Futures Or Options ?

[sh50]

After posting the above last night I read in the technical trends newletter that the nifty is headed for a breakout but it is not supported by major scrips so one should be careful. That answers one question. Better to keep it in sight. So while trading we have mkt breadth, world mkts, top 10 nifty stocks, open interest and coc. As far as the FII-cash merry go around is concerned, CNBC website reports every day. God knows whehter it daily monitoring is required also. Its upto you Ivan. You have done your bit. If you feel the need to follow thru as we say in trading, everybody would welcome your commentary. Otherwise, thanks anyway.

Some freind gave me this link- good summarised data
http://www.indiainfoline.com/stok/deri.html

If you feel that there is anything of leaning value, kindly comment on it. As I said, I don't even know significance of importance on daily basis-for day/swing traders should be. I got this link somewhat late and much of it maybe self explanatory but if they are any finer points, do let us know.

 

[ivanboesky]

Hi sh50,

Yes, a breakout is expected. Its very difficult for a market to remain range bound for too long. Watch out for increase in volume in the cash market and on the F&O side. That will be the first signal that a breakout is about to occur. Then wait and watch which side it breaks out on. FIIs have been marginal sellers in cash and buyers on the F&O side. Difficult to say what exactly they are up to coz their Open Interest is on the rise. Will do some more analysis and get back.

 

[sh50]

In a ranging market I don't know how significant it is monitoring the open interest/coc etc. Are there any thumb rules about the open interest or coc rising by a certain percentage to indicate a drastic change in trend.

 

[Masterchief]

Great discussion so far between Boesky and Sh...new to this site entirely.
My only reference is in traditional stock options which I trade strictly. Been paper trading a few Commodities with much success, probably opening an account soon.

There is a lot to evaluate and much of it in my opinion, useless. For me, the bottom line in stocks, options, commodities, currency is price. I look for macro price trends and either go Long Puts or Calls, regardless of implied volatility because the contracts I buy are 6+ months or greater, not LEAPS though.

No doubt, there are finer points to include when trading volatility with credit spreads which I've done with stock options. But because math is quite clever at removing opinion and the perils of emotion, I stick to fewer trades with macro price trends, thus avoiding mean reversion.

The problem with futures from what little I've seen is the issue of unlimited risk. I became fond of stock options because it was a great tool for limiting the risk exposure without limiting the reward potential. Even better, whenever the stock advanced or declined by a scant 4%, my Calls/Puts always achieved much larger returns because of pricing principles designed to avoid arbitrage. For example, recently BBY has fallen 10% from when i bought Puts, but my Puts have earned 30%+/-.

I'm open to advice you all can share in terms of futures and options on futures. From a risk standpoint, it is less risky to employ options on futures rather than futures only. I'd like to show a graph of Lumber that I started tracking back in Oct of 2004...you'll notice that i have it marked when I entered (paper only) and exitied (paper only). I'm not sure the math is correct based on tick size...please evaluate and let me know. It was profitable, though perhaps not as profitable as I suggest.
Thanks, MasterChief

 

[sh50]

There are many opinions on options. Many good futures traders consider even option hedging strategies costly. On many occasions liquidity is another factor. I have also come across consultants and books who advocated that options are for ranging markets when you don't know which way the market will go but once the trending begins, it is the futures which have a future. I agree that in options we have a good option but where our future lies depends upon the situation- good old horses for courses philosophy.

Comprehensvie graphs but am incompetent to comment. I think the following link explaint the difference in profitability between futures and options really well.

http://www.technicaltrends.com/Articles/option1.htm

In this link, it is mentioned somewhere that selling calls, selling futures or buying puts are done in different circumstances. Similar for buying calls/futures or selling puts. I know this marginally. Maybe somebody would like to throw some light on it. In the link it is mentioned that it is an advanced topic but even if explained breifly at least one can comprehend in what circumstances it is done.

Perhaps I am becoming overinquisitive but with people like Ivan around we at least have an "option" to a "future". Professionals don't readily part with finer points. This link too has some interesting articles on options

http://www.technicaltrends.com/Articles/index.html

 

[oliver]

Hi,
Could anyone tell more about buying futures and options .can anyone give me examples.read a lot about it .but when actually buying getting a bit confused.help me


Newbie

 

[ivanboesky]

From the NSE site....
"Cumulative FII positions as percentage of total gross market position in the derivative segment as on May 26, 2005 is 41.43%. "
I remember the figure used to be around 19%, then it started rising and had stabilised around 32-33%. This is a huge jump....
What are the implications for the market??

 

[sh50]

Good that you raised this, Ivan. This is practical information. All corporate brokers go on giving statistics wihout insight of implication. For instance during settlement in the last week , rollover percentages are given for nifty and stocks. How does one know the benchmarks- what is good and bad till somebody told me more than 90% was good.

It should be like medical reports. Alongwith medical reports( cholestrol level for instance normal abnormal ranges are given). Otherwise its all statistical gymnastics.

 

[ivanboesky]

90% is again subjective, depending on whether you want the market to go up or down! If there are many aggressive shorts in the market in a particular series, and they roll over their positions to the next month, it is not necessarily good for the market. On the other hand, if the agressive longs roll over to the next series, it is a good sign for the market. For people like me who trade in futures, we have to identify who is more aggressive in their rollovers (and the possible impact on the market), rather than just follow statistics!! As someone has said, statistics can say what you want it to say.

 

[sampumu]

Good keep it up.