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Scared of buying after a rise, conquer the fear by staggered Option strategies: Shubham Agarwal

Risk lies in either a digestive consolidation or a sudden market realization of the exaggeration followed by a strong pullback.

November 07, 2020 / 02:03 PM IST

Shubham Agarwal

The recent rise amid the unfolding of the event is peculiar but not unusual. The positive outcome would generally add fuel to any increment and often times exaggerate the rise. While trading the positive move in the making is profitable and easy, taking fresh trades on the long side after the rise at the same time could become a courageous move.

Risk lies in either a digestive consolidation or a sudden market realization of the exaggeration followed by a strong pullback.

Accounting for such possibilities, we may go on a backfoot before taking a long trade after a significant rise in aftermath of an event. To manage the aforementioned risk and trade with confidence after a rise Staggered Option Strategies can be deployed.

Let us say we have a potential long trade in a stock. The stock is in momentum and created a trigger for fresh move. Now our forecast of the fresh move is such that it could take a few days to materialize. Let us say a headroom of 10%.

However, looking at the momentum what we really do not want to miss out on is the immediate rise. So, ideally, what could have been a positional long trade with a straight forward bull spread, considering the price movement right now, an entry in a Single Call would be more beneficial.

In this situation a preconceived Staggered Option Strategy becomes handy. In an attempt to do this Systematic Strategy Augmentation, we need to decide on Action Points and Action Plan, considering the good, bad and ugly scenarios possible.

So, @ 100 if we have a forecast of price action till 110. First action point would be 100 and the action would be to Buy 100 Call. Now since the stock is in momentum, we could decide to delay the execution of a 110 Call Sell.

So, for the second action, we decide the action points. Let us say those action points are 104 and 98. Considering the set-up these are two action price points in place either one of them is hit we will Short 110 Call.

I have been practising this for some time now. One way I have been using this staggered execution is by creating a spread only in momentum. Meaning, Buy a Call if it does seem approaching target, review if we feel there is still potential, Short a Higher Call instead of Booking current the position. If things do not work out clear the current position.

One the other hand, there could also be a trade where one creates a Bull Call Spread as the first action, considering upward momentum could take time and may even go in for a pull back. Let us say, unfortunately right after we created the trade there was a strong pullback.

Here, the same logic of staggered execution applies with Strategy Fragmentation. So, now we are in reverse order. The first action point was 100, we created a bull spread, making the spread cost as stop-loss. What followed was a big pullback. The pullback would diminish the value of the spread, especially the sold option.

In case such sold option, if comes down to near zero value. Remember, it has done the job it was put out to do. At lower pulled back levels, if there is still conviction. One can cut the sold option and hold on to the long option.
This time if the move picks up and the stock reaches even half the goal. Because of the second action point of the pull back and execution of the action plan of removing the sold leg, would create a pay-off that will outperform the pay-off of a simple bull call spread.

Either way, I believe these Strategy Augmentation or Fragmentation techniques led by staggered execution can augment your returns especially in stocks where momentum materializes sooner or later.

(The author is CEO & Head of Research at Quantsapp)

Disclaimer: The views and investment tips expressed by investment experts on are their own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

Shubham Agarwal
Shubham Agarwal is a CEO & Head of Research at Quantsapp Pvt. Ltd. He has been into many major kinds of market research and has been a programmer himself in Tens of programming languages. Earlier to the current position, Shubham has served for Motilal Oswal as Head of Quantitative, Technical & Derivatives Research and as a Technical Analyst at JM Financial.
first published: Nov 7, 2020 02:03 pm