Escape's Options Trading Diary - Phase 2

[TheDreamer]

NF @5665, so the fair value of this scrip should be 135. But it only has 5 rs. premium - not much, when compared to the other options. So, what I meant is that even if the nifty opens flat to slightly negative, it may not make for a good trade unless it opens 15 pts down. Anything less than that and it is likely to lose value very fast. Meanwhile his capital is tied up.

couldn't get your point... though trying to establish mine...

Premium or Discount of a derivative is measured on the spot value of the commodity/stock from which it is derived. So spot nifty should be considered for the valuation of 5800PE (theoretically... for all practical purposes, I have also found that options follow the futures' value rather than spot value).
The term 'fair value' that you have used is actually called 'intrinsic value'. The intrinsic value of 5800 PE is theoretically 140.50 with zero premium/discount (i.e. 0 extrinsic value or time value). So 5800 PE will move similar to the spot nifty as & when the market goes down. So no question of losing the value of options fast when the market doesn't move.

What if, the market opens gap down 15 points tomorrow? at least 12-13 points will be pocketed from the slight movement (BTW, market is in downtrend in short term from 5th October. It is clear from the lower highs & lower lows).

 

[escape]

Sure Dan, In fact I got few more question, I'm trying to add more question and will be putting it forward.

Dear DanPickup,

Thank you for you post. For most of my queries, I re-read your second post (#post number, 412) and can see those are already answered.

Meanwhile, I have made flowchart considering I'm going Long ITM CE, and Shorting ATM CE. I have uploaded image, kindly have a look and let me know if my understanding is correct?

Each box is numbered, so if some modification is required, let me know with box number (e.g. 3A, 4A, 4B, ... etc).

I have got following new questions:

1. I'm Long for next month's ITM CE Option, and I see strong upside movement (around 50 or 100 points up) may be because of some news, policy change, God's Grace, etc., what should I do, should I take profit and exit position or keep holding it?

I can think of two alternatives:

• Continue holding Long with some SL or

• Exit Long, and enter after few days, when there is some correction

2. To decide market direction, I'm planning to use following, Is it ok or something more to consider?

Based on moving average, if NIFTY is above 100 moving day average and RSI is below 80, and is not at critical Resistance level, go Long for CE (ITM) for Next Month series, else go Long for PE. Define certain "SL for Short" immediately, once "SL for Short" is hit, go Short for same option type (CE or PE) for current month series in ATM.

3. Assuming my Long is against market, at what point should I consider going short, if value reduces by 10 points or 10% of fund value at end of next day, in short, how do I define "SL for going Shorting" ?

Thank you again.

Regards,
Escape

 

[escape]

Here is log as of last session.

Log:
NIFTY 25Oct12 CE 5600.00 (B) 200 @ 90.40 (S) 200 @ 89.40 (P/L) -200
NIFTY 25Oct12 PE 5800.00 (B) 900 @ 142.43 (S) 900 @ 142.02 (P/L) -369

Result:
After deducting all charges: Rs. -840.69

Capital Status (Since September):
Exact Initial Capital: Rs. 45,000/-
Current Ledger balance Rs. 30034.63 (-14965.37 )

Learning/Remark:
Today is classic example of how winning trade could change into loosing one. I was 2K+ profit at one time, but end of day lost around Rs. 840.

During first half of day, was able to control SL perfectly (2-3 points below Breakout level) and because of this loss was under control. Got good profit in few breakout. During last hour or so, got stuck in few negative trade, and didn't able to EXIT, although there were lots of opportunity provided to EXIT, but failed to exit (because of greed) and finally ended day with negative.

I was thinking of keeping Options position overnight, as I guess tomorrow, market may go down. But keeping overnight is too risky, so squared-off positions at end of day.

Phase 3 Preparation:
Meanwhile I'm preparing for Phase 3 backgroud, i.e. using strategies for Options trade as suggested by DanPickUp. Hopefully by end of this month, it will be ready.

Draft Objective:
Using Options Strategies to trade options, and main focus would be adjusting and handling losses, to make loosing trade into winner.

