Limited Risk Result oriented Option Strategy in LICHSGFIN

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Hey folks, every month I’m trying to share some options strategies to show how we can create these option strategies that are not only helping to keep our risk on the limited side but giving decent return too. Today I’m sharing a result oriented option strategy in LICHSGFIN to show how one can choose this strategy ahead of financial results.

Before we go further let us understand which strategy you should choose ahead of results? And the steps you should choose that strategy?

As we know, Implied volatility is the most important variable for Option pricing. If there is a change in Implied volatility (IV), it put a big impact on option pricing. Means if IV increases Option price will also increase and visa-versa.

Now, whenever we go closer to the date of the result announcement, We can see IV starts increase. And once the result has declared IV falls sharply. Now, when IV is high, that means option prices should also be high. It gives us a good chance to sell options at a higher price. Once results are declared, we will get the benefits of IV drop, which can give us a good profit in just a few days.

Means: Sell options when IV is high and cover it once IV drops with a good profit in just 2-3 days. Sounds good? Looks very simple?

It’s not that simple as it looks. The reason is: as soon as the results declare we can see a sharp movement on either side which can hurt you badly if you have naked short positions in options. One bad trade can hit you very hard, and the loss you will be unlimited.

So to avoid this unlimited risk, I suggest you should go with credit spreads with limited risk. This means you should hedge your naked short positions with some options buying. Some of the strategies are Iron condor, Iron butterfly, Calendar spread. Today I’m sharing Iron condor as a result-oriented options strategy. Let us look at the next steps:

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Best result oriented option strategy in LICHSGFIN

Now we have our result oriented option strategy. The next step is to select strikes and initiate a trade. In the below article, I have shared all the necessary steps we should follow to initiate an Iron Condor options strategy. You can go through it if you don’t know what an iron condor options strategy is.

Now; it’s come to our rest-oriented options strategy in LICHSGFIN. If you look at the below chart, you will find that LICHSGFIN is trading in a range, which is the first rule to select an iron condor options strategy.

LICHSGFIN chart

As per the chart, LICHSGFIN is trading in a range of 320 – 280, which is a good candidate for our Result oriented option strategy. On 11th November 2020, LICHSGFIN will declare it’s the result that the reason right now IV is also high.

High IV means more credit and less risk. So it can be a good candidate for our result oriented option strategy. Now let us look at the Open interest to find a confirmed range for the November expiry. We can use that range to select our strikes for our options strategy.

LICHSGFIN Option chain analysis

LICHSGFIN Open Interest Data

As per current option chain data you can see the highest Open interest is at 300 PE and 320 CE. PCR at 280 is 7 and PCR at 340 is 0.03. That means 280 is acting as the immediate support level and 340 as an immediate resistance level.

So, We can use this range to select our strike for a result oriented options strategy.

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Best result oriented option strategy in LICHSGFIN

Result oriented option strategy in LICHSGFIN

Here is the Best result oriented option strategy in LICHSGFIN based on the range we are getting on the chart and open interest analysis. Now our breakevens are 286.4 – 353.6 which means we don’t need to do until LICHSGFIN is trading between this range. If you got any breakout or breakdown from these breakevens, you can follow the below adjustments.

Possible adjustments for result-oriented options strategy in LICHSGFIN

You can follow these adjustments:

First, you can follow these breakevens as a stop-loss means you can close your strategy after a breakout or breakdown from this range.

or

If the loss is more then 4000₹, close this strategy.

or

Shift your call spread to 350 after a breakdown from 286.4. Means book profit in existing call spread and initiate a new call spread with 300 CE SELL and 310 CE BUY.

Same thing you can do with PUT spread after a successful breakout from 354. Means shift your put spread to 50 points higher.

I hope my articles are helping to trade with these options strategies. Which strategy you are using as a result oriented option strategy? Do let me know in the comment box.


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DISCLAIMER: – we are not a SEBI research analyst. Views posted here only for educational purposes. There is no liability whatsoever for any loss arising from the use of this article or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods.  This information should only be used by investors and traders who are aware of the risk inherent in securities trading.

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