Set-Ups disscused & practised @ Nifty Futures Trading Thread.

[Capricorn]

Just an illustration you mean. OK then.
Cheers

 

[Capricorn]

Just an illustration you mean. OK then.
Cheers.

 

[orderflow13]

There is something I want 2 share, its still in experimental basis so by posting this post I am hoping to read the other side of the coin, pros n cons of my experiments so plz be free to express ur opinion friends..

First its regarding option trading using pivot points and saints flow method ( strictly positional so only hourly bars no aggressive/pure stuff here) . what I am doing is writing call when sell signal triggered and at day closing I buy call of near SAR, same with puts when buy signal triggers, operative word here is buy call at DAY CLOSING TO NEGOTIATE GAP UP AGAINST WRITTEN CALL MOVES. Ex. Suppose on hourly there is pvt crack say 3100 then we write 3100 call now say market behave as per our likings n at day closing,here comes the imp part we dnt open our naked write position to the mercy of gap ups so we buy 3200 call considering we have SAR at 3160 ( including filter) if market opens in favor of our short position we kept open our 3200 call buying position as it is till new sar established …well its very simple technique but putting it in words sounds bit complicated, as is the irony with all option strategies….
Objective – only objective is fixing the risk and so fixing the profits, so its not exactly flow method as saint sir uses flow method for capturing big trades, here we let it go big moves when move is in line next day …but.. now consider at first day we write 3100call n we brought 3200 call n next day market open gaps up but within our sar then? We sell our long call in profit n wait for market to hit our sar. If sar hit we write put as long triggered but if sar didn’t trigger we kept open our written call position … in free time I will post my charts n trades of 2 months to clear it more, I use to trade options using inbuilt indicator PARABOLIC SAR this is bit evolution and logical version of previous, meanwhile excuse me for bit confusing post
Regards Alex.
P.S. To cut the chase down when we deal with option writing, math says LIMITED PROFIT AND UNLIMITED LOSS, afterwards everything is ur choice.

Here is graphical representation of option trading/hedging method using 60 minutes pivots. As seen on chart if we use major pivots most of the time sar wont hit for 2,3 days sometimes more than a week, even though market wont move much value of written options go further down as result of time decay. comments are always welcome ( this is the only reason I m posting here so I can correct my mistakes n make it more reliable method )
Regards
Alex

 

[uasish]

Slowly getting the grip on the matter (becoz of your discussions )maybe another 1-2 week may understand properly.Thks to both of you.

 

[arnav_rulz]

Slowly getting the grip on the matter (becoz of your discussions )maybe another 1-2 week may understand properly.Thks to both of you.

Sir i will also advise you 1 more thing ... To understand Options More properly .. what you should do is keep a few Options of different Strike Prices (of Nifty only caz they are Liquid) In front you ie on your trading terminal throughout the day.

In a matter of few weeks you will start to get an idea of the change in rate of options as compared to change in rate of Futures..
This may not help you very much initially.. but in a matter of 2-3 months you will have an perfect idea as how much should an option of different strike price trade at when the Future is trading at an X Price before Y days from expiry (obv. they vary everytime depending on the volatility)

but still it will help you determine as to how much change would it bring in the Pricing of an option when the future rate changes by a particular price... 1nce you master this it would be really beneficial for you to Buy/Sell options when you foresee a breakout and at the same till protect yourself if that turned out to be a false move...


*Sorry i am not able to express my views properly in the above post as i myself find it a bit confusing when i read it.. But still i hope you get an idea of what i am trying to say.

 

[rajatheroyal]

Here is graphical representation of option trading/hedging method using 60 minutes pivots. As seen on chart if we use major pivots most of the time sar wont hit for 2,3 days sometimes more than a week, even though market wont move much value of written options go further down as result of time decay. comments are always welcome ( this is the only reason I m posting here so I can correct my mistakes n make it more reliable method )
Regards
Alex

Instead of writing options why dont u use futures?What is the is the extra benefit that u get from writing options that you dont get in futures?

