Analyzing Nifty with options

[trader31339]

Freinds,
Will Nifty break the resistance just 20 points above it? Or it will fail and come down.

Will Nifty break the support just 20 points below it?Or it will fail and bounce back.

Charts can tell you the support and resistance but certainly cant tell you whether this will hold or break.

However, option data can tell us a lot about this. Option data can tell us what the big boys, big funds game plan is .We can come to know about future direction of a stock/index from the help of option data.

The most imp option data is the number of options that option writers are writing .Sorry not talking about the put call ratio here. I am talking about the contracts that hedge funds big boys sells. Say if they are heavily selling a out of money calls just where the charts resistances are, take it for granted that the resistance will hold.Similarly if hedge funds are heavily selling puts just near a support on charts take it for granted that the level will hold.

Whats more, if market is rising and and option writers are heavily writing put options this is the best bullish shyndrome, "Rise on the wall of worry"

Similarly if option writers are heavily writing call options compared to puts and market is falling then this is teh best bear shyndrome,"Fall on the wall of hope"

Now how to find out how much and what are option writers writing? Some one would suggest the PCR but I think PCR works just like another osc nothing special. In day to day trading of markets etc it wont provide you much help.At the most all it will provide is exesccive optimism and pessism nothing else.

When the PCR is at extreme it will suggest exessive pessism etc..

So the best thing is to understand open intrest daily.Here again I am not talking abt PCR open intrest. Just see the way OI is building in options.

If we see heavy open intesrt building on a single day with implied volatility reducing then its a festival offer , diwali dhamaka SALE by option writers.They are selling the specific option at SALE so understand here....
For ex. we see heavy OI build up on a single day with implied volatility reducing then option writers are selling this for a SALE. diwali dhamaka so expect mkt to come down or correct.

HERE where I am myself stucked and for which I have decided to write this post is that its too painful to manually analyse the options data with regrads to big boys etc ( what i said above) If any member of the forum knows how to analyze options data with little pain and trouble I would be greatful to hear from him. Also if any member of the forum knows any other way to analyze options data, any other way to use and study options data, please pen down here. Eeven if u know much better way of analyzing PCR with good results please pen down here. Derivatives mkts give greatest cue to markets they are leading indicators.

Thanks for taking time to read this post,
trader31339,

 

[gvnarendra]

hi trader31339
The information you have written is very good. The options data is available in this link: http://www.sharekhan.com/SSKICMT/Upload/Drv_Upload/Derivativeskit_JULY.xls. It has a open interest page in which the openinterest in futures calls and puts are written. Please go through it and can you come to a conclusion whether the big players are writing calls or puts. Please write your view and how you arrive at the conclusion
gvnarendra

 

[trader31339]

Gvnarendra,
The link that you gave is working but outdated data. The data is of 3rd july.

Anyways I have analyzed manually and my conclusion is that there has been more put writing today then call writing indicating an upward bias.

Disclaimer: These are my personal thoughts and not trading advise. You should NOT trade on the basis of my advice , statements above. I am learning on this topic with the help of forum members and so please please dont trade on the basis of whatever said by me in this forum.

 

[trader31339]

Friends,
I am not an experienced trader. Nor I am an analyst.I am a newbaby in stock market and learning things from the help of forum members.So please please never take my statements as trading advise.

Further whatever I write , are my personal thoughts and not trading advice.So you should not take trading descion on the basis of what ever i say.

Thus dont trade on the basis of my writings in this forum. Dont trade on the basis of my posts in this forum

Thanks.

 

[aca_trader]

Gvnarendra,
The link that you gave is working but outdated data. The data is of 3rd july.

Anyways I have analyzed manually and my conclusion is that there has been more put writing today then call writing indicating an upward bias.

Disclaimer: These are my personal thoughts and not trading advise. You should NOT trade on the basis of my advice , statements above. I am learning on this topic with the help of forum members and so please please dont trade on the basis of whatever said by me in this forum.

It'll be highly helpful if you can please outline the methodology. It will help others in getting to the root and may thus bring more insights helping all of us in the process.

Regards,
--Ashish

 

[Agilent]

Freinds,

Charts can tell you the support and resistance but certainly cant tell you whether this will hold or break.

