Option Buy Recomendations

[DanPickUp]

Hi TJ

You ask for questions on your system and here it goes again :

Give me some ideas about numbers in your exchange, as I trade on CME with completely other conditions.

Going short options one lot means a margin of 25'000 R. If you go short 6 lot, you have to place 150'000 R on margin by your broker.

Even if you go short 6 lot on a price of 131.50 = 39'450.-- R, you have to give this margin.

In the worst case, you can lose 150'000 R or black swan even more.

You trade on a 2 min chart. What is your risk/reward ratio you want to take on each trade and how are your trades executed ? Entry and exit as you do it ad hock on a 2 min time frame ! Do you work directly on the exchange or how do you execute ?

You sell with 131.50 and you have a stop loss by 88. That means, that you risk around 33 % of your invested capital. Is this correct ? With other numbers : 13'000 R for this trade. I know, it is wrong, as your margin is 150'000 R.

Even than, you risk 13'000 R to make around 8'900 R .

This is not even a risk reward ratio of 1:1 !

Correct me in my calculations understanding in your market.

Will wait for your clarification.

DanPickUp

 

[TraderJunkie]

Hi TJ

You ask for questions on your system and here it goes again :

Give me some ideas about numbers in your exchange, as I trade on CME with completely other conditions.

Going short options one lot means a margin of 25'000 R. If you go short 6 lot, you have to place 150'000 R on margin by your broker.

Even if you go short 6 lot on a price of 131.50 = 39'450.-- R, you have to give this margin.

In the worst case, you can lose 150'000 R or black swan even more.

You trade on a 2 min chart. What is your risk/reward ratio you want to take on each trade and how are your trades executed ? Entry and exit as you do it ad hock on a 2 min time frame ! Do you work directly on the exchange or how do you execute ?

You sell with 131.50 and you have a stop loss by 88. That means, that you risk around 33 % of your invested capital. Is this correct ? With other numbers : 13'000 R for this trade. I know, it is wrong, as your margin is 150'000 R.

Even than, you risk 13'000 R to make around 8'900 R .

This is not even a risk reward ratio of 1:1 !

Correct me in my calculations understanding in your market.

Will wait for your clarification.

DanPickUp

Hi Dan,

Here are my answers to your questions.

1. I trade on the NSE and I only buy PUT or CALLS. I don't write CALLS or PUTS.

2. For 6 lots of 50 each @ 131 = 300 * 131 = 39300. Thats the only capital required to take this trade and thats the maximum loss possible. Nothing more.

3. I use the 2 min and 5 min charts and I take a trade using simple channel technique. This is in conjunction with support and resistance levels. In short, I try to understand the trend and then I go with it.

4. Generally risk reward is 1:2 - as you will see in most of my trades. I don't think there is any trade with 131 BUY and 88 stoploss . The trade that hit my SL today was 101 BUY and 88 SL.

5. In the 12 trades taken so far this week, the risk reward has surpassed 1:2 in most cases. For example , consider data of 19th Jan

trade 1

5800 PE JAN - buy @ 101. Stoploss 88 , closed call at 131.5.

13 points loss to 30 points gain i.e risk reward ratio of 1: 2.4

trade 2

5800 PE JAN - buy @ 127. stoploss 105, closed call at 146

trade 3

5800 PE JAN -buy @ 137, stoploss 122, closed call at 150

..

Thats the data.

Summary

1. Each trade I take does not exceed 40,000 rupees in risk (Money I am willing to lose on 1 trade)

2. Generally risk reward is 1:2 or slightly higher

As far as risk goes, i am sure even you will agree that to have risked around 40,000 and to have made 43,000 in 12 trades isnt a BAD RISK TO REWARD ratio atall . I'm not saying this is sustainable, but I'm just giving you data from my 12 trades. If you wish to see my trade book, then all you got to do is look at my attachments for trades taken for this week .

 

[TraderJunkie]

Hi ghosh_ak34, AW10, Traderjunkie,

Anyone of u please advice me on the following,

I bought Jan expiry 5800 CALL @ 20. Now it is 25. What should be my strategy before expiry. Should I carry it forward over weekends till monday or should I square off some time tommoro. Please give me a strategy for the same. Please help!!

Regards,
Sriram

Hi,

Anyways you are carrying the call to tomorrow in profit. Going into expiry you might be in a good position since

a) its a shortened week due to 26th Jan holiday, so at-least some shorts will be covered due to less trading days.

b) the market isn't too far from 5800, however by expiry for your call to maintain your current value of 25 would need the market to close around 5825.

c) If your call gets closer to getting into the money tomorrow , then with a STRICT STOPLOSS you can carry it into expiry. I say this because you are in profit as we speak and if tomorrow is gap up, you can put a SL and let the trade play out with some locked in profits at 25.

In the end it depends on your risk profile and appetite also. Closer to expiry calls ATM and ITM are extremly sensitive due to the delta approaching 1 as time decay gets higher and higher. So this means , even if nifty moves a bit towards 5800 your call will rise in value faster (but also fall faster in the opposite direction).

