My paper trades in options

suri112000

Well-Known Member
#1
I wanted to have a peaceful retired life alongwith an opportunity to make 30 to 40% per annum with less tension and relaxed way of making money. As most of you know I am an air veteran and presently working for a psu and within few years i am due for retirement. I am now drawing pension for earlier service which is enough for my regular domestic expenses. And i am drawing salary from my present job and will also be eligible for pension after retirement. Financially though not rich I am stable without much worries. So, i am looking for a strategy which can employ one crore in trading without much worries but with a reasonable rate of return.

I have a good experience of trading including day trading, swing, positional in equities, futures, options and commodities. Though I found short time frame is action oriented but it is not suitable for a man who is aged due to health hazards it poses.

Recently I have learnt something new in options trading.

I am going to initiate trades based on my understanding of options and managing risk, money management. Of course, these are all paper trades.

Never replicate these trades please as I am going to do lot of experiments without actual money.:D
 

suri112000

Well-Known Member
#3
I am jotting down some notes here. I will not talk about stereo phonic terms such as OTM, ATM, ITM, Put, Call, Iron Condor, credit spread, ratio spread, iron butterfly, strangle, straddle, debit spread etc etc. If anybody is basic on these terms, refer youtube and google for laying foundation.

========================================================

NSE option chain is the battle field for option players. It pays you to understand the sentiment prevailing in the market by reading option chain.

HOW TO DETERMINE THE SUPPORT & RESISTANCE BY OPEN INTEREST:

Refer the option chain where OI is higher at both sides. First of all, look at call side and keep an eye on which strike price the OI is highest suppose it’s higher at 8000 CE. Now see at put side, suppose it's highest at 7700 PE so we can predict that market's upside range is 8000 CE and downside is 7700 PE. That is market range so we can trade according to that range.

Suppose maximum open interest has built at 8000 CE - 7700 PE which is strong resistance & support from starting of the month but now people are shifting their positions at 7600PE & 8000CE more that means people’s interest is also shifting 100 points below because they are expecting that market can take a downside move of 100 points.

So according to this we can judge now market can play in this range or may go down for short term. On the other hand if people build their more position at 8200 CE – 7700 PE then we can judge that they are expecting the move of 200 points upside & market can play upside for near term.

BULLISH – if open interest increases in rising market.

BULLISH – if open interest decreases in falling market.

BEARISH – if open interest decreases in rising market.

BEARISH – if open interest increases in falling market.
 

suri112000

Well-Known Member
#4
UNDERSTANDING THE SHORT TERM MARKET TREND BY CHANGE IN OPEN INTEREST


As long term trading or positional trading based on open interest so as like Short term trading would be based on change in open interest.

To predict whether market goes upside or downside for short term just follow these simple rules.

Rule No 1 if the maxmium change in open interest is at put side than call side, we can say that market may go upside.

Rule No 2if the maximum change in open interest is at call side than put side, we can say that market may go down side.

Let's study an example

suppose 8000 CE strike have maximum change in open interest which is: 9 lakhs

on the other hand 7800 PE strike have maximum change in open interest which is 12 lakhs

so according to our rule no 1 put side has greater change in open interest as compared to call side, it shows bullishness in market trend
========================================================

Importance of Volume

Volume represents a measure of intensity or pressure behind a price trend. If the volume is greater, we can expect the existing trend to continue rather than reverse.

Let’s see how it’s helpful to predict the market sentimental with the help of price & open interest:

A] If the price is rising and volume & open interest is also up that indicates market is strong in its trend & new money is flowing in market.
B] If the price is rising and volume & open interest is down that indicates market is weak & new buyers are not entering in market.
C] If the price is declining and volume & open interest is up that indicates market is weak in its trend & new money is entering through sellers.
D] If the price is declining and volume & open interest is also down that indicates market is strong in its trend & traders who had their long positions cover their positions speedily.

With the combination of change in open interest & volume we can determine the trend whether its strongly bullish or strongly bearish.

You have to firstly check the maximum volume at both sides from the option chain.

suppose 8000 CE strike have 10 lakh volume & 7800 PE strike have 14 lakh volume so it indicates that market may go in up trend or bullish.

If we have to confirm the market trend whether its strongly bullish or bearish, compare the change in open interest of 8000CE with volume of 8000CE.

As 8000CE have 9 lakh change in open interest & 8000CE have 10 lakh volume which is greater than change in open interest so it shows that market is strongly bullish.

=========================================================

Put Call Ratio

PCR is gauge of total open interest of puts divided by total open interest of calls. It is the ratio of all the Puts/Calls that traded every day. Put Call Ratio is also measured by volume. Basically it is a short term tool.


If PCR is below 1 that indicates oversold market, which means market is coming down. If PCR is above 1 that indicates over bought scenario of market, which means market can go up in future but if PCR is stable at 1 it indicates that market can take any direction whether its upside or downside.

If PCR is near edge point of 0.7, it also indicates that market can stay in this range for some days and take pull back for upside.

Similarly if PCR is near upper edge 1.3, also indicates that market can stay in that range for some time and may short in near time.
 

suri112000

Well-Known Member
#6
Iron Butterfly

Sell 7600 CE @ 108 (3000 Qty)
Sell 7600 PE @ 99 (3000 Qty)

Buy 7800 CE @ 48 (3000 Qty)
Buy 7400 PE @ 43 (3000 Qty)

===========================

Credit received 116 points

Margin used : 35 lakhs
 
Last edited:

suri112000

Well-Known Member
#9
Just my view. 400 points difference is better than 200 points as the range for iron condor is very small, the probability will also be low though the risk is also low
I hope you mean Iron Condor is better than this Iron Butterfly as Iron Condor has a better space for Nifty to make moves.

My view is that both of them are similar structurally except for the space. Managing of risk is also similar for both strategies.

Anyway will use your suggestion in the next trade.
 

Similar threads