Banknifty has been trading at such a range for quite some time. why?
Banknifty is standing at support in monthly time frame. It is facing resistance in weekly time frame. so, you have to avoid to take a broader view
or swing trade.Rather, you can take a selling of Monthly straddle.
What is short straddle ?
One short call and one short put make up a short straddle. Both options have the same underlying stock, the same strike price and the same expiration date. . If the underlying stock trades inside a constrained range between the break-even points, a short straddle is constructed for a net credit (or net receipt) and profits. The maximum profit is only as much as the total premiums less commissions. If the stock price increases, the potential loss is limitless; if it decreases, the potential loss is significant.
Maximum Profit:-
The maximum profit is only as much as the total premiums less commissions. If the short straddle is held until expiration, the stock price exactly closes at the strike price, and both options expire worthless, the most money can be made.
Maximum Risk:-
On the upside, because the stock price can continue to climb eternally, the potential loss is limitless. As a result of the stock price's probable decline to zero, there is a significant risk of loss.
Consider the following scenario: Nifty is currently trading at 17589, making the 17600 strike ATM. The following are the option premiums:
Trading for 17600 CE is at 77.
Trading for 17600 PE is at 88.
Hence, in order to execute the short straddle, we must sell both of these options and receive the net premium of 77 + 88 = 165.
Please keep in mind that the options must have the same underlying, the same expiration date, and of course, the same strike. Let's calculate the P&L under various market expiry situations presuming that you have already completed this short straddle.
Situation 1: The market closes at 17200 (we lose money on put option)
In this case, the put option's loss is so significant that it consumes the premium that was paid.
As a result of the fact that 17600 CE would expire worthless, we keep the premium obtained, meaning that 17600 PE will have an intrinsic value of 400. When the premium obtained, Rs. 88, is taken into account, we lose 400 - 88 = - 312.
312 - 77 = - 235 would be the overall deficit.
As you can see, the loss in the put option equals the gain in the call option.
The market expires at 17435 in scenario two (lower breakdown)
In this instance, the strategy is in a neutral financial position.
As 17600 CE would expire worthless, the premium is kept. Profit is Rs. 77 here.
As we received Rs. 88 in premium on an intrinsic value of 165 for 17600 PE, our loss would be 165 - 88 = -77.
The loss in the put option entirely cancels out the gain in the call option. Thus, at 17435, we are in the black.
Situation 3: The market closes at 17600 (at the ATM strike, maximum profit)
The best result for a short straddle is this one. The scenario is simple at 17600 since both the call and put options would expire worthless and the premiums from both the call and put options would be kept. The gain in this case would equal the net premium received, or Rs. 165.
This indicates that in a short straddle, you profit the most when the markets remain static.
Situation 4:The market expires at 17765 in scenario 4. (upper breakdown)
This is comparable to the second scenario we looked at. At this time, the plan achieves parity at a point above the ATM strike.
After accounting for the premium of Rs. 77 that was paid, 17600 CE would have an intrinsic worth of Rs. 165, meaning that we would lose Rs. 88. (165 – 77)
17600 PE would expire worthless, thus the premium, which is equal to Rs. 88, is kept.
We are neither making money nor losing money because the profit from the 17600 PE is countered by the loss from the 17600 CE.
This is undoubtedly the upper breakdown point.
Situation 5: The market closes at 18000 (we lose money on call option)
In this case, the market is obviously much larger than the 17600 ATM threshold. Both the loss and the call option premium would increase.
17600 PE will expire worthless, thus the premium, which is equal to Rs. 88, is kept.
After accounting for the premium of Rs. 77 received, the 17600 CE will have an intrinsic worth of Rs. 400 at 18000, meaning that we will lose Rs. 323. ( 400 -77)
Given that we paid Rs. 88 as the put option premium, our loss would be equal to 88 – 323 = –235.
As you can see, the call option's loss is substantial enough to cancel out the total premiums paid.
At the ATM, you can make the most money; as you travel away from the ATM mark, your profits decrease.
As long as the market remains within the breakdown points, the technique is lucrative.
Markets that stray furthest from the breakdown point face the greatest damage. The loss increases as the market deviates further from the breakdown point.
Maximum loss: infinity
There are two breakdown spots that are equally spaced from the ATM on either side.
ATM plus net premium equals upper breakdown.
ATM - Net premium equals a lower breakdown.
The short straddle operates in the exact opposite manner to the long straddle, as you may have guessed by this point. When markets are anticipated to trade in a range and not make significant gains, short straddles perform best.
Since that short straddles carry limitless losses on either side, many traders are afraid of them. But in my experience, if you know exactly how to use this, short straddles work incredibly well.
I think you now clearly understand what short straddle is.
According to me, it is better to sell 41000 call and 39000 put of monthly expiry.
Intraday:-
Bear could not come at all yesterday. Banknifty closed at day high which indicates bullishness.