However, option data can tell us a lot about this. Option data can tell us what the big boys, big funds game plan is .We can come to know about future direction of a stock/index from the help of option data.

trader31339,

A refreshing new line of thought on this forum.... members will appreciate the initiative

However, your contention that option data is much superior to price trends ( as illustrated by charts) could be questioned on these grounds :

- charts predict much more than (merely) levels of support and resistance.

(See for example, this listing of tools/techniques , of which Support/Resistance is just one

Accum/Distribution | Bollinger Bands | CCI | Envelope | MACD | Momentum | Moving Average | Moving Avg Crossover | On Balance Volume | Price Patterns | Price Oscillator | Price ROC | Relative Strength Index | Stochastics | Support/Resistance | Trendlines | Volume | Volume Oscillator)



- opton writers alone cannot move markets or influence price trends in the resp 'underlying' scrips / indices

- big boys/hedge funds are not infallible and often can be wrong in predicting markets (corollary : following them blindly could be unprofitable)

Nevertheless, your theory does need some analysis, and I'm sure some brainstorming from members good at Derivatives will eventually unravel its mysteries

AGILENT

 

[trader31339]

A refreshing new line of thought on this forum.... members will appreciate the initiative

However, your contention that option data is much superior to price trends ( as illustrated by charts) could be questioned on these grounds :

- charts predict much more than (merely) levels of support and resistance.

Stock market is not a game of prediction but probablities.Here probablities rules than prediction. Yeh, charts provide much useful info other than support or resistance etc. What I tried to say is that where charts only give you S/R, FNO data tells u whether the S or R will hold or not. I did not say that we JUST & ONLY get S & R form charts. With charts you can find the S & R but you dont know whether it will hold or not. with help of charts u will come to know the support and resistance but with the help of FNO data u come to know will the S or R be breached or not .

I will give u a practical example on what charts tell, what FNO data says and how useful is FNO insights than chart itself.Please refer the chart of Nifty spot on 23rd june.

23rd june was friday, Nifty closed up turning the sentiments positive.The whole week closed positively again turning the sentiments postive. Nifty was just below its resitance and mkt players were expecting that this time Nifty will atleast cross the resistance.They were expecting monday 26th to be postive , atleast they never thought that monday will be such a down day.
So, market players were hoping monday to be a up day breaking the resisatance , in any case they did not expect nifty to go down heavily.

Charts were highly highly positive on 23th july. They were giving barking buy signals, the charts were such positive that next week mkts indeed closed positively but then wait......... take a pause......

on 23rd charts were positive.....highly positive giving a barking buy signal....many players must have planed longs for monday morning, but the FNO data of friday clearly showed, much much heavy call writing and puts unwinding, coz of this clue one thing was clear atleats to me that though Nifty will close postively as per the weekly charts, bears will defeintly pull it down and so we will have a good pullback. I came to know that Nifty wont break the resistance at higher levels and for longs we will have a good pullback.

on 26th monday, market was down by ~100 points...... b4 going up it made a low of 2899 giving a nice oullback for me to go long.

Had I not followed FNO data I must have entered longs without waiting for pullback.Wasnt it a good good deal for me knowing that mkt will close positive at the same time it will give a good pullback .........JUST see urself after giving a pullback to 2899 it atonce jumped on friday closing the week in postive.




Accum/Distribution | Bollinger Bands | CCI | Envelope | MACD | Momentum | Moving Average | Moving Avg Crossover | On Balance Volume | Price Patterns | Price Oscillator | Price ROC | Relative Strength Index | Stochastics | Support/Resistance | Trendlines | Volume | Volume Oscillator)



- opton writers alone cannot move markets or influence price trends in the resp 'underlying' scrips / indices

Then you tell me who influence the markets I will follow them

- big boys/hedge funds are not infallible and often can be wrong in predicting markets (corollary : following them blindly could be unprofitable)

yeh nothing is 101% correct in this mkt. As I said its a game of probablities.But mind you isnt it a good idea to ride a elephant rather than fight with it?? C its always safer to ride on the back of elephants , the big boys

Nevertheless, your theory does need some analysis, and I'm sure some brainstorming from members good at Derivatives will eventually unravel its mysteries

.

AGILENT

trader31339,
....................................................................................................

 

[subratabera]

Hi trader31339,

You can find the latest Option Data from NSE website itself (www.nseindia.com). There in the derivative bhavcopy section the daily bhavcopy is available every evening. You can download that and analyze it with previous days bhavcopy.

