{"id":6411,"date":"2020-02-22T11:14:39","date_gmt":"2020-02-22T05:44:39","guid":{"rendered":"https:\/\/unofficed.com\/theta\/?p=6411"},"modified":"2020-02-22T11:14:41","modified_gmt":"2020-02-22T05:44:41","slug":"a-systematic-approach-on-option-buy-with-10000-inr","status":"publish","type":"post","link":"https:\/\/unofficed.com\/theta\/a-systematic-approach-on-option-buy-with-10000-inr\/","title":{"rendered":"A Systematic Approach on Option Buy with 10,000 INR"},"content":{"rendered":"\n<p>We were talking about an approach to how a strategy is developed based on past performance.<br><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>We are bad on cutting on profit hit.<\/li><li>We are bad on cutting on SL hit.<\/li><\/ul>\n\n\n\n<p>Now Let&#8217;s say a strategy where we enter at x time and exit at y time irrespective of profit and loss. So, we don\u2019t have to use minds in between. Our max loss is defined anyways as it is option buy. Let\u2019s shoot a tiny question, let\u2019s say, In case of options buy, which of the following scenario is better&nbsp; &#8211;&nbsp;<br><\/p>\n\n\n\n<ol class=\"wp-block-list\"><li>Entering at 9:20&nbsp;<\/li><li>Or, Entering at 9:30<\/li><\/ol>\n\n\n\n<p>Now to, decide that the first thing that comes to mind is we are entering a long straddle. So, if we think theta-wise, the late the entry, the less the time working against us but then again.&nbsp;<br><\/p>\n\n\n\n<p>But how much 10 minutes matter?<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"308\" src=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/c0e31cfa-db04-4946-97d9-0ca3cfb0eb8c-1024x308.png\" alt=\"\" class=\"wp-image-6412\" srcset=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/c0e31cfa-db04-4946-97d9-0ca3cfb0eb8c-1024x308.png 1024w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/c0e31cfa-db04-4946-97d9-0ca3cfb0eb8c-300x90.png 300w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/c0e31cfa-db04-4946-97d9-0ca3cfb0eb8c-768x231.png 768w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/c0e31cfa-db04-4946-97d9-0ca3cfb0eb8c-600x181.png 600w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/c0e31cfa-db04-4946-97d9-0ca3cfb0eb8c.png 1116w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"299\" src=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/1e84cc00-e276-476a-a03d-4c0e282786d8-1024x299.png\" alt=\"\" class=\"wp-image-6413\" srcset=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/1e84cc00-e276-476a-a03d-4c0e282786d8-1024x299.png 1024w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/1e84cc00-e276-476a-a03d-4c0e282786d8-300x88.png 300w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/1e84cc00-e276-476a-a03d-4c0e282786d8-768x224.png 768w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/1e84cc00-e276-476a-a03d-4c0e282786d8-600x175.png 600w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/1e84cc00-e276-476a-a03d-4c0e282786d8.png 1102w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"298\" src=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/5926ba8c-a0d1-43f8-8730-991dbbf2fabc-1-1024x298.png\" alt=\"\" class=\"wp-image-6415\" srcset=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/5926ba8c-a0d1-43f8-8730-991dbbf2fabc-1-1024x298.png 1024w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/5926ba8c-a0d1-43f8-8730-991dbbf2fabc-1-300x87.png 300w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/5926ba8c-a0d1-43f8-8730-991dbbf2fabc-1-768x224.png 768w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/5926ba8c-a0d1-43f8-8730-991dbbf2fabc-1-600x175.png 600w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/5926ba8c-a0d1-43f8-8730-991dbbf2fabc-1.png 1103w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>It is a close contest and out of 10 days, in most of the variations, we make a profit on 3 days and make a loss in the rest of the 7 days. But, in the end, it makes a profit!<\/p>\n\n\n\n<p> If anyone is not following the discussion &#8211;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>We are buying options for ATM CE and ATM PE at x time.<\/li><li>There is no SL. Max you can lose is the premium.<\/li><li>There is no Target. <\/li><li>No headache to close at any point in the between. The fewer decisions we irrational humans have to make, the better.<\/li><li>We exit at y time. <\/li><\/ul>\n\n\n\n<p> Now the sheet shows, what happens if you had done for last year. (You are welcome to do it beyond more considering the sample size is fair to low.) <\/p>\n\n\n\n<p>While many discount brokers don&#8217;t, <a href=\"https:\/\/www.unofficed.com\/alice-blue\">Aliceblue <\/a>gives leverage of 2x in option buying too. Taking that into consideration, profit is good.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Brokerage and Charges<\/h4>\n\n\n\n<p>For 2 lots, it is 100 INR overall a day (20 INR to buy, 20 INR to sell and 18 INR will be other charges like STT, Exchange Charges etc.). In total, it is 98-99. So let&#8217;s keep at 100.<\/p>\n\n\n\n<p>We have 255 trading days. 255*100=25500 will be stricken off straight off the bat!  