Option Buy Recomendations

[tnsn2345]

This is my first post in this thread.

What would be the scenario if you would have sold the same straddle ?

1 rule i have followed for quite a long time while trading in options is asking myself 2 times before entering any options trade - is this going to be good enough ?
Hence the question, what will happen if i sold Nifty 5700 Feb straddle.

Pls comment.

Dear Sumeet,

A few questions, when do you think you should have taken this postion, yesterday (25 Jan) at market opening or at closing? Wouldn't recommend this setup at market opening when there is an 'predictable' event lined up in the day (RBI policy). As one can expect large move on any side. Instead a long straddle 5800 Feb should have been taken at the beginning to the day on 25 Feb which is a no brainer on such 'predictable' day.

If it is at EOD on 25 Jan, then revert with your holding period of this position. 27 Jan being Jan expiry volatility will be high, currently historical volatility is in the mid place at around 20.8 and the ragne is 17 to 23 and is looking to move up. Hence any increase in volatility will adversely affect this setup. (Current Call IV : 18.6, Put IV : 20.94).

If you think of benefiting from time decay, it will be less since it is begining of the next month series (Theta / Price Call :1.98% Theta / Price Put : 1.5%).

So in my opinion, you will need to hold on for more days to benefit from this setup, provided Nifty remains in a narrow range.

Regards,

 

[pranay1986]

Hi Guys,

As of now my system isnt having many conditions..but these conditions are purely based on observations and some experience.

1) Consider the overnight situation by looking at the Dow closing and the ASIAN opening - Biased towards Hang Seng. (75-80%) Generally indian markets immitate Hang Seng. SGX nifty again is reflective of the Chinese markets.

2) Not to enter the enter the market for atleast 50 minutes.

3) Identify the days support and resistance based on the previous closing
and wait for the market to touch either of the two.

4)Depending on the global markets and the underlying trend will create a position in the direction of the trend.

5) Also depending on the previous days O.I. (open interest) will work on a decision.

5)Will enter only Nifty options as i believe stock options are easily manipulated because of lack of liquidity and depreciate faster eating the capital faster and causing one to Stop out or self exit.

6) Used to buy OTM's earlier but never used to earn there as they would be the ones which would depreciate faster. Switched to ATM and ITM better as compared to OTM's atleast you can keep defined stops in terms of % :lol:

7) Would also prefer an ATM, ITM over an OTM because of the concept of delta as recently learned. So as nifty moves an ATM and ITM will move in conjuction with the Nifty. Basically a delta of 1 for an option means if Nifty moves one point then that particular option premium will move one point (Hope am correct .

8) Depending on the position will change the S/L to being a trailing a S/L and will exit the position if it encounters a particular support in case of a PUT and resistance in case of a CALL.

9) Prefer keeping a stop between 15 and 20% of the underlying premium.

10) Big Mistake is to follow the premium - Which i would do normally
if the premium suddenly shoots up giving an indication of break out or break down i would rather wait as the chances of it getting normalized are higher.
As is the tendency of the normal person to unnecessarily enter the trade rather than being out!! Although sometimes momentum does help (Still dangerous).

11) Learning the Charts as of now however have one rule to go short or long depending on the 30 minute candle. if the any of the subsequent 30 min candles close higher or lower than the previous one then would take position in the respective direction irrespective of any thing..simple mechanical thinking.

12) Would consider crossovers however am skeptical of the whipsaws they generate but still like the SH 315 strategy.

SOME LEARNINGS AS OF NOW​

Irrespective of the type of instrument be it - Futures, options or equity (Cash)

I have come to conclusion that we need three things to trading (my perception - Please correct me if i am wrong)

1) Patience - There will always be another day.. better not do what you will regret tommorow

2) Discipline - No discipline will be like stranded no where.

3) Knowledge - Lack of knowledge of the basic understanding is like taking a jump into a deep well and not knowing the depth lol (Excuse the one liners)

4) NEVER do Overtrading - (forgot to add this point above HOWEVER one big learning) Wont take more than two trades a day (if i get stopped out) because obviously fate is saying something and we need to respect it.

