Nifty option trading on the day of F&O expiry can be very risky, here is a trading strategy to reduce risk and trade can be as accurate as 90%. Remember on the day of F&O expiry volatility as well as trading volume remains very high, now in case of volatile markets you just need to remember support resistance rules.
How to trade on Intraday chart:
When nifty future is trading at support zone as seen on intraday chart, you need to buy in the money nifty call option for a gain of at least 20% on the premium amount. Exit strategy will be executed when support level breaks or when target is met. Horizontal trend lines can help you easily locate support resistance on intraday charts, now just wait and watch the play of volatility. I have back tested this strategy, with doing 50 paper trades (virtual trading) on F&O expiry on last one year data; I found that my accuracy was about 90%. If traded with high leverage, trader can also multiply his trading capital in very short time. but do not forget that leverage is double edged sword, which has its advantages and disadvantages. Before taking trade read our trading risk disclaimer.
Monday, June 25, 2012
How can Currencies Impact Nifty Futures Movements in Short Term
How can Currencies Impact Nifty Futures Movements in Short Term
Our local currency is Indian Rupee INR, Indian government spend large amount of foreign exchange in importing crude oil from oil exporting countries like Iran. If the cost of USD is high then crude import cost also rise, pressuring oil marketing companies to hike fuel prices. As we all know if fuel prices were hiked, inflation becomes the problem.
How high inflation is problem:
Rising inflation has to be controlled by interest rates hike, this results in slowdown in manufacturing industries hence affecting entire manufacturing sector. This results in major selling in nifty future; slowdown not only changes the market trend but also dissolves confidence in policy making. Nifty future is badly affected by the currency movement, especially when US dollar gains strength across other currencies. Even European debt crisis is responsible for this currency war. There has been series of downgrades in euro zone economies and further warning is give with more possible downgrades.
Our local currency is Indian Rupee INR, Indian government spend large amount of foreign exchange in importing crude oil from oil exporting countries like Iran. If the cost of USD is high then crude import cost also rise, pressuring oil marketing companies to hike fuel prices. As we all know if fuel prices were hiked, inflation becomes the problem.
How high inflation is problem:
Rising inflation has to be controlled by interest rates hike, this results in slowdown in manufacturing industries hence affecting entire manufacturing sector. This results in major selling in nifty future; slowdown not only changes the market trend but also dissolves confidence in policy making. Nifty future is badly affected by the currency movement, especially when US dollar gains strength across other currencies. Even European debt crisis is responsible for this currency war. There has been series of downgrades in euro zone economies and further warning is give with more possible downgrades.
Decide Stop Loss in Nifty Future Trade Using Candlestick Charts
Decide Stop Loss in Nifty Future Trade Using Candlestick Charts
Placing the stop loss is very crucial skill of a trader, losses in stock market is just inevitable. But trader can minimize his/her losses by placing a properly planned stop loss for the open trade.
Stop loss can be placed with the help of following methods:
1. Equity Stop Loss
2. Time Stop Loss
3. Chart Stop Loss
Which Method to use:
From the above 3 type’s most popular way of placing stop loss is chart stop loss, most of nifty future traders are looking for support and resistance to keep their trading stops. Candlestick charts are used because on charts we get complete idea of support and resistance, trends, retracements, momentum, based on them trading idea can be executed. On nifty future charts traders mainly focus on support resistance for placing stop below or above these important zones. However it is not mandatory to use candle stick charts, traders can however use bar charts or line charts for placing stop loss on nifty future trades.
Placing the stop loss is very crucial skill of a trader, losses in stock market is just inevitable. But trader can minimize his/her losses by placing a properly planned stop loss for the open trade.
Stop loss can be placed with the help of following methods:
1. Equity Stop Loss
2. Time Stop Loss
3. Chart Stop Loss
Which Method to use:
From the above 3 type’s most popular way of placing stop loss is chart stop loss, most of nifty future traders are looking for support and resistance to keep their trading stops. Candlestick charts are used because on charts we get complete idea of support and resistance, trends, retracements, momentum, based on them trading idea can be executed. On nifty future charts traders mainly focus on support resistance for placing stop below or above these important zones. However it is not mandatory to use candle stick charts, traders can however use bar charts or line charts for placing stop loss on nifty future trades.
How to Use Options Open Interest Data to Find Trading Range of Nifty Future
How to Use Options Open Interest Data to Find Trading Range of Nifty Future
Many traders told me that they find it difficult to judge the range of nifty future for short term, so today I am here with an article that will teach you how to find that exact top and bottom range for complete F&O series. First of all you should know what open interest is in Future and Option.
I will explain this with an example:
Trader A sells 1 lot nifty, trader B buys 1 lot nifty – Total open interest at this point is 2 lots.
Trader A buys 1 lot nifty, trader C sells 1 lot nifty – Total open interest at this point is 2 lots.
Trader D buys 1 lot Nifty, trader E sells 1 lot nifty – Total open interest at this point is 4 lots.
After knowing what open interest is, let get back to point
Market Range for Short term:
Upper range: Strike price of the call option having highest open interest out of all call option for that instrument.
Lower range: Strike price of the put option having highest open interest out of all put option for that instrument.
Understand this with an example: Nifty 5400 call option has highest open interest in all nifty call option, so higher range for nifty future in short term is 5400. Nifty 5100 put option has highest open interest when compared with all nifty put options, hence lower range for nifty future in short term is 5100.
Traders must keep in mind this strategy will work when time (in days) of expiry is between 18 to 10 days.
Many traders told me that they find it difficult to judge the range of nifty future for short term, so today I am here with an article that will teach you how to find that exact top and bottom range for complete F&O series. First of all you should know what open interest is in Future and Option.
