Need feedback on a NIFTY FUTURES +Option Write+BankNIFTY strategy

General
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I have a question on a possible strategy which involves using NIFTY futures and NIFTY Options writing and having covered calls by buying BANKNIFTY CE and PE each week for 4 weeks of the month to protect from black swan kind of events.
e.g.
Early in the month I want to buy one lot of NIFTY futures and short 3 lots of NIFTY OTM. This gives a good profit if NIFTY closes within a 500 points range. Else the loss will be huge on either side.
Considering, 2-3 NIFTY bigshots are present in BANKNIFTY also, would it be wise to buy 2 lots OTM both CE and PE of BANKNIFTY (weekly expiry), each week as a cover for the NIFTY positions.
This is purely to protect from Black swan events.
I know it’s not recommended to hedge one index with another index, but … just asking … newbie dumb question number 3 :slight_smile:

NIFTY PL looks like this

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BANK NIFTY looks like this

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Logically, if NIFTY crashes 1000 or 2000 points due to an event, BANKNIFTY is not going to be spared. So, does this make sense?

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very eager to get a response or feedback from folks more experienced in options trading. Bumping it once.

Thanks

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Hey @iinfi1

  • You are short gamma short vol on Nifty and long gamma long vol on bank Nifty. This is the trade in essence, right?
  • So in essence, you are saying that bank nifty vols are relatively underpriced and nifty vols are relatively overpriced, which is not necessarily true
  • I can say that you are long vol long gamma on bank nifty, and reducing the cost of your paid premium on bank nifty by selling some nifty. Net, you are losing premium, right? Unless of course, you are buying less bank nifty than selling nifty, which will reduce your hedge/ black swan protection
  • like you pointed out, it is unlikely that bank nifty will be spared when nifty goes violent. But I have seen that happen.

If your whole idea is to bet on a black swan, which is where you will make money here, I might as well buy deep OTM bank nifty options.

I would not take this trade, but that is just me

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Thanks for your response.
I am not betting on black swan to earn money. I am betting on BankNIFTY to protect me incase of a blackswan, because the first NIFTY trade which I am taking has potential for unlimited loss incase of a blackswan.
My bet is to earn close to 20k each month with 2Lac in my account as margin, which is possible based on what the PL graph shows (assuming NIFTY is range-bound).
Cheers

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Could you please put some hard numbers of it.

Strikes, premium etc?

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I am paper trading this and started it a few days back.
First trade: This was in positive a few days after I stared this, but due to sharp upward movement over the last two days, it’s like this now.

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This week’s BANKNIFTY - This is intended to protect against blackswan only, not normal cases.

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1 Like
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Which platform do you use for paper trade?