Nifty options strategy for range bound market, High risk trade setup
It is always observed that when markets lack triggers we see sideways move, these triggers may be results, global markets, news, important data release. Now I will teach you how traders can benefit of this range bound movements, this strategy is based on nifty options. First of all find nifty call options that has highest open interest note it down, and then look for nifty put option that has again highest open interest. If markets are in range if still lacks the trigger and it is only mid of the month, then only one must execute this strategy. Now you need to go short on nifty call option and nifty put option which had highest open interest. This strategy uses time decay that nifty option faces at the period of F&O expiry, as we are writing nifty options hence risk will be much higher compared to profits.
Let me elaborate with an example:
Consider Nifty 5500 call option and Nifty 5100 put option has highest open interest, assume total combined premium is 240 and you have shorted those options in same quantities. Now if nifty future expires in between 5500 and 5100 then total gain will be 240 points. However if nifty future has broken this range then trader would have suffered losses.
Monday, June 25, 2012
Nifty future analysis with volume and open interest
A new analysis for Trading Nifty Future, traders must know what is relation between open interest and trading volume. Today I will explain this with a tutorial, now for open interest you can refer to open interest article. Once you are clear with open interest we will continue with its relation to trading volume.
How is volume important?
Now according to Dow Theory, when ever markets start to build up trends volume is highly watched as it directly reflects traders (speculators) and investors participation in the market. This move continues till we see fading of the current trend or when there is some unexpected change in fundamentals. In technical analysis trading volume always precedes price of underlying, so looking at these volumes one can predict that trend is weakening and may reverse. For trading with volume you must always remember these points:
When volume is high – Trend is likely to continue.
When volume is low – Trend may reverse / Pullback.
Now let me show you how you can relate trading volume, open interest and price action. For this you need to have your concept of open interest clear.
Follow the cheat sheet to get clear idea of open interest, volume and price action:
Volume - Open Interest - Price Action - Conclusion
Rising - Rising - Rising - Strong Market
Falling - Falling - Rising - Market Loosing Strength
Rising - Rising - Falling - Weak Market
Falling - Falling - Falling - Market Gaining Strength
So next time, when you are trading nifty future remember to look at nifty future trading volume and open interest of nifty future. Traders, the open interest we are talking about is of nifty future and should not be misunderstood with nifty options open interest.
How is volume important?
Now according to Dow Theory, when ever markets start to build up trends volume is highly watched as it directly reflects traders (speculators) and investors participation in the market. This move continues till we see fading of the current trend or when there is some unexpected change in fundamentals. In technical analysis trading volume always precedes price of underlying, so looking at these volumes one can predict that trend is weakening and may reverse. For trading with volume you must always remember these points:
When volume is high – Trend is likely to continue.
When volume is low – Trend may reverse / Pullback.
Now let me show you how you can relate trading volume, open interest and price action. For this you need to have your concept of open interest clear.
Follow the cheat sheet to get clear idea of open interest, volume and price action:
Volume - Open Interest - Price Action - Conclusion
Rising - Rising - Rising - Strong Market
Falling - Falling - Rising - Market Loosing Strength
Rising - Rising - Falling - Weak Market
Falling - Falling - Falling - Market Gaining Strength
So next time, when you are trading nifty future remember to look at nifty future trading volume and open interest of nifty future. Traders, the open interest we are talking about is of nifty future and should not be misunderstood with nifty options open interest.
Finding Tops and Bottoms Using Technical Analysis and Fundamental Analysis
Finding Tops and Bottoms Using Technical Analysis and Fundamental Analysis
Technical analysis and fundamental analysis when combined, yields much accurate and better trade setups. There is simple line you need to follow “Know the fundamentals and trade the technicals”. So according to this statement traders need to know the fundamental of the current market, fundamentals like IIP data, inflation, GDP figures, Interest rate decision.
Finding Tops and Bottoms:
Next we will watch chart patterns carefully to watch for important technical levels. Then we will see how market reacts to these important levels, now look for options open interest data and find out which call option has highest open interest and then put option which has highest open interest. Now corresponding call and put option levels will be looked with technical’s levels and positional trade will be taken with outlook for 3 to 4 days. You can also look for Fibonacci retracement /extension level for profit booking (Top) and support/resistance. Most of the time, technicals and fundamentals are used together to improve trading analysis and get most profitable strategy. In my analysis articles I most of the time look fundamental first and then look for technical levels in same direction of fundamental analysis.
