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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.
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