Using Technical analysis for selling options?

sh50

Active Member
#1
My father is quite good at trading by instinct. Though considered undesirable by some, he fixes calls and put strike prices and sells both since we have the delivery and can take delivery if things go against us.

How can one use Technical analysis to do this? See weekly resistance and supports, recent market trends and fix such limits for next month? Then monitor closely to see whether the daily prices cross the resistances and supports or not?How exactly does one use TA to square up. How does one determine the strike price and the premium.

This is what we did last month. Today is Tuesday and only a couple of days are left. Can you(traderji) comment on these transactions-when we should have squared up in some? It would be a good learning exercise if you can demonstrate by graph.I leave the choice of who all to comment on you.It should be a good learning experience.I know that the Ranbaxy has crossed the call limit but how should we have squared up using TA.



ONGC CALL 760 3.50
ONGC PUT 660 3.25
RANBAXY CALL 980 13.00
RANBAXY PUT 960 12.00
INDIAN OIL PUT 400 6.00
HPCL CALL 330 5.25
TCS CALL 1040 11.95

"Option traders take advantage of writing option strategies if the market stays where it is"- is option writing better in a non trending market?
 
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Traderji

Super Moderator
#2
Sure, Technical Analysis can help you in terms of market timing, trends and volatility.

Your strategy is fine and it does not matter if the market or the individual stock is bullish or bearish.

However you should have put a stoploss so that your maximum loss should not have been more than the combined premium earned by selling both the call & put options.

If you are really serious about option trading, I would suggest you to get:

Option Volatility & Pricing: Advanced Trading Strategies and Techniques
By Sheldon Natenberg
 
#3

sh50

Active Member
#4
Thanks.This may sound silly but should the stop loss be on the premium or the prices?I heard that options had no stop losses.

I have the book.Can you pinpoint what to read from this perspective. Too much theory can be intimidating and confusing.

Should I read Options arbitrage(chapter 11) or covered writes under hedging with options (chapter 13). Right now I want to just improvise on what my father does if I can.

In the meanwhile, can't you suggest somekind of thumbrule. If in the first week, one wants to write the puts and calls, should he see the weekly resistances and supports and further validate them by monthly resistances and supports. Would that be a good guideline. He can then use closing price and moving average to decide when to square up or something like that. Can't you suggest something for the layman? How does one fix approximate upper and lower limits for the next four months?Thanks.
 
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Traderji

Super Moderator
#5
sh50 said:
Thanks.This may sound silly but should the stop loss be on the premium or the prices?I heard that options had no stop losses.
The stoploss should be on the premium. The idea is not to give away more than that you have earned by way of receiving the premiums by selling options.

Your option trading strategy should be based on the market situation.

Is the market rallying or is it bearish or is it sideways. Not on the support or resistance levels.

SPECIAL Market Option Trading Strategies

NEUTRAL Market Option Trading Strategies

BEARISH Market Option Trading Strategies

BULLISH Market Option Trading Strategies

Bear & Bull Market Option Spreads
 

sh50

Active Member
#6
There are examples of selling calls and puts in Guts, Box and strangle.

I have made break even models in excel on some of the strategies- I can test a recommendation by CNBC or others but I cannot devise a strategy myself.

Can't there be some simple laymen rules. For determining strike prices of puts and calls, can't you just look at weekly supports and resistances and monitor them on end of day charts..

You have given good basic orientation but how can a lay person follow these strategies.
 
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#7
Hi sh50,
This post is almost a year late, but then better late than never. There is an excellent book "Technical Analysis and Option Strategies" by Kenneth Shaleen. Go thru' it. You will get a lot of new ideas for your trading.
 

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