Nifty Futures Trading

[coolboy007]

wat nifty behaving lagta hain bade fall ki tayari kar raha hain

It seems that 1 year of bear mkts has simply changed every1 mentality that every rally will be shortlived and we will see a fall. Now mkts are making Higher lows and Higher highs. I lost heavily in Dec due to this assumption that we will fall after every rally and PE turned 0 So dont take it for granted that we will fall if we Go up.

It seems Q3 results are not bad , FII DII are buying heavily every day and they for sure will be having some news. Bear mkt rallies are ferocious and it seems we are riding one.
So many Green candles these days with tiny tiny Red candles. Back of Bears has been broken today and a close now above 3200-3250 is all that is reqd for bache kuche parts.
I am quite surprised by the near Vertical rises on Nifty , were the Volumes normal or better that last few days.??

 

[TrendPlayer]

Spot closes above 3110 @ 3121.45 on settlement basis....
A new higher high has been recorded for EOD charts


and just to analyse:
Fut from 3085 to 3138 = 53
Call 3100 from 115 to 139 = 24
Put 3100 from 127 to 101 = 26

So, hedges cost the same...

Sunil: Lets keep this anaylsis on for few days to arrive at good hedging option.

 

[arnav_rulz]

Spot closes above 3110 @ 3121.45 on settlement basis....
A new higher high has been recorded for EOD charts

and just to analyse:
Fut from 3085 to 3138 = 53
Call 3100 from 115 to 139 = 24
Put 3100 from 127 to 101 = 26

So, hedges cost the same...

No Sunil... The hedges dont actually cost the same ...
They are looking the similar because the time frame is very small and also the rise/fall in nifty is also not that big...

See your question was ..

what is more advisable for a long position in a scrip - selling its ATM call or buying ATM put?

Well both are advisable ... but depending on the your frame of mind ...

the Basic Thing states that if you foresee a sharp rise/fall then Buying the Put is advisable .. but if you believe there will be some consolidation then Selling the Call is better ...

But this is not enough... We should go deeper than this basic..
As For my advice ... Check out 2 things ...

1)Supports and resistances and
2)Even more Important is your Time Frame..

First Coming to Time Frame ...
A)If your time frame is 5 or less days ... Buying the Put is better Anyday especially if your far from expiry ...

This is because i am taking an assumption that in 5 days the time value of Options wont decrease..

Now why is Buying the Put better... lets take an example
Nifty is @ 3000
Put 3000 = 150
Call 3000 = 150

1)Now Taking that Nifty is same after 5 days... then after 5 days the Rates of call and put will remain the same thus there is no difference...

2)Now If after 5 days say nifty falls/rises only a small amount .. say 3100/2900...
Even now @ 3100 Call would trade somewhere around 200 whereas the Put will be somewhere around 95... So again not a big difference ..
Similarly @ 2900 Put will be 205 and call will be 100... So no difference agn.


3)BUT if there is A big move Up/Down ... Now Put will be far better ..
Say nifty = 3200/2800
@ nifty = 3200, the 3000 Call will trade at atleast 275(you lose 125) whereas even if the 3000 Put trades @ 75 then you lose only 75 , thus you save atleast 50.. And you keep loosing more(in case of call..) as nifty rises..
Even @ 2800... say your call trades @ 70 (you gain 80) whereas your Put will trade somewhere near 270(you gain 120) thus Put is better and it will earn more as Nifty falls more...

Thus IMO if your Time period is Short(even for intraday) Buying the Option is anyday better and selling the Opposite Option.


B)Now if say your Time period Is Say Larger ... Here My advise is Generally to Sell the option ONLY IF you are NOT Expecting a VERY Sharp rise/fall..

Again We will take an example and Say ... Our time frame is Expiry (for easier Calculation)
Nifty 3000
Call 3000 = 150
Put 3000 = 150

Now again the 3 same conditions...
1)Nifty is @ 3000 on expiry ... Clearly you gain 150 If you sold the call and will lose 150 if you Brought the Put ..(thus a 300 Point advantage for the call)

2)Nifty is @ 3100 on expiry.. You gain 50 from call but lose your 150 in Put ... So Again Call is better ..