I will explain this with an example:
Trader A sells 1 lot nifty, trader B buys 1 lot nifty – Total open interest at this point is 2 lots.
Trader A buys 1 lot nifty, trader C sells 1 lot nifty – Total open interest at this point is 2 lots.
Trader D buys 1 lot Nifty, trader E sells 1 lot nifty – Total open interest at this point is 4 lots.
After knowing what open interest is, let get back to point
Market Range for Short term:
Upper range: Strike price of the call option having highest open interest out of all call option for that instrument.
Lower range: Strike price of the put option having highest open interest out of all put option for that instrument.
Understand this with an example: Nifty 5400 call option has highest open interest in all nifty call option, so higher range for nifty future in short term is 5400. Nifty 5100 put option has highest open interest when compared with all nifty put options, hence lower range for nifty future in short term is 5100.
Traders must keep in mind this strategy will work when time (in days) of expiry is between 18 to 10 days.
Trading Nifty Options to Benefit in Rising Market up Trend
Trading Nifty Options to Benefit in Rising Market up Trend
Uptrend is always considered as markets of investors, but even if you are a trader with limited capital you can make big money in trading nifty options. When markets are rising you will have to wait for a decent correction where market seems to be oversold, that would be the time to enter long position in nifty future or just buy nifty call options (Out of money call option in this case). Then just have some patience and set targets twice as you entry level, you will simply double your trading capital in single trade. In this trade idea you have to patiently wait for correction, once nifty future becomes oversold on RSI you will soon see good buying interest, which will start a new uptrend.
Uptrend is always considered as markets of investors, but even if you are a trader with limited capital you can make big money in trading nifty options. When markets are rising you will have to wait for a decent correction where market seems to be oversold, that would be the time to enter long position in nifty future or just buy nifty call options (Out of money call option in this case). Then just have some patience and set targets twice as you entry level, you will simply double your trading capital in single trade. In this trade idea you have to patiently wait for correction, once nifty future becomes oversold on RSI you will soon see good buying interest, which will start a new uptrend.
How to Select Correct Strike Price for Trading Nifty Options
How to Select Correct Strike Price for Trading Nifty Options
Secret of success in nifty options trading lies on its strike price that a trader chooses. A strike price in nifty option has much to do with number of days left for expiry. If expiry is near then you select in the money nifty option, if expiry is far away then you may choose out of money nifty option. Here is how I choose the strike price depending on time left for expiry:
1. When expiry is 15 sessions away you choose options which are out of money, example: If nifty future is trading at 5600, then you buy nifty 5700 call option.
2. When F&O expiry is just 7 sessions away, then I choose in the money nifty option. Example: If nifty future CMP is 5850 then, I’ll buy nifty 5800 call option.
Secret of success in nifty options trading lies on its strike price that a trader chooses. A strike price in nifty option has much to do with number of days left for expiry. If expiry is near then you select in the money nifty option, if expiry is far away then you may choose out of money nifty option. Here is how I choose the strike price depending on time left for expiry:
1. When expiry is 15 sessions away you choose options which are out of money, example: If nifty future is trading at 5600, then you buy nifty 5700 call option.
2. When F&O expiry is just 7 sessions away, then I choose in the money nifty option. Example: If nifty future CMP is 5850 then, I’ll buy nifty 5800 call option.
What is Discount and Premium in Nifty Futures, How it may Benefit Traders
What is Discount and Premium in Nifty Futures, How it may Benefit Traders
While trading in nifty future we can benefit from a simple thing known as discount / premium on future price compared to spot price. Now how to check if nifty future is trading at discount or premium, quite simple procedure; just compare nifty future with nifty spot:
1. If Nifty future is trading higher than nifty spot, then nifty future is trading with premium.
2. Second case, if nifty future trades lower than nifty spot level, then we conclude nifty future is trading with discount.
At this stage you have learnt to find if nifty future is trading at premium or discount. How to use it in actual trading here are points:
1. Premium shows near term demand and is more likely that nifty future will trade higher in coming sessions. Demand is sole reason for premium in futures trading. So when nifty future is quoting premium over nifty spot then, nifty is buying opportunity and more trade idea will be enter long position.
2. Discount is just opposite to premium; in case of discount, supply is higher than demand. It suggests nifty future is likely to correct soon. Trading idea is short sell nifty future when future quotes lower as compared to nifty spot.
Trader can go through historical charts of nifty future and nifty spot, when markets were in uptrend nifty future had huge premium, but at time of recession in 2008 nifty future entered bearish market and at that time we saw premium was changed to discount.
While trading in nifty future we can benefit from a simple thing known as discount / premium on future price compared to spot price. Now how to check if nifty future is trading at discount or premium, quite simple procedure; just compare nifty future with nifty spot:
1. If Nifty future is trading higher than nifty spot, then nifty future is trading with premium.
2. Second case, if nifty future trades lower than nifty spot level, then we conclude nifty future is trading with discount.
At this stage you have learnt to find if nifty future is trading at premium or discount. How to use it in actual trading here are points:
1. Premium shows near term demand and is more likely that nifty future will trade higher in coming sessions. Demand is sole reason for premium in futures trading. So when nifty future is quoting premium over nifty spot then, nifty is buying opportunity and more trade idea will be enter long position.
2. Discount is just opposite to premium; in case of discount, supply is higher than demand. It suggests nifty future is likely to correct soon. Trading idea is short sell nifty future when future quotes lower as compared to nifty spot.
Trader can go through historical charts of nifty future and nifty spot, when markets were in uptrend nifty future had huge premium, but at time of recession in 2008 nifty future entered bearish market and at that time we saw premium was changed to discount.
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