Muinalis way of learning how to trade options

[muinali]

There is no rule that is has to be on STDV one. It always depends on what the market is doing, High vola or Low vola, as some times market not even make one STDV. Then you have to even go down to 0.8 or what ever the market does or you even have to go up to 3 or 4 or 5 STDV in extreme markets.

lets see example
nifty spot price-5910
one standard deviation-around +/-200
strangle strategy-
(1.)considering last range of both side in one standard deviation.
long put 5700 and long call 6100
may be a smart trade
(2.) but is it worth to take position in last range of 2 or 3 standard deviation?
like long put 4400 and long call 7100 or more wide range like 1000-
11000 range as after 2 standard deviation cover 95%.
and 3 stanadard deviation covers 99% and i dont know 4 and 5 standard deviation will also cover rest 1%
this kind of trade if possible, will be innocent or stupid trade.
is itn't?
and ofcouce below one standard deviation ,we can increase winning probablity.
as in indian market 3 month fut exercising ,i dont know about us market or other foreign market.

 

[DanPickUp]

lets see example
nifty spot price-5910
one standard deviation-around +/-200
strangle strategy(strike price-5900)-
(1.)considering last range of both side in one standard deviation.
long put 5700 and long call 6100
may be a smart trade
(2.) but is it worth to take position in last range of 2 or 3 standard deviation?
like long put 4400 and long call 7100 or more wide range like 1000-
11000 range as after 2 standard deviation cover 95%.
and 3 stanadard deviation covers 99% and i dont know 4 and 5 standard deviation will also cover rest 1%
this kind of trade if possible, will be innocent or stupid trade.
is itn't?
and ofcouce below one standard deviation ,we can increase winning probablity.
as in indian market 3 month fut exercising ,i dont know about us market or other foreign market.

Dear Muinali

Not clear what you want to say with that post. As very clearly told from my side< There is no rule to trade STDV one. If the volatility in the market is very low, market some times not even reaches STDV one. As we have readers here from all over the world, you clearly and thankfully finally told that your views are always only on Nifty market.

After Don Fishback published the first time STDV to the public, the market makers took the bond market to STDV 4 and 5 to confuse the people.

If you trade the EC and the S^P 500 at the CME, you will see many times that STDV is not even one. So there is no need to go hypothetically. Just trade what you see and not what you think has to be a rule.

Good trading

DanPickUp

 

[muinali]

dear dan
let it go,i never said this is a rule ,i didn't understand better then this ,as narrow as range if i take position in both leg probabilty toward winning is high,

 

[DanPickUp]

dear dan
let it go,i never said this is a rule ,i didn't understand better then this ,as narrow as range if i take position in both leg probabilty toward winning is high,

Ok, let it go

http://www.youtube.com/watch?v=l_Hsi1tNegA

 

[linkon7]

my question to linkon sir
1.how long squeeze will continue ? is there any way to identify?
2.is there any chance of cheap premium within week in same strategy?

One way of measuring the squeeze is vix which is at 13.5.As a thumb rule, when vix is low... premium is low...!

Vix is low also means a total lack of directional conviction in either direction. It can surprise traders with its lack of interest and stay range bound for a long long time. Whole of december is spent in a 141 point range so far.

I paid roughly 3% for my straddle long. I am expecting a minimum 5% move in either direction. I got 5 week time in my hands. Market can stay range bound whole month and surprise me also.

 

[columbus]

Yes, as Dan sir has also described Bolinger Band technical indicator also gives us a good indication of your stock or index's Implied Volatility .
When the bands are narrow, your underlying is experiencing low volatility.
Chances are your stock or index is also in an uptrend.
In contrast, if the bands are wide, then implied volatility is high.

This makes sense as the upper and lower bands represent a 2 standard deviation move from the simple moving average. most of time stocks and index stay in this range 95% of the time.

The Bollinger squeeze can be used to help identify major trend changes. Traders will often use this together with other technical indicators to try to predict which way the market or stock will “break”.

Non-directional traders find it useful as a “warning sign” that a significant price move may occur.
Remember, Bollinger bands are based on using a simple moving average (usually 20 day) and an upper and lower band. Both the upper and lower bands represent a two standard deviation price move. So the price should stay inside the bands 95% of the time.

Why a 20 day moving average using bollinger bands? This is the "standard setting". However, it makes sense for non-directional traders because you will likely be out of most of your trades in 20 days or so.

The Bollinger squeeze is based on the idea that the market in general goes from times of high volatility to low volatility, then back to high volatility. Low volatility can be seen when the bands contract or get close together.

After a long period of low volatility in the markets (quiet period) the market will sometimes “break” fast into a new trend direction.

As of now, from first week of december nifty trading very narrow range.
Have a look at nifty chart


what will happen next,god knows better,we can assume onlyyyyyyyyyyyy

Bollinger Band is an excellent indicator ,where TOP BAND is considered RESISTANCE
and LOWER BAND as SUPPORT.But it has a small drawback by virtue of it's construction.
Irrespective of UPWARD movement or DOWNWARD ,they will expand.In order to ,rectify
this minor problem ,there is a need to introduce another indicator.That is why ,sometimes
we introduce AVERAGES so that we can not take our eyes from current position.

 

[srichakra]

Can you use the +/- 1 Standard deviation value to predict the high and low range for a stock for the next week or next 10 days. For example, if we do a calculation for a scrip, can we use the range for taking trades.

For example, TATA steel close rate is 432.3
Days to expiry - 28
IV - .2854
I std dev = +/- 34.17

so range for the scrip is 466.47 to 398.12

Am I correct in assuming that the price range for tatasteel for next month will be between 466 as high and low of likely 398.

Let me know,if this can be used

Thanks,
Sri

 

[HSBT]

Can you use the +/- 1 Standard deviation value to predict the high and low range for a stock for the next week or next 10 days. For example, if we do a calculation for a scrip, can we use the range for taking trades.

For example, TATA steel close rate is 432.3
Days to expiry - 28
IV - .2854
I std dev = +/- 34.17

so range for the scrip is 466.47 to 398.12

Am I correct in assuming that the price range for tatasteel for next month will be between 466 as high and low of likely 398.

Let me know,if this can be used

Thanks,
Sri

How did u calculate this range???

 

[muinali]

Can you use the +/- 1 Standard deviation value to predict the high and low range for a stock for the next week or next 10 days. For example, if we do a calculation for a scrip, can we use the range for taking trades.

For example, TATA steel close rate is 432.3
Days to expiry - 28
IV - .2854
I std dev = +/- 34.17

so range for the scrip is 466.47 to 398.12

Am I correct in assuming that the price range for tatasteel for next month will be between 466 as high and low of likely 398.

Let me know,if this can be used

Thanks,
Sri

hey ,are you jeevan mali joshiwaran?

 

[DanPickUp]

Can you use the +/- 1 Standard deviation value to predict the high and low range for a stock for the next week or next 10 days.

For example, if we do a calculation for a scrip, can we use the range for taking trades.

For example, TATA steel close rate is 432.3
Days to expiry - 28
IV - .2854
I std dev = +/- 34.17

so range for the scrip is 466.47 to 398.12

Am I correct in assuming that the price range for tatasteel for next month will be between 466 as high and low of likely 398.

Let me know,if this can be used

Thanks,
Sri

No

And no means no. Clear<

As soon as vola changes and the trend changes, you are out of the game. So again> NO

Other wise test it and come back, but do not complain. Got the point

Good luck

DanPickUp