Technical analysis and fundamental analysis when combined, yields much accurate and better trade setups. There is simple line you need to follow “Know the fundamentals and trade the technicals”. So according to this statement traders need to know the fundamental of the current market, fundamentals like IIP data, inflation, GDP figures, Interest rate decision.
Finding Tops and Bottoms:
Next we will watch chart patterns carefully to watch for important technical levels. Then we will see how market reacts to these important levels, now look for options open interest data and find out which call option has highest open interest and then put option which has highest open interest. Now corresponding call and put option levels will be looked with technical’s levels and positional trade will be taken with outlook for 3 to 4 days. You can also look for Fibonacci retracement /extension level for profit booking (Top) and support/resistance. Most of the time, technicals and fundamentals are used together to improve trading analysis and get most profitable strategy. In my analysis articles I most of the time look fundamental first and then look for technical levels in same direction of fundamental analysis.
Stocks Trading Strategy at time of Results and Advance Tax Numbers
Stocks Trading Strategy at time of Results and Advance Tax Numbers
After receiving many mails from traders, suggesting me to reveal some trading strategies on stock trading at the time of results declaration. So I have decided to share one stock trading strategy that can give you sure shot 100% guaranteed return, I am seeing smile on your face. Here it is, before results data come into market there is also something known as Advance tax numbers. This advance tax, name only suggest us that tax which are to be paid in advance or before declaration of financial results.
How to Trade Advance tax Number:
What I do is I closely watch advance tax numbers for blue chip stocks (Nifty index stocks), higher the advance tax better will be result as compared to previous result and lower the advance tax number result will be not good. Based on this you can take the positions early as compared to other traders. Let me clear that I take position only on the day of result and that too before it is announced. If you study the advance tax numbers correctly then you have strategy that can give you guaranteed profit opportunity in this market much early than others.
After receiving many mails from traders, suggesting me to reveal some trading strategies on stock trading at the time of results declaration. So I have decided to share one stock trading strategy that can give you sure shot 100% guaranteed return, I am seeing smile on your face. Here it is, before results data come into market there is also something known as Advance tax numbers. This advance tax, name only suggest us that tax which are to be paid in advance or before declaration of financial results.
How to Trade Advance tax Number:
What I do is I closely watch advance tax numbers for blue chip stocks (Nifty index stocks), higher the advance tax better will be result as compared to previous result and lower the advance tax number result will be not good. Based on this you can take the positions early as compared to other traders. Let me clear that I take position only on the day of result and that too before it is announced. If you study the advance tax numbers correctly then you have strategy that can give you guaranteed profit opportunity in this market much early than others.
RBI announces Liberalisation Measures for Capital A/C
The Reserve Bank of India (RBI), in consultation with the Government of India has decided to introduce the following measures with immediate effect: RBI’s third move to arrest the declining INR against USD has little to reverse the trend in the short term. It may however be effective only in the longer term.
It has been decided to allow Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings to avail of external commercial borrowing (ECB) for repayment of outstanding Rupee loans towards capital expenditure and/or fresh Rupee capital expenditure under the approval route. The overall ceiling for such ECBs would be USD10 billion.
The existing limit for investment by Securities and Exchange Board of India (SEBI) registered foreign institutional investors (FIIs) in Government securities (G-Secs) has been enhanced by a further amount of USD5 billion. This would take the overall limit for FII investment in G-Secs from USD15 billion to USD20 billion. In order to broad base the non-resident investor base for G-Secs, it has also been decided to allow long term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks to be registered with SEBI, to also invest in G-Secs for the entire limit of USD20 billion. The sub-limit of USD10 billion (existing USD5 billion with residual maturity of 5 years and additional limit of USD5 billion) would have the residual maturity of three years.
The terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non-resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity.