So I would say, check how tomorrow's opening is and then decide if you take profits or you let the call run with a Stoploss.

Good luck I hope your call rises higher.

 

[pranay1986]

Hi Tj,

Just a question, Do you prefer any timeframes and by timeframe i meant from opening to 12 depending on Asian markets and then from 1:30 to 3:30 depending on european markets and take appropriate actions accordingly depending on those markets (Just was wondering do we classify these as leading indicators). Also how bigger stoploss are you keeping for your positions i generally saw around 15% on most of your positions, so that would be it or you mingle with your stoploss as well depending on the volatility of the market.

Regards,
Pranay

 

[TraderJunkie]

Hi Tj,

Just a question, Do you prefer any timeframes and by timeframe i meant from opening to 12 depending on Asian markets and then from 1:30 to 3:30 depending on european markets and take appropriate actions accordingly depending on those markets (Just was wondering do we classify these as leading indicators). Also how bigger stoploss are you keeping for your positions i generally saw around 15% on most of your positions, so that would be it or you mingle with your stoploss as well depending on the volatility of the market.

Regards,
Pranay

Hi Pranay,

As a rule I don't take position in the 1st 30 minutes atleast. The reason being the swings are huge both ways and the market is still making up its mind. Most players are sitting on the side checking the trend. So I dont generally trade till 10:00 AM.

After that it depends how much time it takes for a trend to form. My logic for my system is simple. I look for a channel formation and I then follow that trend. The channel can be top-bottom formation coupled with how supports , resistances are holding and also based on the size of candles. Are the candles bigger towards upside or down ? Or reverse. I also follow the 20 and 50 SMA with this. For buying I buy after the market spends sometime over the 20 SMA and close to 50 SMA for going long and reverse for going short.

News flow is also important so I keep a watch on that since NIFTY can reverse and swing wildly based on news.

Till now I'v been able to take 3 trades a day, I expect that to go down to 2 as I get more confident of holding a trade once it turns a winner.

Hope this helps

TJ

 

[DanPickUp]

Hi TJ

Thanks for the clarification. Did read your pdf vertical from the top to the bottom and so I always saw first the sell order and then the buy order. :lol: That was what made me confuse and suspicious.

Have a nice weekend

DanPickUp

 

[TraderJunkie]

Hi TJ

Thanks for the clarification. Did read your pdf vertical from the top to the bottom and so I always saw first the sell order and then the buy order. :lol: That was what made me confuse and suspicious.

Have a nice weekend

DanPickUp

No problem Dan - Always happy to clarify and learn ....:thumb:

 

[DanPickUp]

No problem Dan - Always happy to clarify and learn ....:thumb:

Hi TJ

Here is, how we look at risk reward ratio compare to the way you look at. It is each personal choice, which model to use.

We accumulate the risk we take for each trade. If we make 12 trades with an average risk of 1'000 $, we than say, that we risked a total of 12'000 $ in all this trades.

If the outcome of this trades is a total of 24'000 $, we then say, that our risk reward ratio is 2:1.

You see the different ?

You risk in each trade a max amount of 40'000 R. In 12 trades you then risked 12 x 40'000 R which is a total of 480'000 R.

The outcome of all this 12 trades was a total of 43'000 R. In our view, the risk reward then is 1 : 10 .

But as I say, it is each personal choice, which model he uses.

DanPickUp

 

[sriugdh]

Hi,

Anyways you are carrying the call to tomorrow in profit. Going into expiry you might be in a good position since

a) its a shortened week due to 26th Jan holiday, so at-least some shorts will be covered due to less trading days.

b) the market isn't too far from 5800, however by expiry for your call to maintain your current value of 25 would need the market to close around 5825.

c) If your call gets closer to getting into the money tomorrow , then with a STRICT STOPLOSS you can carry it into expiry. I say this because you are in profit as we speak and if tomorrow is gap up, you can put a SL and let the trade play out with some locked in profits at 25.

In the end it depends on your risk profile and appetite also. Closer to expiry calls ATM and ITM are extremly sensitive due to the delta approaching 1 as time decay gets higher and higher. So this means , even if nifty moves a bit towards 5800 your call will rise in value faster (but also fall faster in the opposite direction).

So I would say, check how tomorrow's opening is and then decide if you take profits or you let the call run with a Stoploss.

Good luck I hope your call rises higher.

Thanks a lot!! :thumb:

I am not able to decide anythin now! Market is extremely flat now!!
What should I do now? It has already come down to 16!!

Please advice

Regards,
Sriram

 

[TraderJunkie]

Thanks a lot!! :thumb:

I am not able to decide anythin now! Market is extremely flat now!!
What should I do now? It has already come down to 16!!

Please advice

Regards,
Sriram

Hold it - results from PNB, BHEL, ITC are good - markets should rally ..then you can decide what to do..put a SL of 13 maybe