It is February 28th and time for the budget. This time the budget day is unique in a way that it matches with expiry day. Let us see if we can profit from this 1 off event.
There are some strategies which come to mind and I am penning them dow here.
Rule for trading in Option: Effective Risk Management. 1 should not loose large amounts of money in a single trade. Small losses are acceptable and part of the learning process.
How will market react to the budget?
There are 3 possibilities, go up, go down or remain flat.
The volatility decreases tremendously after the event and even if market goes up or down 50 or 60 points, premium decays. The Option Writer profits.
Strategy 1:
Sell March 5800 put @ Rs 90 and buy Feb 5800 put @ Rs 43
If market goes up: Feb put value gone to 0, and March premium can be pocketed.
If market goes down sharply, Feb put will help cover losses in March put. Remember you are pocketing 90 rupees hence you will make losses below 5710 in any case.
Strategy 2:
Sell march 5800 call @ 109 and buy Feb 5800 call @ 36
If market goes up, Feb 5800call will make you money. You make losses only after 5936 in any case. The Feb 5800 call will give you money which increase the level which you make losses to above 5936.
If market goes down you pocket the difference in premiums of 73.
This strategy is only for today. It will fail if markets remain flat. Tomorrow is another day and then other dynamics will come into play which we can see tomorrow.
The trick in options is to make small profits but completely risk free. 1 should take care of all eventualities that a trade can fail.
There are some strategies which come to mind and I am penning them dow here.
Rule for trading in Option: Effective Risk Management. 1 should not loose large amounts of money in a single trade. Small losses are acceptable and part of the learning process.
How will market react to the budget?
There are 3 possibilities, go up, go down or remain flat.
The volatility decreases tremendously after the event and even if market goes up or down 50 or 60 points, premium decays. The Option Writer profits.
Strategy 1:
Sell March 5800 put @ Rs 90 and buy Feb 5800 put @ Rs 43
If market goes up: Feb put value gone to 0, and March premium can be pocketed.
If market goes down sharply, Feb put will help cover losses in March put. Remember you are pocketing 90 rupees hence you will make losses below 5710 in any case.
Strategy 2:
Sell march 5800 call @ 109 and buy Feb 5800 call @ 36
If market goes up, Feb 5800call will make you money. You make losses only after 5936 in any case. The Feb 5800 call will give you money which increase the level which you make losses to above 5936.
If market goes down you pocket the difference in premiums of 73.
This strategy is only for today. It will fail if markets remain flat. Tomorrow is another day and then other dynamics will come into play which we can see tomorrow.
The trick in options is to make small profits but completely risk free. 1 should take care of all eventualities that a trade can fail.
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