Further, Qualified Foreign Investors (QFIs) can now invest in those mutual fund (MF) schemes that hold at least 25 percent of their assets (either in debt or in equity or both) in infrastructure sector under the current USD3 billion sub-limit for investment in mutual funds related to infrastructure.
It has been decided to allow Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings to avail of external commercial borrowing (ECB) for repayment of outstanding Rupee loans towards capital expenditure and/or fresh Rupee capital expenditure under the approval route. The overall ceiling for such ECBs would be USD10 billion.
The existing limit for investment by Securities and Exchange Board of India (SEBI) registered foreign institutional investors (FIIs) in Government securities (G-Secs) has been enhanced by a further amount of USD5 billion. This would take the overall limit for FII investment in G-Secs from USD15 billion to USD20 billion. In order to broad base the non-resident investor base for G-Secs, it has also been decided to allow long term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks to be registered with SEBI, to also invest in G-Secs for the entire limit of USD20 billion. The sub-limit of USD10 billion (existing USD5 billion with residual maturity of 5 years and additional limit of USD5 billion) would have the residual maturity of three years.
The terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non-resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity.
Further, Qualified Foreign Investors (QFIs) can now invest in those mutual fund (MF) schemes that hold at least 25 percent of their assets (either in debt or in equity or both) in infrastructure sector under the current USD3 billion sub-limit for investment in mutual funds related to infrastructure.
How to control Emotions, when making regular profit in Nifty Future trading
How to control Emotions, when making regular profit in Nifty Future trading
If you have been trading nifty future and making consistent profit, and still you feel like taking one more trade, remember its a case of performance curiosity. This can affect you negatively in your next trade. This Performance anxiety mostly happens when you think of every single detail of your trade, its common for beginner traders and its very common thing. You feel like you will loose a very good trading opportunity, but has disastrous impact on your performance.
As trader, we are always bound to have the pressure of making profits and in search of making profits, many times we neglect the importance of following our trading plan / trading system or using proper risk management skills and plans. I have prepared some points, which will help you to overcome performance curiosity while trading:
1. Forget those Profitable trade.
Forget your profitable trades quickly, but do write them in your trading journal. never think that I will 100% make profits, so I can leverage my trading positions. If you think so you will end up making huge losses. So trading plan must be in your mind and not the trade. A proper stop loss and you may end up loosing some money, but still you will be much better condition than you would have not place stop loss and ended up your trading career on just single trade.
2. Focus should be on Plan, not the Profits.
Your main focus must be on trading plan and not on profits you’re making. It will be much easier to meet your goals and track the performance. Once you end your trading day, you should question yourself that: Did I do my trades as per my trading plan? Did I adopt risk manage properly? If your answers are yes to both these questions, then you are on the right path of trading Nifty future.
3. When increasing your risk, take smaller steps.
If you have done some profitable trading, next thought on your mind would be to take bigger quantities in next trade. This mostly happens when traders gain high confidence in trading. This over leveraging will teach you unforgettable lessons and you may give up trading at all, so be careful.
So to avoid this, you can increase your risk at a suitable pace instead of just doubling or tripling it. Your must also keep in mind that the only thing your are changing is the amount you’re risking, still you are following your same trading plan rules.
4. Step away from the screen.
Once you close a profitable trade successfully, avoid trading that day. Get away from your computer screen and enjoy your day as you have got enough time and money. Intraday traders or day traders do most of the over-trading and this leads to emotional based trade, taking away much of your profits. So its always a better solution to move away from the screen once you’ve hit your maximum trading loss/profit. Protect yourself for next trading day, even next day you will see plenty of trading opportunities.
Share your view / trading experience on emotional based trading, comments below.
If you have been trading nifty future and making consistent profit, and still you feel like taking one more trade, remember its a case of performance curiosity. This can affect you negatively in your next trade. This Performance anxiety mostly happens when you think of every single detail of your trade, its common for beginner traders and its very common thing. You feel like you will loose a very good trading opportunity, but has disastrous impact on your performance.
