The Credit Straddle : Option Position Management

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Please Note : Try at your own risk, AND DON’T TRY IF U R PRESSED FOR MARGINS , GET ACIDITY FAST , UNCOMFORTABLE WITH LEVERAGE, LOOSING MONEY and NOT IN FRONT OF THE SCREEN.
Lets Try and manage an option position on Reliance Capital ( Lot Size 1500) .
The below is an example  of a CREDIT STRADDLE . Credit since premium is received . Straddle since the strikes sold 250 PE and 260 CE , are straddling the underlying price ( average of 253 ) in the cash market .
The net delta is  -.02 , but do note that strikes sold are approximately 40 delta , which means that all else remaining the same , for every 1 Rupee change in the underlying Equity price , the price of the option will change by 40 paise. Greeks change with time , spot, vols .
This is an aggressive straddle since the Sold Option Deltas are .40 or  in short referred to as 40 Delta options . A conservative trade would have been to Sell 25 Delta options , but I chose 40 delta .
Why Because :
  1. A bit greedy with high Vols, but there is a more scientific approach as well which I will cover in later articles.
  2. Since Vols are High , the size of the position is limited to 1 lot each .
  3. I Chose not to sell 2 Lots each of 25 delta options which would have  provided a broader break even range  at higher Vols for the approximately same amount of premium receipt target.
SO AS A FIRST STEP, AFTER DECIDING THE UNDERLYING :
  1. DECIDE HOW MUCH PREMIUM U WANT TO RECEIVE , IN A CREDIT STRATEGY
  2. DECIDE ON WHAT LOWER AND UPPER BREAK EVEN POINTS YOU ARE COMFORTABLE WITH FOR THE EXPIRY MONTH
  3.  BE PREPARED FOR TO SELL MORE LOTS AS THE SPOT MOVES AROUND .
On 2nd November 2018.
Summary of the position:
Spot ref
Sold/Bot
CE/PE
Strike
Premium Paid(-) / Received (+)
Delta
Vega
Theta
Break Even
254
Sold
CE
260
14.40
-0.42
0.25
-0.36
274.40
251
Sold
PE
250
14.50
0.42
0.25
-0.36
235.50
Total , Premium Received in the CREDIT STRADDLE  = 28.90 * 1500 = 43,350.
Break Even range : 235.50 to 274
More Updates in the next article

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