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What you need to know before you proceed with the cross calendar option strategy? In order to form a cross calendar strategy, you need the trend direction. Or the price point above which the trend will be positive and price point below which the trend will be negative.

You need to know the highest open interest build up, option strike of the current month. Both in call and put option. When you are not sure about the future trend movement but the previous trend calculation matured fully that time one need to take this strategy.

For January 1st week using the 1SD formula we have calculated the uptrend of nifty start at and has the probability to touch This trend calculation was done taking the preceding week last trade price of nifty future i. On 4th January nifty open gap down and by day end it has touched the and close at In this situation the trend matured fully as anticipated by us but too quickly that too in the 1st day of the week.

In this situation the future trend action is difficult to estimate. In this situation you are in a cross road where your trend destiny is not known to you. When the trader initiates a long straddle or strangle in the current month along with a short strangle in near month it is known as cross calendar option strategy.

Buy nifty call option and put option of January expiry each one lot and sell call option and put option of one lot of February expiry. Combination of this two strategy is known as the cross calendar bull and bear spread. In order to form cross calendar option strategy a thorough understanding of short term price trend is essential with open interest information of the option contract. I have already explained before about the 1SD trend of 1st week of January and how it performed on the day on the week.

Now in order to form cross calendar option strategy we need to follow the below steps. Now in order to form the cross calendar bull and bear spread 1st I will take the 4th January close as my reference calculate the trend using the 1SD.

For the remaining part of the week i. My observation on 5th January said the call option and call option having highest open interest. Same time the put option and put option having the highest open interest. Trend and open interest relation establishment: If down trend crossover happens then is a possibility. However, the open interest says maximum support at and max resistance at At the time of drafting this article the nifty future was trading at Hence buying a call option of nifty strike at and put option at in January expiry and selling ce February expiry at 95 and selling put option of February expiry at each one lot will complete this strategy.

Fibonacci and 1SD trend provide excellent opportunity to speculate on the strategy. In the above trend calculation and corresponds to the above retracement levels in the uptrend and and corresponds to the above ratio on the down trend.

Now how to speculate? If nifty given the crossover of then close the put option short February and hold the remaining trades. Many times I have observe price swings in the band of 0. Each retracement from to i. In simple words when nifty touch close put February short and again re-enter short if price fall back to If the retracement does not happen and the price manage to cross the level, then close all the trade in profit and come out.

Similar way you can speculate on the call option short trade of February expiry if the price falls to level. This method of speculation is known as the speculate without compromising with the profit. Ratio call and ratio put strategy together also good at this situation. More on option strategy you will get from my book on Master key to future and option Example: Buy call and put option each one lot and sell put and call option of the same month 2 lots.

Yu can speculate in the same way as explained in the above section. The success in option strategy trade depend on the careful understanding and the accuracy of the trend forecast. To learn and know more about the 1sd trend forecast method visit. More on smart finance option strategy advanced tool you can find from this link.

Learn the option fundamental from our free option course from the following link. Must Read Article a. How to use 1SD level to form option strategy?

How to do intraday and positional trade using 1SD formula? Covered call option strategy using 1SD formula d. Multiple bull or bear spread using 1SD e. How to profit from the cross calendar option strategy? How to make profit in straddle option strategy? Intraday GAV Technique h. Day Trading Made Easy i. Wise Stock Investment Tricks j. Currency Trading Techniques l. Commodity Trading Techniques m. Day trade using gann method b. Day trade using fibonacci method c.

Day trade using elliot wave d. Day trade using technical e. Introduction to decoupling method Must Read a. My experiment on gann method b. My experiment on fibonacci method c. When to do day trade? Why to use our intraday calculator? Best Plan to win intraday trade?

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Further we looked at four different variants originating from these 2 options —. Think of it this way — if you give a good artist a color palette and canvas he can create some really interesting paintings, similarly a good trader can use these four option variants to create some really good trades.

Imagination and intellect is the only requirement for creating these option trades. Hence before we get deeper into options, it is important to have a strong foundation on these four variants of options. For this reason, we will quickly summarize what we have learnt so far in this module. Arranging the Payoff diagrams in the above fashion helps us understand a few things better.

Let me list them for you —. Going by that, buying a call option and buying a put option is called Long Call and Long Put position respectively. Going by that, selling a call option and selling a put option is also called Short Call and Short Put position respectively. However I think it is best to reiterate a few key points before we make further progress in this module.

Buying an option call or put makes sense only when we expect the market to move strongly in a certain direction. If fact, for the option buyer to be profitable the market should move away from the selected strike price. Selecting the right strike price to trade is a major task; we will learn this at a later stage. For now, here are a few key points that you should remember —.

The option sellers call or put are also called the option writers. Selling an option makes sense when you expect the market to remain flat or below the strike price in case of calls or above strike price in case of put option. I want you to appreciate the fact that all else equal, markets are slightly favorable to option sellers. This is because, for the option sellers to be profitable the market has to be either flat or move in a certain direction based on the type of option.

However for the option buyer to be profitable, the market has to move in a certain direction. Clearly there are two favorable market conditions for the option seller versus one favorable condition for the option buyer. But of course this in itself should not be a reason to sell options.

