Is it possible to create a risk free strategy in FnO? I learnt about arbitrage and box spreads on internet. I build a strategy on OPSTRA based on this.
Security- NAUKRI, SPOT-5035.5, Exp- 28 Jan 2021
Sell 1 lot Future (5061)
Sell 1 lot 5100PE (252)
Buy 1 lot 5100CE (185.25)
It was showing 99.5% profitable and max loss as 0. Max profit is 7000 (15%) on capital of 44000. Can anyone explain this and is it possible?
looks too good to be true… there must be catch somewhere… you should try loading this payoff graph on another platform, sensibull, options oracle and check there as well…
but doing some rough estimate… if spot expires at say 4050, your futures will be in profit of 111, 5100 pe will expire at 150 so you will be earning net premium of 102 while 5100 ce will expire worthless and you will lose 185 so net p&l will be rs. 28.
similarly if spot expires at 5150 you will be making loss of 89 on futures, 5100 pe will expire worthless and you will keep 252 premium while 5100 ce will expire with value of 50 so net you will be losing 135… so your net p&l will be rs. 28…
i think the real catch will be in getting your order executed at this prices as bid - ask spread will be far wide…
I too agree with you that there must be catch. Can you check it for me as sensibull asks for subscription.
I request others to Kindly look into this.
The catch is, this is a stock option which is very illiquid at many strikes. The trading software such as Sensibull or OPSTRA plot the payoff graph based on LTP and not on ask/bid price.
So, the payoff might look attractive on these softwares but when you actually trade there will be slippages (google it) to the tune of at least 5-10 k in case of NAUKRI which is very illiquid.
If you are a beginner, stick to Nifty/Banknifty that too trade liquid strikes only.
I hope it helps. All the best.
I was just checking the strategy randomly on a stock. NAUKRI has high slippage, almost 18 to 20 rupees. I checked it on NIFTY too but the profit was only 100INR. I tested it on BANDHANBANK which is liquid and the difference between ASK/BID was 40 to 60 paise and it gave 2% return.
I want to ask if it will recommended to trade if the stock/index is highly liquid with very low slippage.
You can but even in case of Bandhan Bank, the lot size is 1800 and with slippage of as little as 40 paise, it will take your PnL down by Min. 500 rupees. Keep in mind if you are trying a multi-leg strategy such as Butterfly or condor, that slippage will easily multiply.
But still if you want to trade in stocks, try top 10 nifty 50 stocks such as RIL, SBI, ITC etc. that too trade very liquid strikes.
My advice, stick to Indexes.
Thanks for the suggestion mate! I am not trading in stocks options , I observed this phenomenon & thats why I asked. Currently trading NIFTY only.
Hi Prashant, did you try this strategy on any indexes?
bro is it working
nifty and BN
