Strategy:
- Long on 1 Lot of nifty Futures.
- Long on 2 Lots of next month or Far month ATM put options.
Exit strategy:
Exit all position if nifty moves 150 to 200 points in Either directions.
How this strategy works?
This strategy works by Exploiting the change in Delta of Put options.
The Delta of Futures is always 1. where as the Delta of options changes when nifty moves from ATM to OTM or from ATM to ITM.
Delta of ATM option is 0.5. Two lots of ATM delta will have combined Delta of 1.
if nifty moves up the combined delta of put will be less than 1. where as the delta of futures is always remains 1. since the Delta of option is less than 1, the change of price in put is less than the change in futures price. When nifty moves down , the Delta of put increases and it become more than 1. also the increase in volatility( Vega effect) will also favors increase in price of options. So the profit from options is more than the loss from futures.
The next month or Far month options will have low Time Decay(theta effect). The effect of theta is less in this strategy.
Conclusion:
This strategy Makes money when nifty moves in either up or down directions. This strategy will loose money if the nifty does not moves for long time. So it is always good to enter in to this strategy when nifty is breaching support / resistance level and if volatility(India VIX) is low.
This strategy will solidly make 10 % return per trade setup. This strategy is immune to any market crashes. In fact a quick movement in the down direction will fetch up to 20 to 25 percent return.
Tips:
Don’t get greedy . Exit as soon as possible if the nifty reaches target.
Don’t keep the position open for more than 10 days.