Trade with options data

[prakash2010]

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Kiran...plz check if there is any discrepancy in interpretation....

Your interpretation about calls is wrong.
It should be short unwinding.Call writers are covering their positions since price is moving up.

similarly for puts.it should be long unwinding.


If price is up

+ addition in calls- long buildup.-bullish

- addition in calls - short unwinding- bullish

+ addition in puts -short bulidup-bearish

- addition in puts- long unwinding-bearish


if price is down

+ addition in puts -long buildup -bullish

- addition in puts- short unwinding-bullish

+ addition in calls-short buildup.-bearish

- addition in calls -long unwinding-bearish

price is the base which determines everything.

 

[milind2754]

Your interpretation about calls is wrong.
It should be short unwinding.Call writers are covering their positions since price is moving up.

similarly for puts.it should be long unwinding.


If price is up

+ addition in calls- long buildup.-bullish

- addition in calls - short unwinding- bullish

+ addition in puts -short bulidup-bearish

- addition in puts- long unwinding-bearish


if price is down

+ addition in puts -long buildup -bullish

- addition in puts- short unwinding-bullish

+ addition in calls-short buildup.-bearish

- addition in calls -long unwinding-bearish

price is the base which determines everything.

yes interpretation about calls is wrong.. Bias of 5100,5200,5300 calls should be bullish

 

[contactomprakash2000]

Your interpretation about calls is wrong.
It should be short unwinding.Call writers are covering their positions since price is moving up.

similarly for puts.it should be long unwinding.


If price is up

+ addition in calls- long buildup.-bullish

- addition in calls - short unwinding- bullish

+ addition in puts -short bulidup-bearish

- addition in puts- long unwinding-bearish


if price is down

+ addition in puts -long buildup -bullish

- addition in puts- short unwinding-bullish

+ addition in calls-short buildup.-bearish

- addition in calls -long unwinding-bearish

price is the base which determines everything.

Dear Prakash2010,
Superb writeup. kudos to you. But can you please clarify my doubt?

Whenever price goes up buyers overpower sellers.
In this circumstance:
Call - if price goes up and OI is +ve = Long Buildup
Put - if price goes up and OI is +ve = Long Buildup (But you specified as Short Buildup)

Alternatively:
Whenever price comes down sellers overpower buyers.
In this circumstance:
Call - if price comes down and OI is -ve = Long Unwinding
Put - if price comes down and Oi is -ve = Long Unwinding (but you specified as Short unwinding)
Regards'
Om Prakash

 

[coolcorner78]

@Kiran/All,

It is an interesting thread, I didn't know there is an options thread this active. Good job. As this thread is very active I thought this is the best place to ask this and brain storm.

What kind of money management do you use while trading in options. The reason am asking is you cant use the popular 2% rule with options. As the options tend to jump up and down more than 2% from close to next day open. It would be great if you guys could tell what kind of money management or Stop losses you would use.

To make it simple lets take the case of NIFTY OPTIONS with 10L trading account.

1. How do you determine number of lots to trade (again there are two cases here)?
a) When you are writing options.
b) When you are buying options.

2. How do you determine your SL for intraday options trading. What % or any other formula?

3. How do you determine your SL for positional options trading. what % or any other method? Again here I would like to ask for both cases.
a) When you are writing options.
b) When you are buying options.

4. Do you move your SL (trail SL) as soon as you are in profits. What % or method? For intraday.

5. Do you move your SL (trail SL) as soon as you are in profits. What % or method? For positional options trading.
a) When you write options.
b) When you buy options.

Also, please add anything important I've missed out. If you want to discuss on taking profits, would be good too.

Cheers!

 

[coolcorner78]

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Kamleshji, the strike prices where call build up is seen like 5600 CALL or 5700 CALL, need not be bullish. Call writes like to write when prices go up, so they can pocket more premium.

Another thing is this is a heavy news flow month, we know that options can max give some clues based on few conditions, but this month as the news flows are heavy/more, the smart money would tend to buy options than write more, so the premiums can be on the higher side. Like last thursday/friday the premiums went up and premiums came down drastically on monday when leads from results started to come newswires.

Its not just OI we need to follow, but the highest OI, highest OI change, highest volumes traded for which strike price on that particular day and OI implications for that strike price, lastly but not least PCR and all this has to be accompanied with the TA.

Just an observation and example from the yesterday's options data, we went up 2% on the index, the highest OI for PUT is at 5200, if it was really a reversal day, we would've seen more OI getting added there as Rs. 63 is a very good return for options writers with 3 weeks to expiry, but OI didn't add up much.

Cheers!