5) Never try to outsmart - Basically never try to predict any event..wait for the event and then act accordingly.

6) Need a cheap broker - LOL brokerage in option hurts badly and then your mind gets confused as to protect the position or the brokerage lol.

Have applied to Zerodha hoping will get started next week( Using sharekhan now).

Well i have covered what i do to an extent and would like to do lets hope it helps also someone.. Will also post some trades..well as of now

So 25 Jan 2011.
5700 PE - Buy 2lots at 73.25
5700 PE - Sell 2 lots at 114
Inclusive of brokerage

5700 CE - Buy 1 lot at 119
Open Position - Expecting the market to go no where on expiry atleast in the morning session so hopefully will be out early (Sorry i know i am trying to predict )

Any suggestions/criticisms are welcomed!!

Regards,
Pranay

 

[TraderJunkie]

Well today was a good day considering i had the conviction of the direction after the credit policy got announced.

Bought 5700 PE Feb was hoping a downfall of 100 points existed after went till 5705 seemed it was having support at 5700.

Buy 5700 PE Feb - 73.75
sell 5700 PE Feb - 114

Unfortunately entered one more trade.. unnecessarily as usual of 5700 CE Feb

Buy 5700 CE Feb - 118
Currently Holding. couldnt exit because of the brokerage and till the time the margin was achieved market closed lol

Will post my rules of a system which i am trying to develop to keep myself under check.. Because i am myself being novice trader have learnt somethings and definitely would like to share that ..Will update that sometime later today itself.

Will also try to post all trades that i take as i also love trading in options..
Just want to be critcized and suggested so that i can myself under check and develop a system which can be followed irrespective of any circumstances.

Regards,
Pranay

I think it is dangerous to form a view in advance as to what the market would do. The 25 basis points move was not what pulled the market down,but the inflation forecast and guidance.

And unless you had an inside source to tell you all the contours of the decision, there is just no way to predict a downfall or upward rise. I recall you had said that if its 25 bips, then you would expect a flat day. Can you explain why you changed that opinion ? How did you form the opinion that the market would fall based on the RBI policy ?

TJ

 

[pranay1986]

I think it is dangerous to form a view in advance as to what the market would do. The 25 basis points move was not what pulled the market down,but the inflation forecast and guidance.

And unless you had an inside source to tell you all the contours of the decision, there is just no way to predict a downfall or upward rise. I recall you had said that if its 25 bips, then you would expect a flat day. Can you explain why you changed that opinion ? How did you form the opinion that the market would fall based on the RBI policy ?

TJ

Well i did wait for the credit policy to be announced and didnt took any position prior to the announcement. However (obviously this had nothing to with technicals) it was a just a probability call or a fluke whatever you want to term it.

Considering that the report had been already published the previous day and already market was 110 points approximately till the credit policy and Once the policy was announced looking at the gloom being pictured by the TV channels and Market trying to break 5800 twice couldnt do so had to take the call.

Considering the odds that the market being in downtrend rather being uptrend (on daily or weekly basis) and the stop being 5834 where last time the market tanked i just went for the probability call.

I know this might be a chance i took but in the end you just have to identify the probability in your favour and it looked ideal.

If i could get inside information then nothing like it i would have been a millionaire

Regards,
Pranay

 

[sumeetsj]

When does Time decay exactly set-in in options:

1.From Friday to Monday, any other holiday for that matter during the week.

2. During the change over from far month to near month. Effect seen to maximum generally on Tuesdays of the start of the expiry month.

3. Generally a day before the penultimate week day of settlement. Hence in our case the Wednesday, even second session of Tuesday(the week before expiry is set to happen)

 

[pranay1986]

Hi,

I was having a query pertaining to the open interest data thats available.
Using moneycontrol.com data here.

