When you understood Brahmastra, then we understood that Brahmastra does A very good job in the trending market. The market is going up, the market is going down, you will make good money. But what is the limitation in Brahmastra that you can have stop-loss if the market is sideways. So if the market is sideways, then what should wed in that condition?
See, you people have to understand to become pro trader that according to the condition of the market, you have to use a strategy. The same strategy is not for every day or every market condition. So if you see that the market is sideways, then money is made in the sideways market. Now if you have understood the condition of the market, then you will have to understand that what are the strategies for the sideways market that will make you good money.
See, if you get rigid on this thing that I will only do this, then it is not that your money will not be made in that also, money will be made, but when you will get stop-loss frequently, then your psychology should not be disturbed.
For example, you say that I will do Brahmastra. If I get small moves in the sideways market, then at that time I will make money in small moves also, but as I said that you should be ready to give stop-loss frequently because if you are frequently getting stop-loss, then at that time people’s psychology is disturbed and they say that the strategy is not working.
For example, now I will tell you a strategy of the sideways market. In this blog, we will also talk about the strangle, then we will also talk about the iron condor. After this, I will also tell you that when the sideways market, see the market is not always sideways, after sideways, it will take some trend, so if after that it will be trending instead of sideways, then your strategy for the sideways market will bear a loss.
So what you have to understand is that if the market goes trending from sideways and at that time you will be losing, then how will it be adjusted and then what are you going to do again.
Are you getting it? So there will not be the same market condition for the whole year. Number one, second, for different market conditions, you have to understand different strategies. Number three, what you have to do after the loss, if you understand all this, then you will get benefit from this experience. Okay, so let’s continue. Now we are understanding that if the market was directional, then I am telling you genuinely that there is nothing better than Brahmastra.
Big moves in the stock market, big points will be given to you by Brahmastra, but when stop loss starts to hit in your Brahmastra, then you understand that the market has started to go sideways. So if the market is sideways and you can seat, the chart will say that the market is moving in the middle of its support resistance. So until it is moving in the middle of support resistance, what will you do, let’s understand it.
So now you say that for example, you say that I will trade in Nifty or I trade-in Nifty. Now, any, I mean, today you are reading this blog, I am not writing this blog with the mindset that you are reading from a week today, I am writing these blogs with this mindset that after 5 years from today, someone or the other person must be learning from these blogs. So at that time, I do not know where Nifty will be, it may be at 20000, it may be at10000, at any point of time, I mean, we are taking an example, it will not be at 10000, the example is at 20000, it may be at 250000, it may be at 180000, it may be anywhere.
So if you think that Nifty is at 20000 at that time, then what will you do, so I will take the example according to today. According to the example, if you get clarification, you get understanding, then even if Nifty is at 20000, 180000,160000, 200000, 50000, you will know what to do. So now we understand the concept. Whence are talking about the sideways market, then the market will move between its support and resistance.
So example is this resistance, at any point of time, you will check it, you will see on the chart and what will you see, the market is going, increasing, increasing, increasing, increasing and reaches the resistance and it gets rejection from the resistance, it falls down, then goes up and then falls down and in this way the market is moving.
Now when it is moving in this way and it is not breaking its resistance, it is not breaking its support, then what happens is that there are no big moves. In fact, in these cases, the trend is also changing very frequently, so by changing the trend frequently, I said there is a stop loss, but now let’s take an example, Nifty you see that it is at 180000and what you see continuously that Nifty is not going below 17800 and is not going above 18200, so if it is not going above 18200, then you see 18200 resistances and you see that itis not going below 17800, it means that you see support.
Now if there is a market in between, then you can make money. In fact, we will also talk about what you can do besides this, which will give you extra profit, so now the number one strategy for this, which most people use is straddle. Now we will understand straddle, then I will tell you strangle. So now we will talk about straddle first.
What is straddle? What you see is that Nifty is at 180000, so what people do is that you can make straddle weekly, you can make it monthly, you can make it according to different expiry, so now when you see Nifty at 180000, then what will be the strike of Nifty?
It will be here. At the money is at 180000, so the call option of 180000 and put option of 180000, if you sell it, for example, this is also getting200 rupees and this is also getting 200 rupees, it is an example, so what happened now?
The call option of 180000at the money is 200 rupees, the put option is 200 rupees, so if you sell them, you short them, then we will call it short straddle and if you buy them, then we will call it long straddle, so when we buy, we call it long and when we sell, we call it short.
