Come into the Trader's Den

[DanPickUp]

1 Ya...may be the best thread ,presently in traderji.

2 Its very simple,.......

3 Make a small Target.....Use momentum......just enter & exit with small profit. skill of execution is Imp now.........just see Raunak's trade on nifty


Hi oilman

Here some thoughts from my side about your last post :

1 Because also people like you post here beside other ones

2 as every thing is simple if understood. It is always like that and I prefer Nr. 2

3 Ok, I am back on earth. Trading small ranges is one thing with futures and an other thing with options.

Oilman, did you may once see his post ?

http://www.traderji.com/derivatives/44290-zero-loss-strategy.html#post465049

Any comments on that post ?

Take care

DanPickUp

 

[DanPickUp]

Hi

I would like to recommend this thread to newbies or even more advanced traders.

In my mind, he did a god job and gives some excellent links in traderji for those which search for any strategies.

http://www.traderji.com/beginners-guide/22070-list-trading-system-methods.html#post182755

DanPickUp

 

[oilman5]

Dear Danpickup,
u r Right as usual.
The comments r childish.........searching/planning by arbitrager, In reality applicable or not i dont like to comment.
Yes Understanding is main theme.
I firmly believe............understand first country............then only sector.
Since Global data is easily available,.........so strength of country index,.........comparative simple tools ,.........country actually still enjoy good money flow or not...............is seen.
Since i am from India,.........after covering .........above i see,..........which sector r showing strength,............So country-sector..........where money flow is already i get.
Company in that sectors............here i follow, mostly past experience...........who r outperformer of a sector+ fundamental knowledge of company[down up -studying detail in a particular company, where it takes more than decade to build up knowledge , equitymaster.com or capitalmarket.com........some data based fundamental research company may help in gathering,.........in your country similar thing definitely exists]
NOW comes TIMING
Many theory exists.........but what suits one more imp.
1] buy on dip........fib
2] buy on dip , but reversal confirmed by price
3] buy on breakout,......then coming back to old resistance zone.
4] buy on certain % up ,usually playing for momentum
5] buy after a crital Volume has occured
6] buy on half saucer pattern
...........................................................
All of them has + expectency.
.................................
btw trading on breakout...........from small range, or range expansion mode...........
i think u can do being an Expert in option.
Personally since i am in stock............i hold more days......to get superior return , thats all.
Regards

 

[DanPickUp]

Hi

I never was sure, if you fellow people do understand how market makers work. I posted in earlier times about that and there was no respond at toll.

Here again an example how real market makers work and what kind of role the play in the whole game :

Trades outside the bid ask market.

eg; speculators are trading in nat gas, and the hedging type market makers decide to hedge/spread in the crude market, and the heating oil market.

eg; a long term holder of an equity (say a bank stock) always sells calls against their holdings every two months, and either rolls these calls or sells them against their holdings each time. the market makers generally buy these calls and to hedge in their books sell the underlying stock.

eg; a client requires an average price swap over the period of a week in a particular instrument as part of a portfolio, and sometimes the averaging of portfolios - depending on the exchange reporting requirements - see these prices be executed at close to but not exactly within the market, in order to report the entire portfolio at the one time.

Take care, have a nice weekend.

DanPickUp

 

[SwingKing]

Hi

I never was sure, if you fellow people do understand how market makers work. I posted in earlier times about that and there was no respond at toll.

Here again an example how real market makers work and what kind of role the play in the whole game :

Trades outside the bid ask market.

eg; speculators are trading in nat gas, and the hedging type market makers decide to hedge/spread in the crude market, and the heating oil market.

eg; a long term holder of an equity (say a bank stock) always sells calls against their holdings every two months, and either rolls these calls or sells them against their holdings each time. the market makers generally buy these calls and to hedge in their books sell the underlying stock.

eg; a client requires an average price swap over the period of a week in a particular instrument as part of a portfolio, and sometimes the averaging of portfolios - depending on the exchange reporting requirements - see these prices be executed at close to but not exactly within the market, in order to report the entire portfolio at the one time.

Take care, have a nice weekend.

DanPickUp

Very Informative Dan.

Going a bit further, I'd say, If anyone indeed needs to know how markets work, then he should refer to "Trading and Exchanges" by Larry Harris. I think it is a beautiful piece of literature which one must read atleast once. The concept of how markets work and the role of participants within the market is highlighted thoughtfully.

The reason perhaps traders here don't pay attention to this kind of stuff is mainly because this has no relevance with profitability of a trader. Obviously, if someone actually wants to chalk out a detailed plan to take advantages of how market works, or how its participants work, then it would indeed be beneficial. But for those who are momentum driven players, such knowledgeable stuff has absolutely no significance.

As an Investor, am inclined towards learning more and more about the functioning of the stock markets. However, at this very moment, the trader inside me is absolutely disgruntled with my opinion.

Thanks for sharing this post.

Tc

 

[DanPickUp]

Very Informative Dan.

Going a bit further, I'd say, If anyone indeed needs to know how markets work, then he should refer to "Trading and Exchanges" by Larry Harris. I think it is a beautiful piece of literature which one must read atleast once. The concept of how markets work and the role of participants within the market is highlighted thoughtfully.

The reason perhaps traders here don't pay attention to this kind of stuff is mainly because this has no relevance with profitability of a trader. Obviously, if someone actually wants to chalk out a detailed plan to take advantages of how market works, or how its participants work, then it would indeed be beneficial. But for those who are momentum driven players, such knowledgeable stuff has absolutely no significance.

As an Investor, am inclined towards learning more and more about the functioning of the stock markets. However, at this very moment, the trader inside me is absolutely disgruntled with my opinion.

Thanks for sharing this post.