 

[uttamkamlesh]

dear,
pls. check the pic below, both are for same stock....as per OP chain ( as per my understanding) it suggests the price is going to increase....
but as per future OI bullish strength is week(where price is up and OI is down)....so if we combine this both the information...can we take short or buy puts for next couple of days....

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[uttamkamlesh]

Your interpretation about calls is wrong.
It should be short unwinding.Call writers are covering their positions since price is moving up.

similarly for puts.it should be long unwinding.


If price is up

+ addition in calls- long buildup.-bullish

- addition in calls - short unwinding- bullish

+ addition in puts -short bulidup-bearish

- addition in puts- long unwinding-bearish


if price is down

+ addition in puts -long buildup -bullish

- addition in puts- short unwinding-bullish

+ addition in calls-short buildup.-bearish

- addition in calls -long unwinding-bearish

price is the base which determines everything.

Here are the details of conditions in the Excel sheets.

dP => Price Change
dOI => Open Interest (OI) Change

Long Build-Up in Puts is Bearish for the Underlying
Long Build-Up in Calls is Bullish for the Underlying

Short Build-Up in Calls is Bearish for the Underlying
Short Build-Up in Puts is Bullish for the Underlying

Now question remains about unwinding...

dOI > 0 is Build-Up...............(For Calls & Puts both)
dOI < 0 is Unwinding...............(For Calls & Puts both)

dP > 0 is LONG (Buying) ...............(For Calls & Puts both)
dP < 0 is SHORT (Selling)...............(For Calls & Puts both)


Now, let us combine dP and dOI...All the conditions in consolidated form are as follows:

dP > 0 and dOI > 0 => LONG Build-Up (Bullish Underlying for Calls and Bearish Underlying for Puts)
dP > 0 and dOI < 0 => LONG Unwinding (Bearish-mild Underlying for Calls and Bullish-mild Underlying for Puts)
dP < 0 and dOI > 0 => SHORT Build-Up (Bearish Underlying for Calls and Bullish Underlying for Puts)
dP < 0 and dOI < 0 => SHORT Unwinding (Bullish-mild Underlying for Calls and Bearish-mild Underlying for Puts)

All theses conditions match with the text book literature available....and also on futures action ......

Anyways i am open to further discussion and corrections as
(1) we are tracking Option Sellers action,
(2) May be there is something different about options which i do not know...

Plz provide references or links wherever necessary.....

 

[contactomprakash2000]

Here are the details of conditions in the Excel sheets.

dP => Price Change
dOI => Open Interest (OI) Change

Long Build-Up in Puts is Bearish for the Underlying
Long Build-Up in Calls is Bullish for the Underlying

Short Build-Up in Calls is Bearish for the Underlying
Short Build-Up in Puts is Bullish for the Underlying

Now question remains about unwinding...

dOI > 0 is Build-Up...............(For Calls & Puts both)
dOI < 0 is Unwinding...............(For Calls & Puts both)

dP > 0 is LONG (Buying) ...............(For Calls & Puts both)
dP < 0 is SHORT (Selling)...............(For Calls & Puts both)


Now, let us combine dP and dOI...All the conditions in consolidated form are as follows:

dP > 0 and dOI > 0 => LONG Build-Up (Bullish Underlying for Calls and Bearish Underlying for Puts)
dP > 0 and dOI < 0 => LONG Unwinding (Bearish-mild Underlying for Calls and Bullish-mild Underlying for Puts)
dP < 0 and dOI > 0 => SHORT Build-Up (Bearish Underlying for Calls and Bullish Underlying for Puts)
dP < 0 and dOI < 0 => SHORT Unwinding (Bullish-mild Underlying for Calls and Bearish-mild Underlying for Puts)

All theses conditions match with the text book literature available....and also on futures action ......

Anyways i am open to further discussion and corrections as
(1) we are tracking Option Sellers action,
(2) May be there is something different about options which i do not know...

Plz provide references or links wherever necessary.....

Dear Uttam,
Can you cite or attach the text book you are referring to?
regards
Om Prakash

 

[jovial01]

Dear Kiran/Kamlesh,
With ref to ur prev mail , i made a matrix for my ref.Can u pl suggest in case of any ammendments to be made to it.

One more small question.How u guys are able to attach so many snaps.Whenever i try it says only 100kb is allowed.Thus has to delete the prev pics to attach new .

 

[uttamkamlesh]

Dear Kiran/Kamlesh,
With ref to ur prev mail , i made a matrix for my ref.Can u pl suggest in case of any ammendments to be made to it.

One more small question.How u guys are able to attach so many snaps.Whenever i try it says only 100kb is allowed.Thus has to delete the prev pics to attach new .

1. We use imageshack.com website for posting charts in the forum....
2. For your matrix...Kiran would give his feedback....