For example

Symbol Expiry Date Option Type Strike Price Increase in OI Increase (%)
NIFTY 27-Jan-11 CE 5,700.00 859,750 16.75%

Symbol Expiry Date Option Type Strike Price decrease in OI decrease (%)
NIFTY 27-Jan-11 PE 5,700.00 -691,100 -12.07%

Symbol Expiry Date Option Type Strike Price decrease in OI decrease (%)
NIFTY 27-Jan-11 PE 5,800.00 -1,056,900 -34.02%

Considering tommorow is expiry for Jan series.
Just wanted to understand the open interest data thats available and how to use it to the maximum. So for example whether the decrease in open interest for the PUT of 5700 and 5800 state that we wont be expecting any big up moves tommorow as the PUT writers are absent and hence nifty will more or less be where it is? and on the contrary for 5700 CE the increase in open interest potrays that many people have written 5700CE rather bought it undermining the fact nobody expects the nifty to cross?

Never understood the increase or decrease in O.I whether it resembles from the writers point of view or the buyers. Any help in this direction would be helpful

Regards,
Pranay

 

[TraderJunkie]

Hi,

I was having a query pertaining to the open interest data thats available.
Using moneycontrol.com data here.

For example

Symbol Expiry Date Option Type Strike Price Increase in OI Increase (%)
NIFTY 27-Jan-11 CE 5,700.00 859,750 16.75%

Symbol Expiry Date Option Type Strike Price decrease in OI decrease (%)
NIFTY 27-Jan-11 PE 5,700.00 -691,100 -12.07%

Symbol Expiry Date Option Type Strike Price decrease in OI decrease (%)
NIFTY 27-Jan-11 PE 5,800.00 -1,056,900 -34.02%

Considering tommorow is expiry for Jan series.
Just wanted to understand the open interest data thats available and how to use it to the maximum. So for example whether the decrease in open interest for the PUT of 5700 and 5800 state that we wont be expecting any big up moves tommorow as the PUT writers are absent and hence nifty will more or less be where it is? and on the contrary for 5700 CE the increase in open interest potrays that many people have written 5700CE rather bought it undermining the fact nobody expects the nifty to cross?

Never understood the increase or decrease in O.I whether it resembles from the writers point of view or the buyers. Any help in this direction would be helpful

Regards,
Pranay

Lets apply some logic here to understand what might be happening.

What does OI mean - its those many open contracts. What constitutes a contract ? one buyer and one seller.

So just a decrease in OI by itself does not mean anything. Its from neither the buyer' nor the writer's POV. But when coupled with the DIRECTION and volume ,it can be meaningful. So if NIFTY falls with decreasing OI , then that means the confidence in the move is decreasing.

So if NIFTY falls to 5687 with decreasing OI for 5800 and 5700 PUTs at the same time the 5700 call adds OI, this means (if we take your data as a case) the consensus in the market is that on the following day the market is likely to trade above 5700. This is substantiated by increased activity of buying the 5700 CE while PUT buying is decreasing.

Now even this isn't the full picture, PUT and CALLs are often used as hedges against futures or as various legs among various option strategies.

TJ

 

[ghosh_ak34]

Dear Friends,

For Nifty Future traders who would like to trade as per trend check strategy posted in 1st post of the thread, Nifty levels for today are as under:

Resistance at 5765
Support at 5620

If you go short 1 lot then, buy 1 lot at money or near money call and if you go long 1 lot then, buy 1 lot at money or near money put to hedge. Reco. to trade as per trend check strategy posted in 1st post of this thread.

Regards

 

[pranay1986]

How were the trades today?

Mine went bad really bad... all the time stops got hit worst lost out because of brokerage.. I just donated my money to my broker today (that too sharekhan) Should wait for a new broker to do options

Flouted the rule of overtrading.. lol

Will post the trades in the night.. anyways nothing to show all losses

Regards,
Pranay

 

[TraderJunkie]

How were the trades today?

Mine went bad really bad... all the time stops got hit worst lost out because of brokerage.. I just donated my money to my broker today (that too sharekhan) Should wait for a new broker to do options

Flouted the rule of overtrading.. lol

Will post the trades in the night.. anyways nothing to show all losses

Regards,
Pranay

I had an ok day - had 1 big winner that took care of 2 losers. Not a spectacular day - but I'm just happy to have seen this expiry through.

Brokerage is a cost thats huge in options and I only started options trading after switching to zerodha. So at-least I'm not paying my broker too much

Breakeven with zerodha is around 0.25 - 0.35 at the max