NIFTY Options Trading by RAJ

Discussion in 'Trading Diary' started by healthraj, Jul 22, 2013.

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How do you use OAT tool?

This poll will close on Apr 25, 2020 at 4:11 PM.
  1. For Intraday Naked Options trading

    44 vote(s)
    33.3%
  2. For Intraday Pair trading of Options

    24 vote(s)
    18.2%
  3. For Intraday Futures trading

    16 vote(s)
    12.1%
  4. For Positional Naked Options trading

    29 vote(s)
    22.0%
  5. For Positional Pair trading of options

    25 vote(s)
    18.9%
  6. For Positional Futures trading

    10 vote(s)
    7.6%
  7. To trade in Cash market

    10 vote(s)
    7.6%
  8. Overall trading has improved with OAT

    22 vote(s)
    16.7%
  9. Understanding of Options has improved with OAT

    53 vote(s)
    40.2%
Multiple votes are allowed.
  1. healthraj

    healthraj Well-Known Member

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    Hi,

    I am starting this thread to focus specifically on NIFTY Options. Those who have been following my other thread will know the details.

    The Strategy is based on the Options Chain data.

    Pair Trading for the Pair with MAX OI.

    Other Options Strategies based on
    - Volatility
    - MAX CHG in OI
    - MAX OI
     
  2. Option.Trader

    Option.Trader Well-Known Member

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    Please reserve the first 10 posts to put in the rules/lessons . We can refine as we go, but it would be captured at one place
     
    manishbaba, gmt900 and healthraj like this.
  3. healthraj

    healthraj Well-Known Member

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    How do I reserve ? It seems to be TJ special rights? Can the TJ moderators help here?
     
    hanumantharaou likes this.
  4. timepass

    timepass Moderator

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    Don't worry. When you have all the rules defined, the mods can help you put the collection in post no. 1. For the present, continue working your strategy. Surely there will be some refinements over time. Keep a note of useful posts, when can later be compiled in one place.
     
    Gaur_Krishna and healthraj like this.
  5. healthraj

    healthraj Well-Known Member

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    So here we go on the understanding of the Options Chains data for those who were not following my Previous thread. For the Experts it might see as baby steps. So the experts please forgive.

    Understanding the Options Chain Data correctly : Forget what you know already about the market and the Option Chains data. The Future and Options are traded in the Secondary market. So the primary market is Equities. So without equities(cash market), Futures and Options do not exist. So for those who are trading purely in F&O, Look at the Futures and Options as someway to Protect your Stocks (Cash).

    For the F&O market to exist, we need the Market Makers. And Market makers are also here to make some money.

    Now going to Options Chain data. Let us take the Options Chain of NIFTY. Hope there are so many links for getting the Options Chain data. But I use the following link

    http://www.nseindia.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbol=" & NSECode & "&date=" & ExpiryDate

    For example to get the NIFTY Options data for the month expiring Jul-13, the link would be

    http://www.nseindia.com/live_market...in/optionKeys.jsp?symbol=NIFTY&date=25JUL2013

    So there are so many Columns and Values. What we are interested is the Following

    OI - Open Interest
    Chng in OI - Change in Open Interest
    IV - Implied Volatility
    Volume - Volume and Of course the
    Strike Price

    What do we need to make the decisions

    1. Find out the Strike Price and OI, where we have the MAX OI in PE - MAX_OI_PE
    2. Find out the Strike Price and the OI, where we have the MAX OI in CE - MAX_OI_CE
    3. Find out the Strike Price and CHG in OI, where we have the MAX Change in OI in PE - MAX_CHGOI_PE
    4. Find out the Strike Price abnd CHG in OI, where we have the MAX Change in OI in CE - MAX_CHGOI_CE

    Intraday day trading would be based on Change in OI
    Positional/Swing trading would be based on OI.
     
  6. healthraj

    healthraj Well-Known Member

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    Rule 1: If the MAX (CHG in OI) @ PE > MAX (CHG in OI) @ CE, then it is a Bullish market.

    Why MAX (CHG in OI) PE will be a Bullish signal?
    For the Market to exist we should be Have Bears and Bulls. Market is always trading in a specified range for any day. So we have to assume that BULLs will try to Protect the Bottom of the Range and Bears will Try to Protect the Top of the Range (Not let the market beyond the Range). BULLs have LONG Positions in the market. So to protect their LONGs they take the Opposite positions in the Options market by Selling the PUTS (PE) to hedge their positions, so that if the market goes in the opposite direction of their Longs they can make money using Options. But normally the market makers make money both in the Equities and in the Options market. When They build a Huge volume around a Strike Price, they are basically sending a signal to the BEARS saying "This is our area - We will not let you go below this level". So BULLs normally control a Lower Strike and BEARS normally control a Upper Strike. For a given day this Range would act as the Intraday Range.
     

  7. healthraj

    healthraj Well-Known Member

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    Rule 2: If the MAX (CHG in OI) @ PE < MAX (CHG in OI) @ CE, then it is a BEARish market.

    Same explanation as the Bullish market
     
  8. healthraj

    healthraj Well-Known Member

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    Rule 3 : For Postional/Swing Trading use the OI instead of the CHN in OI and the same rule as Rule 1 and Rule 2 will follow.
     
  9. healthraj

    healthraj Well-Known Member

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    Rule 4: Does Volume in the Options Chain data play any role in our decision making?.

    Yes. Use the Volume data to decide whether it is STRONG BULL or a STRONG BEAR.

    Let us say at 6100 we have the MAX CHG in OI @ CE - Say 6L Postions
    Let us say at 6000 we have the MAX CHG in OI @ PE - 11L Positions

    Now 11L > 6L and PE > CE, so it is a BULL.
    Now let us look the Volumes @ 6100CE and 6000PE

    Volume @ 6100CE - 5.5L
    Volume @ 6000PE - 17

    Now compare the CHG in OI and Volume @ 6100CE.
    Volume (5.5L) < 6L - So it is not a Strong BULL. Had the Volume been greater than the "CHG in OI" then it would have been a STRONG BULL.

    And same logic for the STRONG BEAR also....

    Another Observation : So go for Naked Long in CE/PE only when the Volume at the Strike Price > CHG in OI.

    What if the Volume does not indicate like above?
    Then most probably the market is Range bound.
     
  10. healthraj

    healthraj Well-Known Member

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    Rule 5: Can we always go with this logic on the MAX(OI) and MAX(CHG in OI)?

    NO. This might not work during the last week of Expiry when the Market makers are closing their positions. So during the last week of Expiry better to stay away from the market or Play the market using the Implied Volatility
     

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