me know, and I’ll bring you more such posts!
Disclaimer - Thoughts shared are for educational purposes only.
@siva