Bull Spread (Call) Strategy on Nifty / Sensex
Options - Bull Spread (Call) Strategy on Nifty / Sensex in Derivatives - In this strategy, one expects markets to go up Bull spread - call Strategy(definition) A bull call spread is constructed ...
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Bull Spread (Call) Strategy on Nifty / Sensex

  1. Bull Spread (Call) Strategy on Nifty / Sensex

    In this strategy, one expects markets to go up

    Bull spread - call Strategy(definition)
    A bull call spread is constructed by buying a call option with a low exercise price (K), and selling another call option with a higher exercise price.
    Often the call with the lower exercise price will be at-the-money while the call with the higher exercise price is out-of-the-money.
    Both calls must have the same underlying security and expiration month.

    Example:
    Date: July 5th 2011.
    Nifty Current Value: 5630
    • Sell (write) one lot of 5800 Call (28 JUL 2011 expiry) at a premium of 35.
    • Buy one lot of 5600 Call (28 JUL 2011 expiry) at a premium of 120.

    95 Rs (35 - 120) per lot is debited from your account entering the above position. You will make profits if Nifty ends expiry above 5695 (5600 + 95)

    Below are the various profit/loss scenarios at expiry
    • Nifty ends above 5800 - You will make profits of 4000 Rs
    • Nifty ends between (5695 - 5800) - You will make profits ranging from (0 Rs - 4000 Rs)
    • Nifty ends below 5695 - You will make losses ranging between 0 Rs to 4750 Rs.

    If you are a smart trader, you will get opportunities before expiry to exit the bull spread strategy with decent profits even if Nifty does not rise above 5695.

    (write:buy) ratio in the above example is 1:1 and the gap between write and buy contracts is 200 Points in Nifty. You can tweak the (write:buy) ratio and gap to build you own strategy based on your risk appetite.

    Note: I did not include brokerage charges in the above example

    Any views on this strategy are welcome. Let us know how it works for you.


  2. how to track VIX in realtime?? if VIX dropped even the market movement is there it kills the value.

  3. Quote Originally Posted by csayantan View Post
    how to track VIX in realtime?? if VIX dropped even the market movement is there it kills the value.
    You can track VIX realtime in nseindia.com home page ... yes, if VIX drops, it will erode the premium ... But if there is enough movement, it will give profits in a hedge or strangle strategy

  4. Hi

    For prompt reply I am thanking you.
    one day NIFTY gave 141 points move up.but CE options gains 30 points +.where it should gain 70 - 80 points.and similarly PE dropped more because there was a premium eating + upside movement.So gain on loss might turn into loss.And lower brokerage won't support the hedger also.In this FII driven NIFTY broken butterfly and delta hedging is looking cool rather than anything.

    Thanks And Regards

  5. Quote Originally Posted by csayantan View Post
    Hi

    For prompt reply I am thanking you.
    one day NIFTY gave 141 points move up.but CE options gains 30 points +.where it should gain 70 - 80 points.and similarly PE dropped more because there was a premium eating + upside movement.So gain on loss might turn into loss.And lower brokerage won't support the hedger also.In this FII driven NIFTY broken butterfly and delta hedging is looking cool rather than anything.

    Thanks And Regards
    Last month, VIX was at 30 and premiums were high ... This month VIX is below 20 and premiums are good for options hedge







  6. thanks for the suggestion.

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