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Stocks

Strangle update: booked some puts, still hold calls

I bought a 2850/2900 November strangle on Friday, as per my last post, for Rs. 500 total.

I’m in Delhi on a week’s holiday so I placed some orders to take care of huge moves…and the orders went through – half my puts are out at Rs. 550 each. I still own half the puts, and all the calls, and I’ve covered 55% of my total cost – marked to market it’s still only a 20% profit or so.

I have to figure out how to create a system out of this…A profit target of 30% each way should work, I think, but this requires some rigour now.

  • Anonymous says:

    >Hi Deepak,

    You mentioned in the previous post as high IV as one of the trade initiation criteria..
    High IVs would mean option premium is already on the higher side. How should one guard against IV dropping thereby resulting in option strangle value erosion.

    Regards

    Your silent admirer

  • Deepak Shenoy says:

    >That’s the point Anon – High IV usually prompts people to sell, but my funda is that in volatile times it results in huge profits if one BUYS. It’s counter to all the theory, and it’s working….

  • Anonymous says:

    >Hi Deepak,

    Is there a possibility that high IVs are partly because of increased margin requirment as well?

    Your silent admirer

  • Deepak Shenoy says:

    >anon: the premiums could be higher – but it’s not higher IV, it’s just larger cost of capital. Lot of people sell options based on margined amounts rather than exposure, so they would sell higher to cover increased cost of capital. It may of course look like higher IV.