My Trade Setup - The Installment Collar Options Strategy | My recent Bullish trade on Nifty

Link to our Telegram Channel - https://t.me/niftybn Link to our Twitter Profile -   / niftybn   In this video, we would be looking at my setup, which is nothing but a variation to the traditional collar options strategy known as the investment collar options strategy. But before that, let me give a quick recap about the traditional collar options strategy. The Traditional Collar Options Strategy: The traditional collar involves the purchase of an ATM or OTM put against a long position in the underlying (either stock or a future contract), combined with the writing of a call on the same underlying. It is one of the most used earning strategies because of it’s defined risk to the downside and limited reward to the upside. As earnings announcements and government economic reports are usually met with significant price reactions when the news is released a strategy with a limited risk to the downside is preferred. The strategy is also used to protect gains when the price of the underlying is approaching strong support and resistance levels. My Setup - The Installment Collar Options Strategy: The installment collar is a variation of the traditional collar and it involves the purchase of an ITM long term put against a long position in the underlying, combined with the writing of a very short term call. The long term put option is usually more than 6 to 12 months out in time, while the short term call is usually a weekly or monthly option. The short call expires or is closed and then replaced as many times as possible. This helps finance the long term put, but on an installment basis and hence the name. Ideally, you get the downside protection you always wanted in a low cost, no cost, or even a negative cost manner. Does a bearish version also exist? The installment collar is a bullish setup. But a bearish version is also possible. The bearish version involves the purchase of an ITM long term call against a short position in the underlying, combined with the writing of a very short term put. But since short selling of stocks is allowed only for intraday, the bearish version can only be initiated on a futures contract. Also, the ITM long term call options generally trade richer than the corresponding ITM put options. Therefore, the upside protection is more expensive. Now let's learn the importance of purchasing deep ITM long term options for protection of the underlying asset. My recent bullish trade: To understand the installment collar options strategy, let’s take a look at my recent bullish trade. On June 12th, 2020, I took this trade - Buy 1 lot of Nifty August Future at 9953 Buy 1 lot of Nifty December 11000 Put at 1190 Sell 1 lot of Nifty June 10600 Call at 9 Calculations: Maximum loss at expiry = [(Futures’ Purchase Price + Premium Paid for the Long Put) - Long Put Option’s Strike Price - Call Premium] x Lot Size = [(9953 + 1190) - 11000 - 9] x 75 = ₹10050 The maximum amount I could lose on this trade is ₹10050 and also I would realize this loss only if I hold the 11000 Put option to expiry, that is, to December 31, 2020. As you can see from the formula the maximum loss at expiry would go down every time I sell a weekly call. As per the rules, which i will disclose in the latter part of the video, I was supposed to sell the short term Call at or above the strike price of the long term Put. But I took some risk and sold the 10600 Call option as my expectation was that Nifty would face a stiff resistance at the 10300-10350 levels as it retraced from the aforementioned levels on June 8th. On June 23rd Nifty made a good move to the upside and the trade would begin to lose money if Nifty exceeds 10600. So, I closed the trade towards the fag-end of the trading session at about 3:25pm. I sold to close the August future at 10459, sold to close the December 11000 put option at 900 and bought to close the June 10600 Call at 22. Total P&L of the trade = Profit made on the future - Loss made on the 11000 Put - Loss made on the 10600 Call = [(10459 - 9953) - (1190-900) - (22-9)] x 75 = ₹15225. Entry rules: Use a weekly or monthly chart of the underlying to identify long term support and resistance areas. Initiate the Bullish setup when you are at the long term support and the Bearish setup when you are at the long term resistance. In order to increase your odds of success, use it in conjunction with other indicators, such as volume and daily RSI. An asset is usually considered overbought when the daily RSI is above 70 percent and oversold when it is below 30 percent. So, when the underlying is at a long term support and the daily RSI is below 30 percent, it is a good time to initiate the bullish setup. In the same way, when the underlying is at a long term resistance area and the daily RSI is above 70 percent, it is a good time to initiate the bearish setup. We would discuss how to identify long term support and resistance areas in a separate video.