Wrote a thread about ratio spreads.
This version, one can use even without knowing greeks.
Other two versions I will write.
This version, one can use even without knowing greeks.
Other two versions I will write.
Ratio spreads.
Definition:
Buy 1 call/put atm/itm/ slight otm
Sell 2/3/4 call/put otms.
What is not ratio spread :
Anything like buying 1 call atm and sell 10 otms.
I don't define such trades as ratio instead it is 9 lots call short.
Definition:
Buy 1 call/put atm/itm/ slight otm
Sell 2/3/4 call/put otms.
What is not ratio spread :
Anything like buying 1 call atm and sell 10 otms.
I don't define such trades as ratio instead it is 9 lots call short.
Backspreads are also ratio spreads but In this thread I m not covering.
Backspread :
Sell 1 call atm/itm/slight otm
Buy 2/3/4 call otm.
Ratios can be directional or non directional too.
Methods of creating ratio spreads.
1. Premium based(95% utubers/twitter trader's)
Backspread :
Sell 1 call atm/itm/slight otm
Buy 2/3/4 call otm.
Ratios can be directional or non directional too.
Methods of creating ratio spreads.
1. Premium based(95% utubers/twitter trader's)
2. Delta based
3. IV based (it is slightly tricky, and requires some additional knowledge as well software). So, ignore 3rd one. Will cover that in future.
1. Premium based ratios :
General practice in prem based ratios is that while creating, never pay anything. Or get credit
3. IV based (it is slightly tricky, and requires some additional knowledge as well software). So, ignore 3rd one. Will cover that in future.
1. Premium based ratios :
General practice in prem based ratios is that while creating, never pay anything. Or get credit
Example:
Nifty spot 17412.
Weekly exp :
Buy 1 call of 17400 at 109
Sell 2 call of 17500 at 62.
This is 1:2 ratio spread.
If one like to
Buy 1 call of 17400 at 109
Sell 3 call of 17550 at 45
This is 1:3 ratio
If one like to
Buy 1 call of 17400 at 109
Sell 4 call of 17600 at 32
Nifty spot 17412.
Weekly exp :
Buy 1 call of 17400 at 109
Sell 2 call of 17500 at 62.
This is 1:2 ratio spread.
If one like to
Buy 1 call of 17400 at 109
Sell 3 call of 17550 at 45
This is 1:3 ratio
If one like to
Buy 1 call of 17400 at 109
Sell 4 call of 17600 at 32
This is 1:4 ratio spread.
Remember anything u made in credit ratio will mostlikely have slight opposite view.
Credit call ratio means u hav bearish view.(-delta)
Credit put ratio means u hav bullish view.(+delta)
Adjustments for such credit ratios:
Remember anything u made in credit ratio will mostlikely have slight opposite view.
Credit call ratio means u hav bearish view.(-delta)
Credit put ratio means u hav bullish view.(+delta)
Adjustments for such credit ratios:
Mkt reaches to sold strike,
1.Make a straddle.
Example : at 17400, one had taken,
17400 1 call buy
17500 2 call sell.(I will carry this example) If mkt reaches to 17500, book profit in 17400 call and sell 17500 2 lots put. Thus making it as a straddle.
1.Make a straddle.
Example : at 17400, one had taken,
17400 1 call buy
17500 2 call sell.(I will carry this example) If mkt reaches to 17500, book profit in 17400 call and sell 17500 2 lots put. Thus making it as a straddle.
2. Create another ratio and book existing one.
If mkt reaches 17500, book the ratio of 17400/17500 in loss.
And create
17500 1 call buy
17600 2 call sell. That is new ratio.
Big players with huge margin, can increase qty.
17500 2 call buy
17600 4 call sell.
If mkt reaches 17500, book the ratio of 17400/17500 in loss.
And create
17500 1 call buy
17600 2 call sell. That is new ratio.
Big players with huge margin, can increase qty.
17500 2 call buy
17600 4 call sell.
3. Make iron call butterfly
Example : when mkt reaches at 17500,
Book 17400 call.
Buy 1 lot 17450 call
And buy 1 lot of 17550 call.