The guys who have fixed plan have an evolutionary advantage here because they pay no brokerage! <\/p>\n\n\n\n<h4 class=\"wp-block-heading\">The Assumption<\/h4>\n\n\n\n<p>While doing such assumption is unfair considering our small sample size but let&#8217;s apply the theory of induction in a broad manner (If it had happened last time, it will happen this time too.) and based on that let&#8217;s choose a model and investigate further.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"380\" height=\"336\" src=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/download-22.png\" alt=\"\" class=\"wp-image-6416\" srcset=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/download-22.png 380w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/download-22-300x265.png 300w\" sizes=\"auto, (max-width: 380px) 100vw, 380px\" \/><figcaption> <br>The highest profit model of last year. <\/figcaption><\/figure>\n\n\n\n<ul class=\"wp-block-list\"><li>The net capital used here is 10K only.<\/li><li>Net Profit after charges = 42355-25500=16855.<\/li><li>Assuming 30% slippage = 70% of 16855 = 11798.5<\/li><\/ul>\n\n\n\n<p>So far, So good. This is a realistic approach. If you have been reading the articles and seeing this kind of backtest. That does not tell about 25500 INR of charges. It&#8217;s important and non-negotiable. Now, to next findings.  <\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"304\" src=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/f48e15bf-03d4-4de2-91fa-47b6d2a3db10.png\" alt=\"\" class=\"wp-image-6417\" srcset=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/f48e15bf-03d4-4de2-91fa-47b6d2a3db10.png 960w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/f48e15bf-03d4-4de2-91fa-47b6d2a3db10-300x95.png 300w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/f48e15bf-03d4-4de2-91fa-47b6d2a3db10-768x243.png 768w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/f48e15bf-03d4-4de2-91fa-47b6d2a3db10-600x190.png 600w\" sizes=\"auto, (max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<p>This shows consolidated profit loss in date wise of the strategy where we enter at 9:30 and exit at 14:20 <\/p>\n\n\n\n<p>We are making losses on Wednesday and Thursday. Let&#8217;s throw Saturday. Saturday, Sunday happens because of Muharat Trading or Budget day special. Now, the curious part here is, Although Monday is showing a profit, it is actually is a loss!<\/p>\n\n\n\n<p>There are 45 trading days in Monday making 4500 INR in charges but with 760 INR profit; hence making a net of -4500+760 = -3740.  So, Monday is out of the question.  <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Wednesday and Thursday &#8211; Long Straddle makes losses!<\/li><li> Let&#8217;s just do it for Tuesday and Friday then? <\/li><\/ul>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"alignleft\"><img loading=\"lazy\" decoding=\"async\" width=\"709\" height=\"438\" src=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/chart-10-1.png\" alt=\"\" class=\"wp-image-6418\" srcset=\"https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/chart-10-1.png 709w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/chart-10-1-300x185.png 300w, https:\/\/unofficed.com\/theta\/wp-content\/uploads\/2020\/02\/chart-10-1-600x371.png 600w\" sizes=\"auto, (max-width: 709px) 100vw, 709px\" \/><\/figure><\/div>\n\n\n\n<p>Also, Friday has the least theta impact!  Friday has the least theta impact! Now, if you go into further deep, We made more than 80% profit of Friday from one day only! 20th September.<\/p>\n\n\n\n<p>That&#8217;s the whole point, right? Option buy is buying insurance to benefit from this kind of uncertainty <strong>that can not be quantifiable i.e modelled with maths.<\/strong> That&#8217;s the bet that there should be such events. Like, In 2018, We had 31st May. <\/p>\n\n\n\n<p>We may never know when&#8217;s next but we will be surely in a huge profit on that day!  20th September is a celebratory day. 15% tax announcement. In the first 7 mins, lots of accounts went blown that day.<\/p>\n\n\n\n<p>But instead of doing something headlessly which is equivalent to throwing 10K in water, <strong>this is a better systematic approach which is what is my statement!<\/strong><br><br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>We were talking about an approach to how a strategy is developed based on past performance. We are bad on cutting on profit hit. We&#8230;<\/p>\n","protected":false},"author":1,"featured_media":6420,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-6411","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-trade-setups"},"_links":{"self":[{"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/posts\/6411","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/comments?post=6411"}],"version-history":[{"count":1,"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/posts\/6411\/revisions"}],"predecessor-version":[{"id":6419,"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/posts\/6411\/revisions\/6419"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/media\/6420"}],"wp:attachment":[{"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/media?parent=6411"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/categories?post=6411"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/unofficed.com\/theta\/wp-json\/wp\/v2\/tags?post=6411"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}