Options Trades can be structured such that it is "Heads I Win, Tails I Don't lose much"

Discussion in 'Traders Corner' started by Michael Gonsalves, Aug 21, 2022.

  1. Michael Gonsalves

    Michael Gonsalves Member Staff Member

    Jun 26, 2016
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    TL;DR: One of the charms of Options trading is that one can create set-ups where the risk-reward is asymmetrically in favour of the trader. Heads I Win, Tails; I Don't lose much. A trader has explained such a set-up where the max profit was Rs 1 Lakh and max risk was only Rs 6000. The margin required was Rs 2 Lakh

    People are generally reluctant to deal with derivatives such as Futures and Options in the fear that they will be exposed to unlimited risk. However, this is far from the truth. Trading in derivatives is in fact safer than investing in stocks such as DHFL, Sintex Plastic, RCom etc where there is a loss of 100% of the capital. In the case of trading in derivatives, there can be strict stop loss upto tolerance levels.

    Anyway, on the expiry day of Thursday 18th August, an anonymous trader known as 'Options Decoded' recommended a strategy on his telegram channel (https://t.me/toptrader07) which involved the buying of 8 lots of 39100CE, buying of 20 lots of 39400PE and selling of 12 lots of 39700PE.


    As the Bank Nifty Index was at 39400 at that time (around 2 PM), the 39100CE and 39700PE were In the Money while the 39400PE was At the Money.

    To the trader's good luck, the Bank Nifty surged like a rocket to close at 36500 with the result that the 39100CE which was bought yielded a profit of Rs 36000, the 39700PE which was sold became worth less than the selling price and yielded a profit of Rs 69000. The 39400PE which was bought expired worthless and resulted in a loss of Rs. 17500. The net result was a profit of nearly Rs 1 lakh.


    Assuming the market had plunged, the 39400PE which was bought would have yielded gain while the 39700PE which was sold would have yielded loss. However, as the number of lots bought were more than those sold, this would have also yielded a gain. The 39100CE which was bought would lose value and have to be squared off before it hit zero.

    Assuming the market stagnated at the level of 39400, one would suffer a loss of Rs 17400 assuming the trade was held till expiry. However, astute traders would exit when stagnation became apparent and reduce the loss. They would also take counter trades to neutralize even that loss.

    At the end, according to the anonymous trader, one can fashion trades in a manner where Heads I Win, Tails I Don't lose much! "Kamaal, Dhamaal, Malamaal." he said.

    Last edited: Aug 21, 2022