This means to say that the option writers earn small and steady returns by selling options, but when a disaster happens, they tend to lose a fortune. Well, with this I hope you have developed a strong foundation on how a Call and Put option behaves. Just to give you a heads up, the focus going forward in this module will be on moneyness of an option, premiums, option pricing, option Greeks, and strike selection.

Once we understand these topics we will revisit the call and put option all over again. This information is highlighted in the red box. Below the red box, I have highlighted the price information of the premium. If you notice, the premium of the CE opened at Rs. Moves like this should not surprise you. These are fairly common to expect in the options world.

Assume in this massive swing you managed to capture just 2 points while trading this particular option intraday. This translates to a sweet Rs. In fact this is exactly what happens in the real world. Traders just trade premiums. Hardly any traders hold option contracts until expiry. Most of the traders are interested in initiating a trade now and squaring it off in a short while intraday or maybe for a few days and capturing the movements in the premium.

They do not really wait for the options to expire. These details are marked in the blue box. Below this we can notice the OHLC data, which quite obviously is very interesting. The CE premium opened the day at Rs. However assume you were a seller of the call option intraday and you managed to capture just 2 points again, considering the lot size is , the 2 point capture on the premium translates to Rs. However by no means I am suggesting that you need not hold until expiry, in fact I do hold options till expiry in certain cases.

Generally speaking option sellers tend to hold contracts till expiry rather than option buyers. This is because if you have written an option for Rs. So having said that the traders prefer to trade just the premiums, you may have a few fundamental questions cropping up in your mind.

Why do premiums vary? What is the basis for the change in premium? How can I predict the change in premiums? Who decides what should be the premium price of a particular option? Well, these questions and therefore the answers to these form the crux of option trading. To give you a heads up — the answers to all these questions lies in understanding the 4 forces that simultaneously exerts its influence on options premiums, as a result of which the premiums vary.

Think of this as a ship sailing in the sea. The speed at which the ship sails assume its equivalent to the option premium depends on various forces such as wind speed, sea water density, sea pressure, and the power of the ship. Some forces tend to increase the speed of the ship, while some tend to decrease the speed of the ship. The ship battles these forces and finally arrives at an optimal sailing speed. Crudely put, some Option Greeks tends to increase the premium, while some try to reduce the premium.

Try and imagine this — the Option Greeks influence the option premium however the Option Greeks itself are controlled by the markets. As the markets change on a minute by minute basis, therefore the Option Greeks change and therefore the option premiums!

Going forward in this module, we will understand each of these forces and its characteristics. We will understand how the force gets influenced by the markets and how the Option Greeks further influences the premium. We will do the same in the next chapter. A quick note here — the topics going forward will get a little complex, although we will try our best to simplify it. While we do that, we would request you to please be thorough with all the concepts we have learnt so far.

Thanks a lot for sharing learning material, it is really helpful for beginners like me to understand the concept and strategy of share market.. We are trying out best to complete the modules as fast as we can.

European option means the settlement is on expiry day. However, you can just speculate on option premiums…and by virtue of which, you can hold the position for few mins or days.

Also we have potential of unlimited profit in long call or long put and even we can trail stoploss of premiums. Thank you so much for your articles sir. Cause sitting in front of computer is not possible. Even if we r there we may miss the trade id doing some thing else at the time we are suppose to trade or squareoff the tyrade.

Till now it has been very clear and crisp. Thanks for that and hope that further chapters will also come the same way. We will be discussing SL based on Volatility very soon. Request you to kindly stay tuned till then. We certainly hope to keep the future chapters as easy and lucid as the previous ones have been. Hi Really nice initiative sir. Hello Sir, if I buy a lot of , call option of strike price at a premium of Rs 2 with a spot price of Now if the price moves to and premium is now at 3 so would be my profit??

Firstly, if the spot moves from to , the premium of the Call option will certainly be more than Rs. Your profits would be —. Hello Sir, I am still confused with the way the profit is calculated. Might be, I am not able to get what u explained and I am really sorry for asking it again. In some of your replies, you mentioned that the profit is calculated as per the difference of spot price and strike price and in some replies u mentioned that it is as per the difference of premium.

In case of 1 lot of shares the profit would be. So which of the above options are correct??? Is there a difference if I am closing my position before expiry or excersize it at expiry? For all practical purposes I would suggest you use the 2nd way of calculating profits…i. Do remember the premium paid for this option is Rs 6. Irrespective of how the spot value changes, the fact that I have paid Rs. This is the cost that I have incurred in order to buy the Call Option.

Please note — the negative sign before the premium paid represents a cash out flow from my trading account. This lead to my confusion. Got your point, see if you are holding the option till expiry you will end up getting the amount equivalent to the intrensic value of the option.

I have explained more on this in the recent chapter on Theta…but I would suggest you read up sequentially and not really jump directly to Theta. The calculation provided by karthik in chapter 3 is for expiry calculation on expirt date..

Hope this clears your doubt.. The minimum value for this option should be STT stands for Security Transaction Tax, which is levied by the Government whenever a person does any transaction on the exchange.