Now here we were talking about straddle, short straddle, which Isa neutral strategy for sideways market, the graph of this looks like this, now what do you see, understand this, when the market is closed, then the nifty is closed at 17859plus 17850, we have the add the money, the price of put and call option is written hereof 81 and 128, now what you have to understand is that the market may increase a little from here, may fall a little,
why I am saying a little, because if it increases a lot, then there is a loss, what does sideways mean, that there is not A very big movement, in small movements, you will have a profit, so what happens now, if the market does not move, then these premiums will end, if the market does not move, suppose you have sold these options, you are selling here,
so what is there to sell, your winning probability is already more, 60% winning probability is visible to you and the probability of profit is more because the premiums are eroding with time, they are melting with time, so now you see how much you received from the market if you sold both the strike prices, then here you have got 81.55, when did you get it, when you sold the put option, plus you got 128.85when you sold the call option, so you received a total of 210rupees from the market, knowhow is your break-even calculated,
it is very simple, now how far will the market go up, which will not cause you loss, so you have collected a premium of 210 rupees from the market, so where the market is, you see 17850, then 17850 plus your premium, this will come out as your break even, so you can see 18,060, 18,060 is your breakeven of the call side,
if the market goes above 18,060, then there will be a loss, plus what can you do, similarly you have 128 plus 81, I will do it, it becomes 209, 210 rupees, so you minus 210 rupees from 17850, so 17640 rupees is your break even here, how did we calculate this, the premium that we have got, we have it as a buffer, if you want to receive more premium, then you can change the expiry,
like instead of 12th January, you can go to 19th January,25th January, the more you go ahead, the more the premium will increase, for example, on12th January, the put side you are seeing 81 rupees, this is like I did on 19th, it became 130 rupees and if you are definitely making a straddle here, then you can make straddle here, then you will change the expiry on both the sides, so the premiums will increase here,
similarly if I do 25th January, have increased. Now this has become a break-even for you that if the market did not reach here till 25 January and it closed in the middle, then you have a profit in the middle. This is a profit in the middle. So why is this our profit because premiums are eroded. This is point number-one. Now we have not come here to learn only straddle. We have then these premiums will increase a little more. So these premiums to understand the next strategy that is strangle.
So what is the difference in strangle, let’s understand this. We just talked about straddle before this. First I will clear the concept of straddle. Her ewe talked about resistance and support. Where there was nifty, we sold it there. Example and if nifty goes up a little bit and goes down a little bit, we make money. Now you say that 18200 and 17800 will be out of the money.
If nifty goes up to 18200, then itis out of the money. It will fall to 17800, it is out of the money. If you sell these out of the money options, what were you selling earlier? You sold the call and put option of 18000. You sold the call and put option of 18000. Now as soon as you change a little bit, now when you make a strangle, what do you do? I
n the strangle, nifty is at 18000.Now you say that when it increases to 18200, then I am selling this and definitely out of the money, the premium will be less, but what happens here is that the safety increases little more and 17800, you are selling this on the put side. So you are selling this on the put side and you are selling this on the call side.
Now how will your payoff chart look like? First we look at the payoff chart and understand how the payoff chart of the strangle looks like and now we talk about short strangle. Youkan also do long strangle, but its criteria are different. So here you see in the strangle that you have a wide range and here the probability of profit also increases. It is showing72% and how will the breakeven calculate?
For example, whoever is nifty, what they have done here, wherever nifty is there, from there they have taken 200 points up and 200 points down, as we took the example of 200 points. They sold both the call and put side out of the money, which means you got a good range that if nifty goes below 17580, then you will have a loss, otherwise you will not have a loss. So here if it goes below 17580, then you will have a loss and similarly you have a range of 18120 here.
So these are your breakeven. Now what is the benefit of doing this, if nifty is closed anywhere in between, then the entire profits clear that you will get 3500, but this is 3503.2% means there is a margin requirement of 1 lakh. Now we will talk about another strategy where the margin requirement will be reduced and your profit will increase instead of 3.2. Sowed will discuss on increasing it. Now this 3.2% varies that which day and which strike, which expiry are you making.
For example, if you are making for the same week’s expiry and you will make it on Monday, then you will get about 3%, but if you talk about the next week’s expiry, then you will see here that it is straight 8% that if the market is in this range, then you can get up to 8% in the strangle, but the market should be sideways, but what we have to do, see little concept, then I will tell you what to do. So you have to make a strangle, you have to make an iron condor, we will talk about it.
Now you see here when we made straddle, we are talking about the expiry, which is the current expiry on 12th of January, then we are getting about 9% and the probability of profit is 60%and our margin is of 1,21,000and when we made strangle, then we are earning about 3%, the probability of profit is 72%and the margin requirement is above 1 lakh. Now this is straddle and strangle, what to choose, we will just talk about it and I said that how to make more money in it, we will talk about that too.
Now understand one thing, the premiums that melt the fastest are of current expiry. What people do to earn more money here, that we get more premium, they talk about the next expiry, which is not wrong.
Suppose you are straight 23rdof February, which is the expiry of February month, the monthly expiry, means the last Thursday of February will be on the 23rd. If you do the straddle, now this liquid invisible here, then you will see that the liquidity is less, so269, 369 is visible. If you do January month, January month, 25th January will be the last Thursday, so you can see106 and 162.
So the more you do this, the more your premium increases. Now if you were seeing here that when I did February 23rd, then why is it illiquid, because the strikes are in the difference of 50. As soon as I change the difference of 50, here it is 17650, we assume it to be 700, then this will be a liquid contract. Here do 100, this will also be a liquid contract. So the liquidity is less in the strike price of 50, if you talk about the long expiry.
So now the long expiry that we are talking about, it is January by mistake, I will do it in February. So what you are definitely getting here is that youkan collect more premium from the market, but now you have to understand that the longer it is, the decay in it, the premium that will be eroded will be slow, but now from here would like to give you a strategy.
If you are going to do what in the sideways market, you are going to make a strangle, then how can you get more money, because here you see here 276,345 you are collecting from the market, you can make profit of about 26%, if you just strangle, but if you make a current expiry, then you will get only 3%, so you need 3%or more than 3% on making a strangle. because such a strangle that will make you more money, how will it make you, we will definitely give you a strategy in the next blog.
In this blog, my clearly mindset that what I have to tell you is that what is a strangle, how it is made, what Is a payoff, how it is made, how we earn money and how its payoff graph looks. If you understand this much, then you understand how to use two strategies for sideways market.