NIFTY Options trade : Why and what-if...

[adityasaraf007]

Looking at Change in OI for today..... It looks like we are at crossroads..... Change is similar in both Calls and Puts.... Looks like we may soon have a good trending move.....

The question now is........ who would win the battle: Bulls OR Bears.....


@sudris: I guess you are confused as to how Columbus Sir has selected the Strikes from 4600 to 5500 for Calls and Strikes from 4000 to 4900 for Puts........ As far as I have seen...... he selects the Strikes where Total OI (extreme columns on both right and left side) is more than 1 million.... And the common strikes to both Call and Put are described as Effective Zone by him....

 

[VJAY]

The effective zone continues to be 4600~4900 ,with 2 strikes on PUT side
and 2 strikes still OPEN.So bias is still NEUTRAL.Next couple of trading days
likely dictate the course of market since the options pertaining to CALL and
PUT side are 13.7M and 14.1M in the EFFECTIVE ZONE.

@sudris,

We have 2 windows CALL & PUT, a zone common to both windows is
Effective Zone, because this small window moves the way market is
moved.

Dear Colubus,
Nice educative analysis....thanks for sharing with us the same....
what you mean bolded part?please explain little bit
Is you concluded anything from it since you started it with us...please give clue if you got anything? options are still everest for me

 

[LivetoTrade]

PCR reduced marginally.

4800 to 4600 Puts were about +20% during the day, but ended in negative eod.

In Cash Segment, FII have bought for 10Cr today, and DII have sold 198.88Cr.

In Futures, FII have sold 367Cr of Index Futures.

What moved the market up ???

 

[columbus]

Dear Colubus,
Nice educative analysis....thanks for sharing with us the same....
what you mean bolded part?please explain little bit
Is you concluded anything from it since you started it with us...please give clue if you got anything? options are still everest for me

Hi Vjay,

I think the chart explains in better way than my words.
My logic is , market moves the way ,the MORE STRIKES ARE OPEN.
Because interest will be more that side and more amount of premium.
Well ,still I am student learning OPTIONS.

My conclusion is ,OPTIONS are far better than FUTURES.
(Of course .not before EXPIRY)

 

[DanPickUp]

What moved the market up ???

You decided that market had to go up and that made it. :clapping::clapping:

 

[sudris]

Hi Sudris

I am clear about the word Calculation. And exactly that made me thinking that you may are on the wrong path of what is meant by combination.

First we observe and then we combine our information to make a conclusion which can improve our odds for the next trade. If you are looking for a method you can add one and two is three and then take the trade build on that information, you are definitely speak with the wrong man.

What I talk here is about the combination of different, various informations like Numbers, Events, General valuation of certain things, Market sentiments and what ever you think is important for you to make a complexer trading decision.

As we here talk about option trading , the conclusion of all that leads me to the option strategy I am going to implement under that circumstances. That is not to compare with future, forex and share day trading. I will give you an example and then my work is done. Fine tuning it in your market is your own work.


- We observe a very high put call ratio ( For ex: 1:2 ) which shows that more calls are bought compare to puts.

- At the same time we also observe very low volatility in an up trending market ( Monthly low or three month low ), which shows that people are careless and expect market only to move up.

- On the other hand we also know, that option expiration is not far away ( Only a few days like 5-2 day ) and we see on the price chart that the market, in which we trade, is on a quit high level. As we also know that market is random, some body has to pay the bills at option expiration. As there are so many calls in the market, some body is interested that the put side is getting bigger.

Now we have all that information and knowledge and we start to combine them to the conclusion: Aha, the chance of a trend reversal or at least for a break back is at the moment quit high. Why ?

- PCR 1:2 = To many calls in the market
- IMV very low and market is in an up move = Change of a break back is getting bigger
- Option expiration is near = Some body is interested not to pay premiums to all this call holders.

What is left ? The Option strategy.

Choose one which you understand and choose one which gives you an advantage in case the odds are granted and the market moves down for a correction.

DanPickUp

Thanks Dan for the detailed reply.

Two things where I would like to differ.

1. If one can get fair idea based on the option's figures(PCR, IV, OI) to come up with an options strategy, what makes you say it could not be applied to the underlying instrument?
   say, as per the example you gave, you would either long the puts or short the calls or both. would you not involve the underlying instrument in your strategy?
   