3)Nifty @ 3300 .. You lose 150 in Call But you would have lost the same amount if you sold the Put So no Difference in buying/selling the call..

Thus only above 3300 and below 2700 (similar example) the Put is Better Than Call... So My advise .. Sell an Option rather than Buy an opposite Option When you have a bigger Time frame



Now another reason i say that Bigger time frame and selling in Option is better is a becaz of Combination Of both Supports and Resistance with it ..

Again Say taking the Present Senario ...
Nifty is trading @ 3100
Call = 150
Put = 150

Strong Resistance = 3250
Strong Support = 2800-2900 ?

Now When We Combine Both the Charts and Options... we will have to assume that It will take time/it will not be easy for Nifty to Break any of these Levels ..

So What should person holding a long position Do to hedge ?

Well i say SELL a CALL...

Cause say Nifty goes uptill 3250 ! BUT there is should stop pull back a bit andthen maybe resume upward journey.. And By this time The Month Usually gets Over !! And similar is the case for Nifty to Break 2800 ...

Thus After Calculating according to examples above ... It is clear that Selling the Call would have been a Much better Option than Buying a Put ..


**Well .. Srry if a made a mistake anywhere here... Never wrote such a Big Post !! hehe
Will be most happy to Listen to other boarders comments/advice and Any add on's to this...

 

[madcap]

Hi, This is my first post. Wishing all of you a joyous and bountiful 2009. Regarding selling options or buying the opposite option, IMHO selling options opens one up to unlimited risks. So it is probably more prudent to buy the opposite option, where loss will be limited to the premium paid.

Regards

 

[Sunil]

Hi, This is my first post. Wishing all of you a joyous and bountiful 2009. Regarding selling options or buying the opposite option, IMHO selling options opens one up to unlimited risks. So it is probably more prudent to buy the opposite option, where loss will be limited to the premium paid.

Regards

Welcome to this forum, Madcap.



Actually, the discussion is not about buying or selling naked options...
It's about what is more advisable to HEDGE a LONG position in FUTURES...

Thanks for your input.
Keep sharing your views.

 

[Sunil]

Arnav,

What can I comment...??? !!!

You have hit the nail right on spot. You have perfectly described the two scenarios viz from coming week's point of view & nearly till or week before expiry point of view. They have covered all my doubts...

Your argument & your suggestion seems correct to me. In this week, if we indeed have a correction (before next week's rally), then a long put option will be more profitable than a short call option (due to time value)....
Infact, another important aspect is to choose the strike price smartly & reasonably...

Buying deep OTM puts when you r bearish just because they are cheap, & expecting a deep gash of october falls, is not a good idea.


The thought process actually started early morning when I read Economic Times' Monday special - Investor Guide.
Advice to those already holding long positions: Book profits as & when Nifty approaches 3200-3250. If want to hedge, then buying 3200 PUT is recommended.
Reason = Volatility being as low as it is, it might happen that any loss in the intrinsic value of 3200 put is compensated enough by a rise in its time value.

Thanks a million, Arnav...
Looking forward to more such "long" posts (I plan to put it in our Library thread; I guess hedging is also a setup for overnight positions)

 

[Sunil]

WHO WILL BELL THE CAT (ie the bull)

I wanted to know how far can this rally sustain? Where's the next meaningful resistance? What's does the W I D E screen view tell me?

Here's the Daily chart of last five years. I went to MS Paint, and started marking out super-key RSR levels.

I was surprised to find this sequence:
2200
2600

3200
3600

4200
4600

5200
5600

ie x200 & x600 are appearing in a sequence.
with a sole exception of 3800 which is actually a 50% FIB level - right at centre.

 

[myvineet]

it looks from chart that after crossing 3200, it will have target of atleast upto 3600

 

[Sunil]

it looks from chart that after crossing 3200, it will have target of atleast upto 3600

hmm...
CLOSE above 3200 for atleast 2 consecutive days is required for that...

as of now, looking at higher TF charts, more consolidation between 3200 & 3000


as at close yesterday, RSI:
5min = 78
60min = 73

 

[jstraju]

Hi,
For inside bar can we consider previous days 3-3:30 bar and todays first 5 min bar,
This would be interesting because of Important reference points like Previous close,Todays open,5 min break out(ORR) etc,
Thanks,
Raju.