Draft Strategy:
Will be using "Calendar Spread" Strategy.
More details needs to be added here.

Draft Method:
1. Based on moving average, if NIFTY is above 100 moving day average and RSI is below 80, and is not at critical Resistance level, go Long for CE (ITM) for Next Month series, else go Long for PE. Define certain "SL for Short" immediately, once "SL for Short" is hit, go Short for same option type (CE or PE) for current month series in ATM.

2. Observe Long position on subsequent day and in case market moves in our direction, trail SL up. In case if market moves against our direction and "SL for Short" is hit, go short for same option type for current months series in ATM.

3. Target for Long Position?
Based on some MA cross-over on NIFTY Day chart, decide when to exit.

4. If Long shows 50 (or certain number) profit, should exit or trail SL up .. which SL .. "SL for EXIT" or "SL for Short".
A. Just Exit, and re-enter after correction.
B. Hold position with some SL.

5. How do I define "SL for Short"?
Based on certain % of capital value (at the end of day we are trading in terms of Rs.)

6. If short position chain is expiring as "zero" or "near zero" on expiring day, should I exit from Long or keep it further?
Check Chart in following order to decide to hold:
1. MA cross-over chances (may happen in 2-3 days), i.e. distance between higher-lower MA are reducing.
2. Current level is coming to near certain Support Level and market may change direction.
3. RSI value is in OS zone

Draft Plan:
I'll be trading only NIFTY Index Option chain.
Will trade only 1 lot for Long position for next months series.
Will go Long on last or first week of month.
Will go short if "SL for short" is hit.
In case if "Short" value decreases(in favour) means Long position against us, let expire "Short" near zero, else square-off on expiring day (or near expire day). You will earn limited gain. What to do with Long after this?

In case if "Short" value increases (against us) means Long position is in our favour, exit "Short" immediately or based on some SL value.

Draft Result Expected:
TBD

Draft Challenges:
TDB

Expectations from forum members:
TBD
__________________
__________________
Escape's Options Trading Diary - Phase 2

Escape's Trading Diary - Options

 

[timepass]

Here is log as of last session.

Log:
NIFTY 25Oct12 CE 5600.00 (B) 200 @ 90.40 (S) 200 @ 89.40 (P/L) -1110.00
NIFTY 25Oct12 PE 5800.00 (B) 900 @ 142.43 (S) 900 @ 142.02 (P/L) +1872.00

Result:
After deducting all charges: Rs. -840.69

What is this ?? Your gross profit is Rs. 762, but you are in net loss of Rs. 840 ?? So you are paying out Rs. 1600 as expenses ??? Who is your broker ??

 

[SexyTrader]

What is this ?? Your gross profit is Rs. 762, but you are in net loss of Rs. 840 ?? So you are paying out Rs. 1600 as expenses ??? Who is your broker ??

Thats very expensive I must say !!

 

[escape]

What is this ?? Your gross profit is Rs. 762, but you are in net loss of Rs. 840 ?? So you are paying out Rs. 1600 as expenses ??? Who is your broker ??

Thank you timepass for noticing this.
I have updated previous post. It was due to copy-paste issue. Here is exact details:

Log:
NIFTY 25Oct12 CE 5600.00 (B) 200 @ 90.40 (S) 200 @ 89.40 (P/L) -200
NIFTY 25Oct12 PE 5800.00 (B) 900 @ 142.43 (S) 900 @ 142.02 (P/L) -369

Result:
After deducting all charges: Rs. -840.69

 

[escape]

Bought 2 lots of Nifty 12OCT2012 PE 5800 @ 133.45, SL 130.45, CMP 133.15 (R) Last resistance breakout.

 

[escape]

Bought 2 lots of Nifty 12OCT2012 PE 5800 @ 133.45, SL 130.45, CMP 133.15 (R) Last resistance breakout.

Exit @ 137.30, Profit of 3.85 points, less brokerages.

 

[thanibee]

Who is your broker?

 

[escape]

Who is your broker?

RKSV (www.rksv.in)