nifty options beginner

#1
hello everyone,

i started trading in nifty options in feburary 2013
made profits and incurred losses too

i realized that i rely on luck and news a lot ,my own analysis was lacking
i use too buy put wen market was very high and was making put option averages as market increased and waited for the market to fall .
:annoyed:

i downloaded amibroker with datafeeder database
i m learning the the dojis ,candlestick etc

my main question is can technical analysis help in entry and exit??

i m just a beginner and i want to be a great trader like all the seniors here
so forgive me if i posted a stupid question :)
 

Mr.G

Well-Known Member
#2
Statistics and probability are better when trading options.
 

ananths

Well-Known Member
#4
Hi, im not beginner in options. I tried many strategies and currently doing spread trade. It works well. Needs patience and discipline.
It has limited risk and if the market goes in your favor you will get profit if it doesn,t change strike price and direction based on levels. I usually play debit spread. My current position is bearish 5900pe short and 6000pe long. If market goes up, i will change the direction by covering 5900pe and selling 6100pe. Currently market going down so no changes.
 
#5
Trading options is good if you trade strategically. But it requires patience, as ananths mentioned. This is due to the fact that option prices depend on more parameters than just the price or curvature of underlying. Read the book of Hull for more details. Though BS theory is a serious joke (like its name, its close to B-S in the real world), but in absence of another theory, its your best guide to understand options pricing.

What Mr.G probably referred to is price options using binomial (or trinomial or any other variant) probability model, with perhaps more exotic stochastic volatility or jump diffusion models to price options. This is the world of high finance developed and implemented by institutional traders.

I prefer to stick to the basics, that is learn how the auction markets work (perhaps pay a visit to a nearby outcry floor). Know what financial institutions are doing, but trade with simplicity keeping your risk limited and with an objective of buying low and selling high, be it the underlying or market volatility. If you observe bid-ask spread of the underlying (futures in case of index derivatives), it also provides a valuable clue to trading options. If you are close to a pivot point or a major announcement, it is advantageous to trade volatility than naked options. For directional betting, I would suggest to stick with futures rather than taking naked positions on options.

PS. Also refer the thread of DanPickUp for a beginners guide.
 

Mr.G

Well-Known Member
#6
Please tell me what is this thing you are talking about. I am a beginner in options and very experienced in cash. I want to sell options. How do I decide the range for nifty and the probability that my options will not be assigned.
 
#7
Mr. G, you can not calculate or use probability in an absolute sense. Rather you use it to price the option. To quants of sell side, delta of an option represents the probability of the option to expire in the money. Hence assuming that the underlying stays at the current price at expiry, you can back trace the option price to present time to account for time, interest rate and volatility premiums.

American or barrier options are priced optimally using this approach. For European options, BS analytic solution can also be used and in continuous time (i.e. after infinite iterations) the binomial solution should approach that of BS solution.

Now of course you might think where can you use this bizarre math. Well, since markets do not behave rationally, there are often mispricings in the options markets due to supply-demand dynamics. You can take advantage of such discrepancies by trading hedged pairs which are under or over priced and wait for it to return to its efficient price.

Edit: You need to account for volatility fluctuations in your pricing model, assuming the interest rate remains constant. Refer here for details.
 
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Mr.G

Well-Known Member
#8
I just wanted to sell them safely.
 

ananths

Well-Known Member
#9
This may not be a correct thread to ask this question..can anyone suggest me a good book for a beginner to learn stock market? Prefer Indian markets related books. Also suggest a book for technical analysis. Thanks
 

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