Dear HealthRaj
Hi I feel there is a typo erri in the post that was posted in the below link.
http://www.traderji.com/trading-diar...ading-raj.html
It was mentioned that to protect the longs in market they take postion in options market by selling PE. I think it supposed to be "buying PE". then only it is heding. Please correct me if I am wrong . If I am correct , please correct that post. Thanks in advance
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.