Tc

Hi raunakagarwal

May I say : Hi my friend.

Thanks to show me the thoughts of a future trader. What you explained, will be adaptable to other markets in the world.

Me, specially as an option trader and hedger, have to deal in an other way with those guys.

A future is a future. Market makers can not do much against a certain price in a short moment.

So, momentum driven players on futures surely do not care about such stuff.
( I am clear now about that, Thanks:thumb: )

Options are different and here lays the different to the whole thoughts and must know knowledge. I only can talk about my experience in options as I am not a real future trader. As you know after some post in your thread from me, I use future as an other derivative beside any option I trade.

I am a hedger in any thinkable way any body can imagine. That is my strength as your strengths is direct future trading and trading with stocks. So, each one of us has his strength and some times we learn from each others as I did now with this post from you.

Options are like chewing gums. The market marker, which has to give me the guarantee of any execution at any time, will put in his risk ( time, delta, volatility, future outlook and so on ) in his created derivative and so I have to understand his possibility to cheat or accept me and I have to understand, how he creates his derivative, means option, which he will sell or buy from me.

Finally : Option traders and hedgers like me must know about this guys and as you mentioned, only future traders do may not need all that knowledge, even if it is always good to know, what is going on on the other side of the river. ( Just my way of living and thinking )

Thanks also for sharing post.

DanPickUp

 

[rrmhatre72]

Hi all,

Pls let me know your views on below plan.
What should I add in it to make it more robust?

Aim : Earn 3% profit/week excluding brokerage on invested capital

Observation : Nifty option prices as below when NS is at 5885
A)Sept 5800 : CE 138 +PE 28 = Total 166
B)Sept 5900 : CE 73 +PE 58 = Total 131
C)Sept 6000 : CE 30 +PE 113 = Total 143

A(166)-B(131)= 35 ( 27% higher than value of B)
C(166)-B(131)= 13 (9% higher than value of A)

Conclusions :
1. Above data indicates that at money CE+PE cost is cheaper as compare to far money option.
2. If market moves in any of the direction then CE+PE pair will move at higher value.
3. Normal movement in Nifty is >100 points in week. I mean to say this week's close is 5885 hence next week, it will at least touch once either to 6000 or 5800 level on one of the day.

Plan:
1. Buy option pair CE+PE of same strike price when NS is @strike price (+/-10points) on every Monday
2. With above example 5900 CE+PE will be bought @131.
3. This means target for sell will be 136.9 (Rs3.9(3% profit) + Rs2(Brokerage for both lots)
4. Target should get achieved if nifty moves by 100points in either direction within 3-4days (based on the data given in observation section.)
5. Square off position on Friday in case target is not achieved. (As time decay will eat premium value during weekend)
6. Take fresh position on next Monday.
7. Do not take position in same month's options after 20th of every month as premium loss will be high due to time decay. (With this logic I have to take position in Oct series on Monday)

Expected returns :
1. 12%/month if all four weeks target is hit.
2. 6% if one of the week market is range bound & does not move even 100points in whole of the week. This mean ~3%loss in that week & 9% profit in other 3weeks.

Adavntages:
1. Do not have to predict trend for market. Any side movement is fine with you.
2. Open positions are hedged hence risk is lower.

 

[tnsn2345]

Hi all,

Pls let me know your views on below plan.
What should I add in it to make it more robust?
....
Adavntages:
1. Do not have to predict trend for market. Any side movement is fine with you.
2. Open positions are hedged hence risk is lower.

Dear RRMhatre,

For CE 5900 @ 73, Theta is 3.65 and for PE 5900 @ 58, Theta is 2.02

Total Theta on your position is 5.67, hence your price of your pair will reduce from 131 to 125.3 at the end of FIRST DAY itself if the market closes flat, unless there is spurt in volatility. So on the next day itself, instead of 100 points of Nifty swing you will require 150+ nifty swing to make profit of 3%. It this does not happen on the second day again the value of pair would reduce approx by the above amount and you will eventually sink.

This strategy of buying ATM Call and Puts (Long Straddle) should do well only if you expecting volatility to increase (and that too sizeably) and you expect big move either side (something we saw when the election results were out more than a year ago). Very rarely one gets conditions to trade this strategy.

You may back test this by randomly picking 10 - 15 data points in the last one year and my guess is hardly you will find encouraging result.

Regards,

 

[tnsn2345]

...
As an Investor, am inclined towards learning more and more about the functioning of the stock markets. However, at this very moment, the trader inside me is absolutely disgruntled with my opinion.
...

Tc

Dear Raunak,

This is among one on the best one liners on TJ, I have read. :thumb:

Regards,

 

[rrmhatre72]

Dear RRMhatre,

For CE 5900 @ 73, Theta is 3.65 and for PE 5900 @ 58, Theta is 2.02

Total Theta on your position is 5.67, hence your price of your pair will reduce from 131 to 125.3 at the end of FIRST DAY itself if the market closes flat, unless there is spurt in volatility. So on the next day itself, instead of 100 points of Nifty swing you will require 150+ nifty swing to make profit of 3%. It this does not happen on the second day again the value of pair would reduce approx by the above amount and you will eventually sink.

This strategy of buying ATM Call and Puts (Long Straddle) should do well only if you expecting volatility to increase (and that too sizeably) and you expect big move either side (something we saw when the election results were out more than a year ago). Very rarely one gets conditions to trade this strategy.

You may back test this by randomly picking 10 - 15 data points in the last one year and my guess is hardly you will find encouraging result.

Regards,

Thanks TNSN,

I agree with you on Theta.
But most of the time I have observed it come into picture in last couple of weeks before expiry.
Appreciate if you can advice me how backtesting to be done. I mean is there any software available or I will have to pull out data manually & do it.