Banknifty is standing at support in monthly time frame. It is facing resistance in weekly time frame. so, you have to avoid to take a broader view
or swing trade.Rather, you can take a selling of Monthly straddle.
What is short straddle ?
One short call and one short put make up a short straddle. Both options have the same underlying stock, the same strike price and the same expiration date. . If the underlying stock trades inside a constrained range between the break-even points, a short straddle is constructed for a net credit (or net receipt) and profits. The maximum profit is only as much as the total premiums less commissions. If the stock price increases, the potential loss is limitless; if it decreases, the potential loss is significant.
Maximum Profit:-
The maximum profit is only as much as the total premiums less commissions. If the short straddle is held until expiration, the stock price exactly closes at the strike price, and both options expire worthless, the most money can be made.
Maximum Risk:-
On the upside, because the stock price can continue to climb eternally, the potential loss is limitless. As a result of the stock price's probable decline to zero, there is a significant risk of loss.
Consider the following scenario: Nifty is currently trading at 17589, making the 17600 strike ATM. The following are the option premiums:
Trading for 17600 CE is at 77.
Trading for 17600 PE is at 88.
Hence, in order to execute the short straddle, we must sell both of these options and receive the net premium of 77 + 88 = 165.
Please keep in mind that the options must have the same underlying, the same expiration date, and of course, the same strike. Let's calculate the P&L under various market expiry situations presuming that you have already completed this short straddle.
Situation 1: The market closes at 17200 (we lose money on put option)
In this case, the put option's loss is so significant that it consumes the premium that was paid.
As a result of the fact that 17600 CE would expire worthless, we keep the premium obtained, meaning that 17600 PE will have an intrinsic value of 400. When the premium obtained, Rs. 88, is taken into account, we lose 400 - 88 = - 312.
312 - 77 = - 235 would be the overall deficit.
As you can see, the loss in the put option equals the gain in the call option.
The market expires at 17435 in scenario two (lower breakdown)
In this instance, the strategy is in a neutral financial position.
As 17600 CE would expire worthless, the premium is kept. Profit is Rs. 77 here.
As we received Rs. 88 in premium on an intrinsic value of 165 for 17600 PE, our loss would be 165 - 88 = -77.
The loss in the put option entirely cancels out the gain in the call option. Thus, at 17435, we are in the black.
Situation 3: The market closes at 17600 (at the ATM strike, maximum profit)
The best result for a short straddle is this one. The scenario is simple at 17600 since both the call and put options would expire worthless and the premiums from both the call and put options would be kept. The gain in this case would equal the net premium received, or Rs. 165.
This indicates that in a short straddle, you profit the most when the markets remain static.
Situation 4:The market expires at 17765 in scenario 4. (upper breakdown)
This is comparable to the second scenario we looked at. At this time, the plan achieves parity at a point above the ATM strike.
After accounting for the premium of Rs. 77 that was paid, 17600 CE would have an intrinsic worth of Rs. 165, meaning that we would lose Rs. 88. (165 – 77)
17600 PE would expire worthless, thus the premium, which is equal to Rs. 88, is kept.
We are neither making money nor losing money because the profit from the 17600 PE is countered by the loss from the 17600 CE.
This is undoubtedly the upper breakdown point.
Situation 5: The market closes at 18000 (we lose money on call option)
In this case, the market is obviously much larger than the 17600 ATM threshold. Both the loss and the call option premium would increase.
17600 PE will expire worthless, thus the premium, which is equal to Rs. 88, is kept.
After accounting for the premium of Rs. 77 received, the 17600 CE will have an intrinsic worth of Rs. 400 at 18000, meaning that we will lose Rs. 323. ( 400 -77)
Given that we paid Rs. 88 as the put option premium, our loss would be equal to 88 – 323 = –235.
As you can see, the call option's loss is substantial enough to cancel out the total premiums paid.
At the ATM, you can make the most money; as you travel away from the ATM mark, your profits decrease.
As long as the market remains within the breakdown points, the technique is lucrative.
Markets that stray furthest from the breakdown point face the greatest damage. The loss increases as the market deviates further from the breakdown point.
Maximum loss: infinity
There are two breakdown spots that are equally spaced from the ATM on either side.
ATM plus net premium equals upper breakdown.
ATM - Net premium equals a lower breakdown.
The short straddle operates in the exact opposite manner to the long straddle, as you may have guessed by this point. When markets are anticipated to trade in a range and not make significant gains, short straddles perform best.
Since that short straddles carry limitless losses on either side, many traders are afraid of them. But in my experience, if you know exactly how to use this, short straddles work incredibly well.
I think you now clearly understand what short straddle is.
According to me, it is better to sell 41000 call and 39000 put of monthly expiry.
Intraday:-
Bear could not come at all yesterday. Banknifty closed at day high which indicates bullishness.