   
2. High PCR is when volume of puts outnumber the volume of calls ie, more puts are traded compared to calls, isn't it?

 

[sudris]

The effective zone continues to be 4600~4900 ,with 2 strikes on PUT side
and 2 strikes still OPEN.So bias is still NEUTRAL.Next couple of trading days
likely dictate the course of market since the options pertaining to CALL and
PUT side are 13.7M and 14.1M in the EFFECTIVE ZONE.

@sudris,

We have 2 windows CALL & PUT, a zone common to both windows is
Effective Zone, because this small window moves the way market is
moved.

Hi columbus,
thanks but it is still not clear.
in layman's words, how do you define this commonness? is it OI, netchange, volume? what is the criteria

@sudris: I guess you are confused as to how Columbus Sir has selected the Strikes from 4600 to 5500 for Calls and Strikes from 4000 to 4900 for Puts........ As far as I have seen...... he selects the Strikes where Total OI (extreme columns on both right and left side) is more than 1 million.... And the common strikes to both Call and Put are described as Effective Zone by him....

thanks aditya. but if that was the logic then what difference is there for strikes with OI as 0.9 and 1 million, aren't they close enough?

 

[sudris]

Hi Vjay,

I think the chart explains in better way than my words.
My logic is , market moves the way ,the MORE STRIKES ARE OPEN.
Because interest will be more that side and more amount of premium.
Well ,still I am student learning OPTIONS.

My conclusion is ,OPTIONS are far better than FUTURES.
(Of course .not before EXPIRY)

Once again, what exactly do you mean by "MORE STRIKES ARE OPEN"
Do you mean that the strikes highlighted by the arrows could come in the common zone?

Also, how do you neglect the strikes in the shaded region in both the windows, calls and puts?

 

[DanPickUp]

Thanks Dan for the detailed reply.

Two things where I would like to differ.

1. If one can get fair idea based on the option's figures(PCR, IV, OI) to come up with an options strategy, what makes you say it could not be applied to the underlying instrument?
   
   say, as per the example you gave, you would either long the puts or short the calls or both. would you not involve the underlying instrument in your strategy?
   
   
2. High PCR is when volume of puts outnumber the volume of calls ie, more puts are traded compared to calls, isn't it?

Hi Sudris

Good questions !

Even than:

Where did I say, in the words you wrote down, that it not can be applied to the underlying instrument?

Next point about the strategy:

Your comment:

"As per the example you gave, you would either long the puts or short the calls or both. would you not involve the underlying instrument in your strategy?"

My answer was:

Choose one which you understand and choose one which gives you an advantage in case the odds are granted and the market moves down for a correction.

Now I ask you where you can read that I did mention any specific strategy like taking a put or shorting a call?

You are not wrong by guessing that.

But there are many more strategies which offer an advantage for that situation.

As I told: Choose one which you understand and if you understand a long put and a short call, stay with that.

If you have other ideas, why don't you explain them once here?

I mentioned a few strategies in AW10 threads and never was ask about them. So why should I always show and never receive?

DanPickUp

 

[columbus]

Hi columbus,
thanks but it is still not clear.
in layman's words, how do you define this commonness? is it OI, netchange, volume? what is the criteria


thanks aditya. but if that was the logic then what difference is there for strikes with OI as 0.9 and 1 million, aren't they close enough?

Once again, what exactly do you mean by "MORE STRIKES ARE OPEN"
Do you mean that the strikes highlighted by the arrows could come in the common zone?

Also, how do you neglect the strikes in the shaded region in both the windows, calls and puts?

Hi sudris,

Aditya did explain in a nice way.Let me explain once again.

in layman's words, how do you define this commonness? is it OI, netchange, volume? what is the criteria
When the total OI jumps from LAKHS to MILLIONS ,I took it as a border line.
By doing so ,HIGH PRICED options are removed.(Have a look at the
accompanied chart.) Low priced options (premium less than 10Rs.) are
deleted by giving a colour to it.Please bear in mind that ,these is as per
the CURRENT day's data.Today's penny priced options may become fat
priced if the market moves in that direction.
EFFECTIVE zone is formed automatically with CALL window with
PUT window.

thanks aditya. but if that was the logic then what difference is there for strikes with OI as 0.9 and 1 million, aren't they close enough?

You need a criterion to differentiate.OI=0.9M of today may turn 1.9M
tomorrow.Accordingly CALL/PUT windows modify themselves.

Also, how do you neglect the strikes in the shaded region in both the windows, calls and puts?
Neglected for time being,if market moves then they will be due POSITION.