Week ended 22nd September: Bank Nifty Futures Calendar Ratio

[Michael Gonsalves]

I had bought Futures to salvage a naked Call short in the expiry of 15th September. The Call expired worthless and so I decided to shift the Call to the next expiry. I also sold a 42000 Call as additional precaution. This makes it a ratio spread with a lower BEP of 40700 and a higher BEP of 42800.

[Michael Gonsalves]

The Bank Nifty has softened a bit. My option is to either roll down the short calls or to add more quantities. As I am flush with funds, I chose to add more rather than rolling down. If the Bank Nifty comes closer to the BEP, I will either roll down the short calls (depending on the premium remaining) or add a Put Calendar to extend the lower BEP.

[Michael Gonsalves]

The Bank Nifty dipped further to 40500 and came close to the BEP. Instead of moving the Call shorts closer, I added a Put Calendar. This extended the lower BEP to 40400. On Monday or Tuesday, I will roll down the Call shorts if there is no bounce.

[Michael Gonsalves]

The Bank Nifty is presently at 41100. The trade is quite comfortably placed. I don't want to roll down the short calls because the market is looking bullish and also there is huge premium remaining in the 42000 Calls.

[Michael Gonsalves]

The Futures Ratio trade is showing a good profit of about Rs 67000 at present without any incremental adjustments. I intend to square off the trade tomorrow because the next day is the FOMC meeting which may create unmanageable volatility. I will shift the capital to some other trade.

[Michael Gonsalves]

The trade is nicely placed in the center with a MTM gain of Rs 1.75 Lakh. I don't want to carry it overnight because of the FOMC risk tomorrow. I will square if off either by the EOD or if the MTM gain is reduced to Rs 1.50 Lakh.

[Michael Gonsalves]

The market surged to 41640+ causing my MTM to dip to Rs 150000. I exited the position at that stage.

[Michael Gonsalves]

I now have a ratio calendar spread in place. It should (hopefully) be relatively easier to manage.