As trader, we are always bound to have the pressure of making profits and in search of making profits, many times we neglect the importance of following our trading plan / trading system or using proper risk management skills and plans. I have prepared some points, which will help you to overcome performance curiosity while trading:
1. Forget those Profitable trade.
Forget your profitable trades quickly, but do write them in your trading journal. never think that I will 100% make profits, so I can leverage my trading positions. If you think so you will end up making huge losses. So trading plan must be in your mind and not the trade. A proper stop loss and you may end up loosing some money, but still you will be much better condition than you would have not place stop loss and ended up your trading career on just single trade.
2. Focus should be on Plan, not the Profits.
Your main focus must be on trading plan and not on profits you’re making. It will be much easier to meet your goals and track the performance. Once you end your trading day, you should question yourself that: Did I do my trades as per my trading plan? Did I adopt risk manage properly? If your answers are yes to both these questions, then you are on the right path of trading Nifty future.
3. When increasing your risk, take smaller steps.
If you have done some profitable trading, next thought on your mind would be to take bigger quantities in next trade. This mostly happens when traders gain high confidence in trading. This over leveraging will teach you unforgettable lessons and you may give up trading at all, so be careful.
So to avoid this, you can increase your risk at a suitable pace instead of just doubling or tripling it. Your must also keep in mind that the only thing your are changing is the amount you’re risking, still you are following your same trading plan rules.
4. Step away from the screen.
Once you close a profitable trade successfully, avoid trading that day. Get away from your computer screen and enjoy your day as you have got enough time and money. Intraday traders or day traders do most of the over-trading and this leads to emotional based trade, taking away much of your profits. So its always a better solution to move away from the screen once you’ve hit your maximum trading loss/profit. Protect yourself for next trading day, even next day you will see plenty of trading opportunities.
Share your view / trading experience on emotional based trading, comments below.
When should you use long straddle strategy for Nifty Options Trade
When should you use long straddle strategy for Nifty Options Trade
Let me tell you friends, taking long straddle on nifty option means buying both call option and a put option for nifty. These two options i.e call and put option are bought at the same time, same strike price and expiry. You will make profit in long straddle if Nifty future moves a long way from the strike price, either above or below. So a trader take nifty long straddle position if he thinks nifty may move sharply, but not sure about the direction. On this position trader has limited risk, which is limited to cost of acquisition of both nifty call and put options. This strategy has unlimited profit potential if price of nifty move sharply in one direction. Just look at the payoff diagram of this strategy:
When we apply long Straddle on Nifty Option:
Suppose there is very important news being released in 1 or 2 days, that news may move nifty 150 to 200 points in a single day. But we are not sure if that news will be positive or negative, hence in such condition trader can enter into a long in straddle strategy for nifty. In such case if Nifty move strongly in one direction then straddle holder will make profit. Suppose news was very good and nifty went up, trader will keep the call option and exit nifty put option. Other way if news was bad and nifty goes down sharply then trader will hold put option and exits from nifty call option. Third case is if market don’t react to news at all and nifty moves sideways then, trader loses money, both call and put option will erase some of the premium. In long straddle risk is limited to total premium paid for buying call and put options, but gains are unlimited if market moves in one direction strongly.
Let me tell you friends, taking long straddle on nifty option means buying both call option and a put option for nifty. These two options i.e call and put option are bought at the same time, same strike price and expiry. You will make profit in long straddle if Nifty future moves a long way from the strike price, either above or below. So a trader take nifty long straddle position if he thinks nifty may move sharply, but not sure about the direction. On this position trader has limited risk, which is limited to cost of acquisition of both nifty call and put options. This strategy has unlimited profit potential if price of nifty move sharply in one direction. Just look at the payoff diagram of this strategy:
When we apply long Straddle on Nifty Option:
Suppose there is very important news being released in 1 or 2 days, that news may move nifty 150 to 200 points in a single day. But we are not sure if that news will be positive or negative, hence in such condition trader can enter into a long in straddle strategy for nifty. In such case if Nifty move strongly in one direction then straddle holder will make profit. Suppose news was very good and nifty went up, trader will keep the call option and exit nifty put option. Other way if news was bad and nifty goes down sharply then trader will hold put option and exits from nifty call option. Third case is if market don’t react to news at all and nifty moves sideways then, trader loses money, both call and put option will erase some of the premium. In long straddle risk is limited to total premium paid for buying call and put options, but gains are unlimited if market moves in one direction strongly.
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