And leave the trade. Now, trade will become like ironfly and can fetch profit if mkt expires at 17500.
4. Exit and take reverse trade:
Example : when mkt reaches at 17500,
Book 17400 call.
Buy 1 lot 17450 call
And buy 1 lot of 17550 call.
And leave the trade. Now, trade will become like ironfly and can fetch profit if mkt expires at 17500.
4. Exit and take reverse trade:
In most cases, when mkt reaches to sold strike immediately, it is kind of overbought/oversold.
The risk/reward for taking contra bet is quite good.
So, one can exit call ratio and can buy 17500 put assuming that mkt may go down.
Actually, this is slightly high risky bet.
The risk/reward for taking contra bet is quite good.
So, one can exit call ratio and can buy 17500 put assuming that mkt may go down.
Actually, this is slightly high risky bet.
5. Exit simply.
When price reaches 17500, book call ratio and do nothing.
Take some breath and look for another good opportunity.
These are all adjustments for credit ratio spreads.
When price reaches 17500, book call ratio and do nothing.
Take some breath and look for another good opportunity.
These are all adjustments for credit ratio spreads.
Now, let's come to debit type ratio spreads. These spreads are mostly directional spreads.
Example : nifty spot 17412.
Buy 1 lot 17400 call at 109
Sell 2 lot 17650 call at 23.
Cost = 109-23-23 =63.
U can do 1:3 or 1:4 ratios too.
Example : nifty spot 17412.
Buy 1 lot 17400 call at 109
Sell 2 lot 17650 call at 23.
Cost = 109-23-23 =63.
U can do 1:3 or 1:4 ratios too.
Here, u r betting in direction of ratio. It will have some +delta for call ratio and -delta for put ratio.
Most likely, if mkt moves in your direction, u r going to make profit.
In some extreme cases, mkt may reach to your sold strikes with less time,
Most likely, if mkt moves in your direction, u r going to make profit.
In some extreme cases, mkt may reach to your sold strikes with less time,
Then u should apply above adjustments which I gave for credit ratio spread.
Example :
17400 1 call buy
17650 2 call sell, if mkt goes above 17650 on next day,
U can do all types of adjustments which I suggested above.
Remember in credit ratios,
If mkt goes down in call ratio
Example :
17400 1 call buy
17650 2 call sell, if mkt goes above 17650 on next day,
U can do all types of adjustments which I suggested above.
Remember in credit ratios,
If mkt goes down in call ratio
Or mkt goes up in put ratio, one need not have to do adjustments bcz the trade itself gives u profit.
But, same is not case with debit call ratios.
Bcz u r paying some hefty debit. So, u should do some adjustments to make debit less and making it more favorable risk/reward.
But, same is not case with debit call ratios.
Bcz u r paying some hefty debit. So, u should do some adjustments to make debit less and making it more favorable risk/reward.
There are mainly 2 types of adjustments
1. Strike shifting :
Example :
17400 1 call buy at 109
17650 2 call sell at 23.
Now mkt went down, u can book profit in 17650 and can shift to 17550/17600 strike calls.
2. Adding more calls :
Example as above
17400/17650
1:2 call sprea
1. Strike shifting :
Example :
17400 1 call buy at 109
17650 2 call sell at 23.
Now mkt went down, u can book profit in 17650 and can shift to 17550/17600 strike calls.
2. Adding more calls :
Example as above
17400/17650
1:2 call sprea
Now, if mkt goes down, u can sell extra calls of 17650 and make debit amount to lower.
But, now ratio is 1:3 or 1:4.
Both ways : u can also do strike shifting and adding extra call sold .
Example :
17400/17650 ka 1:2 call ratio.
One can shift to 17600 and sell more.
But, now ratio is 1:3 or 1:4.
Both ways : u can also do strike shifting and adding extra call sold .
Example :
17400/17650 ka 1:2 call ratio.
One can shift to 17600 and sell more.
17400/17600 1:3 ratio spread.
It is a big thread. And I only covered premium based ratios.
Delta based ratios in next thread.
At some other time.
It is a big thread. And I only covered premium based ratios.
Delta based ratios in next thread.
At some other time.
Anyone want to add or improvise or criticize, welcome.
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