 

[orderflow13]

i dnt know whether this post suitable for this thread, but just cant help to express my real life experience how i come in to this option thing at first place..come on with due respect to Arnav we all not yet capable of suggest anything to Asish da ( no exaggeration or any flattery intended its just simple n plane fact as that ) .. well about option thing get me in to, while doin mba classes our finance orthodox teacher scared us lot out of option n derivatives thing.. so when i was trading my real money in market one of my trader frnd deepak started discussing how i lost big chunk in buying calls of lic housing n now i am thinking of selling same thing... he never read any book nor he bookish kind of a guy it was just plane common sense, n he started discussing how about selling this call of nifty n all.. n he did it n at eod showed me his ledger n proudly told me see... my account is credited by few thousands ( if u sell options say nifty 2800 call at 100rs ur account get credited with 5k rs ) it hits me n then he started discussing how we sell put ( it was a massive bull market ) n if market goes down we again avg it by selling a6nather put ( logic is market eventually moves up ) n i pretended like i know it all ( where as i didnt have a ckue what the hell he is talking about, thanks to my insatiable ego lol )n started trading it without knowing whats going on... n then i gt few profit n my ledger report was like few k plus !! n so i got the grip of option thing ... n one thing i realize getting 2 know option thing is get it practical as theory sucks big time..sorry folks m nt tht old 2 share my experiences just thought to share it as few frnds of tj like neeraj n all also asking wt book 2 read 2 get grip on option.. n my only reply is just do it n then think of it n u realize its piece of cake for u smarter guyz cheers

 

[orderflow13]

Instead of writing options why dont u use futures?What is the is the extra benefit that u get from writing options that you dont get in futures?

Main purpose of option market is " MANAGE & ADJUST RISK AS PER INDIVIDUAL"
If sell triggered at 3000 nifty and your sar/stop loss is eighty points away n if u cant afford that much risk then u can short 3100 CALL if market goes up 80 points 3100 call will be up by apx 65 points, so instead of 80 points risk u can cut it down to 65 ( its just an example actual fig may differ ) n if u still cant afford 65 points then go for 3200 call writing this way ur risk will also minimized, only thing is ur profit potential will also shrink but this is the take one needs to take, more profit or less risk .. option selling gives u that luxury
now other hidden benefit ..market either moves up, down or sideways .. n study says 60% of time market remain in sideway movements n when it in range option sellers benifited by earning premium thanks to time decay other wise therez no diff in option selling vs nifty trading
regards
Alex

 

[uasish]

No Sunil... The hedges dont actually cost the same ...
They are looking the similar because the time frame is very small and also the rise/fall in nifty is also not that big...

See your question was ..


Well both are advisable ... but depending on the your frame of mind ...

the Basic Thing states that if you foresee a sharp rise/fall then Buying the Put is advisable .. but if you believe there will be some consolidation then Selling the Call is better ...

But this is not enough... We should go deeper than this basic..
As For my advice ... Check out 2 things ...

1)Supports and resistances and
2)Even more Important is your Time Frame..

First Coming to Time Frame ...
A)If your time frame is 5 or less days ... Buying the Put is better Anyday especially if your far from expiry ...

This is because i am taking an assumption that in 5 days the time value of Options wont decrease..

Now why is Buying the Put better... lets take an example
Nifty is @ 3000
Put 3000 = 150
Call 3000 = 150

1)Now Taking that Nifty is same after 5 days... then after 5 days the Rates of call and put will remain the same thus there is no difference...

2)Now If after 5 days say nifty falls/rises only a small amount .. say 3100/2900...
Even now @ 3100 Call would trade somewhere around 200 whereas the Put will be somewhere around 95... So again not a big difference ..
Similarly @ 2900 Put will be 205 and call will be 100... So no difference agn.


3)BUT if there is A big move Up/Down ... Now Put will be far better ..
Say nifty = 3200/2800
@ nifty = 3200, the 3000 Call will trade at atleast 275(you lose 125) whereas even if the 3000 Put trades @ 75 then you lose only 75 , thus you save atleast 50.. And you keep loosing more(in case of call..) as nifty rises..
Even @ 2800... say your call trades @ 70 (you gain 80) whereas your Put will trade somewhere near 270(you gain 120) thus Put is better and it will earn more as Nifty falls more...

Thus IMO if your Time period is Short(even for intraday) Buying the Option is anyday better and selling the Opposite Option.


B)Now if say your Time period Is Say Larger ... Here My advise is Generally to Sell the option ONLY IF you are NOT Expecting a VERY Sharp rise/fall..

Again We will take an example and Say ... Our time frame is Expiry (for easier Calculation)
Nifty 3000
Call 3000 = 150
Put 3000 = 150

Now again the 3 same conditions...
1)Nifty is @ 3000 on expiry ... Clearly you gain 150 If you sold the call and will lose 150 if you Brought the Put ..(thus a 300 Point advantage for the call)

2)Nifty is @ 3100 on expiry.. You gain 50 from call but lose your 150 in Put ... So Again Call is better ..

3)Nifty @ 3300 .. You lose 150 in Call But you would have lost the same amount if you brought the Put So no Difference in buying/selling the call..