Thankyou

Subrata Bera.

 

[subratabera]

trader31339,
I will give u a practical example on what charts tell, what FNO data says and how useful is FNO insights than chart itself.Please refer the chart of Nifty spot on 23rd june.

23rd june was friday, Nifty closed up turning the sentiments positive.The whole week closed positively again turning the sentiments postive. Nifty was just below its resitance and mkt players were expecting that this time Nifty will atleast cross the resistance.They were expecting monday 26th to be postive , atleast they never thought that monday will be such a down day.
So, market players were hoping monday to be a up day breaking the resisatance , in any case they did not expect nifty to go down heavily.

Charts were highly highly positive on 23th july. They were giving barking buy signals, the charts were such positive that next week mkts indeed closed positively but then wait......... take a pause......

on 23rd charts were positive.....highly positive giving a barking buy signal....many players must have planed longs for monday morning, but the FNO data of friday clearly showed, much much heavy call writing and puts unwinding, coz of this clue one thing was clear atleats to me that though Nifty will close postively as per the weekly charts, bears will defeintly pull it down and so we will have a good pullback. I came to know that Nifty wont break the resistance at higher levels and for longs we will have a good pullback.

on 26th monday, market was down by ~100 points...... b4 going up it made a low of 2899 giving a nice oullback for me to go long.

I am attaching the F&O file of 23rd June 2006 filtered and sorted by NIFTY call/put data. Please explain a little bit more about your theory because this data shows something diffrent.

Subrata Bera.

 

[trader31339]

Todays fall has stimulated me for further research on open intrest.

Everybody apply ur mind and wits also to research on this method and come to conclusion,

All we need to know is how much selling is there in CALL and how much in PUTs and to what level.

Winding of calls is bullish whereas winding of puts is bearish.Winding means those who sold options are sq off .

Since we dont get any direct data how much options have been sold etc so what we do is to try to figur out from OI, open intrest.

When the OI rises for an option it means there was selling

when OI falls for an option it means there was winding off.( suppose I sold an option and now I am covering it back: winding OFF)

Options are sold when the seller is having a counter view, for ex if the seller is bullish he will sell puts and if the seller is bearish he will sell CALLs.

Yesterday I said that the bias is up and mkt fell HAHAHA what an analysis

Though I was wrong in reading the data , the data was not wring. Had I read the data with cool mind I would have informed the forum abt todays fall.

Its easy to define a trading day after it closes but its hard to define a trading day before open.I know this.But since we are in BETA learning mode so before we master this technique we will try to define a trading day after close also so that we can polish our skills.

Yesterday some important key thing sof FNO data.

3200 PUT OI fell. winding by sellers.
3100 PUT OI fell. winding by sellers.

3150 PUT OI rosed. Selling by OI writers, selling was not at discount*

3400 CALL OI rosed heavily. 95k. Heavy selling in deep OUT THE MONEY call .
This heavy selling is what i missed to see yesterday. whenever we see such heavy selling in deep out the money calls at discount* it means big boys are not of the view of higher levels.

Same with 3300, 3350 and 3100 Calls.

discount*---Remember the key concept of eco. When demand rises and supply is constant price rises. But when demand is constant supply rises prices falls. Similarly when demand is constant and u have to dump something you have to give some discount.SALE SALE SALE .

so when sellers sell at discount it means the are selling at a less preimum then the theoritical.In option terminolgy we say implied volatility rising and falling.

So from the above it was clear that big boys were knowing todays fall or wahtever , they did not sold PUTs yesterday which we come to know by winding of 3200PUTS . At the same time there was some heavy selling in calls.

If the fall is shan bhangur...only for a day then normally option wirters flood puts options , but if they feel that the fall will be heavy etc etc they dont flood puts but calls.

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Freinds the question that may come to ur mind now is, after seeing todays fall i am relating the data towards fall whereas on the basis of same data I said rise yesterday. Yeh u r right dear freinds, C i have told the basic roots of my analysis above. Yesterday my analysis went wrong, i did not anlyzed things well in hurry, there is no problem with the theory or data. The principles of my analysis are stated in this post which u refine it and with greater output post back to the forum.

I am too learning to analyze market on the basis of whatever said above so i m go wrong again!