Balanced Jelly Rolls
(Balanced Calendar Spread Arbitrage)
I have deployed several trading strategies in FNO in the last 2.5 years. Its been a roller coaster and a sea of learnings and discoveries throughout the journey. I’m now deploying one of the relatively reliable strategies that I devised, which is this story about. Welcome to Balanced Jelly Rolls.
Jelly Roll is a FNO trading strategy where we take a synthetic long futures (buy call option + sell put option) on one leg and synthetic short futures (sell call option + buy put option) on the other leg with a different expiry. Idea is to profit from the price discrepancy between the options across expiries. The profit mainly comes from the convergence of the price differences between the near-term and far-term synthetic futures.
However, some times the far expiry options prices go against the natural phenomenon of converging, and hence creates a situation where a trader would be losing on both sides. When this happens the losses will be bigger and harder to digest. I was hit hard many a times during the Jan’24 and Apr’24 on this front.
To overcome this, I devised a mechanism where we split one leg of the trade into current expiry + far expiry, and the second leg into mid expiry. This way we can try and capture the price discrepancy, and at the same time protect our trade positions from significant price divergence. Here is an real example of such trade. All the positions are together called “Nifty Balanced Short Jelly Roll Options Arbitrage”
NIFTY 06JUN2024 CE 22800 (Sell: 476.62, Buy: 528.90, Qty: 125)
NIFTY 06JUN2024 PE 22800 (Buy: 407.37, Sell: 152.08, Qty: 125)
NIFTY 20JUN2024 CE 22800 (Buy: 598.79, Sell: 690.43, Qty: 375)
NIFTY 20JUN2024 PE 22800 (Sell: 484.42, Buy: 228.55, Qty: 375)
NIFTY 13JUN2024 CE 22800 (Sell: 554.18, Buy: 640.64, Qty: 250)
NIFTY 13JUN2024 PE 22800 (Buy: 459.33, Sell: 194.13, Qty: 250)
The above trade was taken on May 29, 2024 and was closed on Jun 03, 2024. While VIX was fluctuating heavily and also the markets were in General Election (India) mood (NIFTY was up on Jun 03, 2024 by 3.5%). Irrespective of all the price action the trade was closed with a INR 3,900 (approx, 0.8%) gross profit on a capital of INR 5,00,000.
The first two positions on Jun 06 expiry and the last two positions on Jun 13 expiry together form the synthetic short futures. The positions 3&4 on Jun 20 form the synthetic long futures. If the far expiry positions are showing increased pricing discrepancy, so will the mid expiry positions to “most” extent, hence providing us the cushion on any price divergence by market factors.
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Here is another example of a long jelly arbitrage named “Nifty Balanced Long Jelly Roll Options Arbitrage”.
NIFTY 06JUN2024 CE 21800 (Buy: 274.30, Sell: 829.33, Qty: 50)
NIFTY 06JUN2024 PE 21800 (Sell: 330.13, Buy: 8.58, Qty: 50)
NIFTY 27JUN2024 CE 21800 (Sell: 645.47, Buy: 1027.45, Qty: 150)
NIFTY 27JUN2024 PE 21800 (Buy: 593.98, Sell: 130.78, Qty: 150)
NIFTY 13JUN2024 CE 21800 (Buy: 511.70, Sell: 902.48, Qty: 100)
NIFTY 13JUN2024 PE 21800 (Sell: 521.41, Buy: 67.75, Qty: 100)
The above trade was taken on Jun 04, 2024 and was closed on Jun 06, 2024. Irrespective of all the price action the trade was closed with a INR 1,500 (approx, 0.75%) gross profit on a capital of INR 2,00,000.
We at Algorum Software (https://www.algorumsoftware.com) have built a SaaS platform that will help FNO traders analyze these well researched and tested options trading opportunities and make informed trading decisions. This is called Algorum SmartStrike and you can try the beta testing version at https://smartstrike.algorum.in
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