Thus only above 3300 and below 2700 (similar example) the Put is Better Than Call... So My advise .. Sell an Option rather than Buy an opposite Option When you have a bigger Time frame



Now another reason i say that Bigger time frame and selling in Option is better is a becaz of Combination Of both Supports and Resistance with it ..

Again Say taking the Present Senario ...
Nifty is trading @ 3100
Call = 150
Put = 150

Strong Resistance = 3250
Strong Support = 2800-2900 ?

Now When We Combine Both the Charts and Options... we will have to assume that It will take time/it will not be easy for Nifty to Break any of these Levels ..

So What should person holding a long position Do to hedge ?

Well i say SELL a CALL...

Cause say Nifty goes uptill 3250 ! BUT there is should stop pull back a bit andthen maybe resume upward journey.. And By this time The Month Usually gets Over !! And similar is the case for Nifty to Break 2800 ...

Thus After Calculating according to examples above ... It is clear that Selling the Call would have been a Much better Option than Buying a Put ..

I have always being putting my view to Sell an Option becoz of the 'Black-Scholes' skewed formula of Time decay factor.Now after going thru ur reply to Sunil have understood the Time Frame part,thks.

 

[uasish]

Buying a Future and selling a Call doesnt negate each other as we can still have unlimited losses if the Price of Future falls and overall we have Limited Profit if the Future manages to stay above a certain Level.. Which is EXACTLY What Selling a Put does.

I posted this in Nifty Futures thread... i hope this will make it more clear.







Sir, First Lets See the Example that i gave...

1)We short Nifty Future trading @ 3000
2)We Buy Nifty 3200 Call @ 50
3)We Sell/Write 3200 Put @ say 250+10(that will be profit) = 260

Now If it is Completely hedged... then as i said our profit should be (10 points) regardless of where the market closes ..

Lets see... Say --->
1)Nifty Closes @3000 - a)Now we Earn nothing from the Future we shorted.
b)We lose the 50 we invested in the Call
c)We gain 260-200 = 60 from the Put we Sold.
So Overall we earn 10 points.

2)Nifty Closes @ 3500 --->a) We Lose 500 from the Future Shorted
b)We earn 300-50(premium paid) = 250 from the call
c)And again We earn 260 from the Put sold
Thus Overall we earn 10 points.

3)Nifty Closes @ 2500 -->a)Earn 500 from Future
b)Lose 50 from call brought
3)Lose 700-260 = 440 from the Put sold
Overall We again earn 10 points.


Thus it is very clear That We are Completely hedged here ... But HOW >?

Now for that lets get that to basics and take another example.
Short Nifty future @ 3000
Short Put of 3000 @ 150
Buy Call of 3000 @ 150

Now.. Lets take 1 thing at a time.

1)Short Future-->From Shorting the Future @ 3000... it is clear that any point above 3000 is our loss and below that it is our profit.

2)Short Put 3000 @ 150---> From this we can say that any point Below 2850 is our loss and any point above 2850 till 3000 is our profit therefore our maximum profit is 150.

3)Call of 3000 @ 150 --->Any point above 3150 is Profit and below it is our loss till 3000... i.e max loss = 150.


A)NOW Combine 1&2 i.e Short the Future & Short the Put.

Q. If we do only these two transactions... What will be the end result ?

A. Shorting Future @ 3000 will give us unlimited gains if Nifty falls down but due to our shorting of Put we will start losing below 2850 therefore the gains of Future will be set off from the losses of Put BELOW 2850 therefore Our Max profit = 150 (@ any level between 2850-3000)

Now above 3000 we will start loosing from the Nifty Future we Sold BUT as above 3000 we will gain the 150(we received from the Put) therefore our losses will actually start above 3150...

SO Overall the Situation is... @ a close of 3000 and below we earn 150 and as we go above 3000 we start losing one one point from the 150 and can have unlimited losses.

Doesnt this Sound familiar ? Doesnt this look As if what we have actually done is nothing but Shorted a Call of 3000 @ 150 ? Yes It does.
Shorting a Call 3000 @ 150 also have the result ie Max gains till 3000 and below = 150 and losses starts after 3150.

Thus To hegde this... We BUY a 3000 Call @ 150 And nulify/hedge our positions Completely !!

What we did was -- > (Short the Future + Short the Put) i.e = Short a Call and to hedge it completely we brought a Call.
Thus we did 3 transactions to completely hedge our positions.


Similarly in the same example we could have looked it in another way.. i.e
Shorting the Future And Buying a Call = Buying a Put... therefore to completely hedge we have Sold a Put..


*I hope it is a bit clear now and also i hope this is what you were actually asking.. hehe

Today i have gone thru this post 3 times and now seem to have understood the Logics,Thks.