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[jamit_05]

Purchased 4800 PE and 5000 CE at a total cost of 176;

Exit after 176+17 = 193;

 

[jamit_05]

First thing in the morning... Made a modification;
Since we are only interested in 100 oTM, we dont care which, i dumped the pair of 4800 & 5000 (at 178) and purchased 4900 and 5100

Reasons:

1. nf reached the 5000, made one leg atm, yet the valuation did not improve. Implying some kind of underlying weakness. I could wait for prices to go higher, but I know 5000 is a strong resistance. Therefore, I risk the potential profit of the older pair. I dump it at no expense, and buy a fresh pair and reasonable rates.

2. the basic trend in down and the lower leg is only 80 odd points away... we may get a little more than our expectation of 10%... lets see


bought 5100 CE 70.50 and 4900 PE 89.50
total cost 160

should have waited for 11 am for volatility to cool down but didnt. Thought of grabbing the pair as close to nf 4900 as possible.

 

[jamit_05]

our pair of 5100 + 4900 is now valued at 152;

have lost 5% in a day... volatility shrinking.

 

[lerxst]

Great thread Jamit. Thanks for the updates

 

[jamit_05]

Perspective:

We have some unchangeable facts at our hands.

Cost reduces due to time decay. As a result each week will, almost always, show a lower low. Hence, it becomes important to know last weeks low.

Now, The real question is how much lower?
A rough analysis says, the expiry week shaves off 50 odd points. So if cost is 150 now, then rest 100 will go in subsequent three weeks. Approx 33% each week. So we can expect a lower reading of 120 ish. In the coming week. Could be a little higher by 10 points due to more volatility, which we can easily estimate by ATR on any intraday timeframe.

Now that we have a ballpark figure, our buying will be more sensible. Last purchase of 160 was kind okay too since earlier week showed 197 low. 37 points lower.

This solves one important problem. When to re-enter after stop hit? So have the answer, near the estimated low...

So, each day we have to record new cost of the pair. This will be an important tool. The above is a rough estimate. After hands on experience entries and exits are bound to improve.

 

[jamit_05]

Total was 155 today, on the lower side. Meaning, even after two days of sideways actions and poor atr if 155 has held then it is a confirmed base for the week. We could further infer that the next week low should be 30 points lower. With that assumption, we will exit on Friday (profit or loss) and look to re-enter Mon or Tues.

Our purchase price is 160;

 

[jamit_05]

First thing morning I see the price of the purchase: it is up 10% at 174

Three successful trades in a row!

I am glad the theory is working. I am confident that as days pass-by, purchase will get sharper and strike rate near 95% Will increase position size with time.

 

[jamit_05]

For now, am looking for apt exit.... have devised an intraday trailing stop method (very simple really, as was agreed at the start so is delivered). Idea is to hang onto the movement as long as we can...

 

[jamit_05]

Records:

5000 CE + 4800 PE cost 74 + 89 = 163; we have seen lower this week... 152, which we will consider as base and will consider fresh new purchase when the cost goes lower than 130 at least.

It is our assumption, that in first 3 weeks cost should fall by Rs.30 per week. and Rs.50 in the last. Hence, in the coming week we would see a low of 120; That seems a little ambitious... but experience will teach.... and logic will guide....

Hence, our purchase band for next week is 120 to 130.... As per this logic, we will definitely avoid buying expensive....

If prices do not fall in the band, then we will skip taking any entry at all. This is likely cuz, right now Nifty is seeing really low intraday range.... just saw a 15min bar with range of 2.06.... imagine..!! It is very rare.... So, the next week may be explosive... and the cost may not temporarily shrink to our estimated levels....

 

[jamit_05]

This method is basically relying on the following Premise.

Buy at cost retracement. Buy at or near the "Base".

The trick is in understanding this reduction/retracement pattern.

We have a rough idea of how much the cost of the pair will retrace each week.
Rs.50 of value lost in expiry week, and Rs.30 each week, in first three weeks; This is for initial value of Rs.150 like in June 2012; Will further improve these estimates with experience.

This Rs.30 reduction may happen gradually or sharply or fluctuate. But will happen for sure. That is a certainty. Like today, the cost fell from 174 to 162 in a session. It must reach its destination of Rs.150 by tomorrow.

Hence, we know that the worst case on Friday closing will be near 150. Our purchase was for 160 hence we are prepared for Rs.10 loss+exp.

Similarly, we aim to take advantage of any sharp fall or fluctuations and buy near base or slightly higher for fear of losing out on the move.

If properly done, then one could get a good return on investment each week. People talk of 20% YoY return in MFs and beating the index. This method will be a superior substitute. Returns of 5 to 10% a month at least. Besides, I value accumulating skills over haphazardly earning money. Just a preference.