NIFTY Options Trading by RAJ

[VJAY]

As per the Price Action, NIFTY is in an intermediate down Trend with the overall Trend as UP. The VIX is also Low. So if you are going for Pair Trading then I would still go for SELLing a Pair because when the MArket Goes UP, the VIX will not move much. Today VIX is UP by 2.5%. Hopefully if you get NIFTY around 6200-6220 SPOT, then it would be better to go SELLING a Pair.

The MAX OI has also changed from 6000-6400 indicating that we cannot expect more than 6400. So it would be better to SELL the Pair 6100-6450 which is now available around 130. If NIFTY goes further down, you should get 6100PE with a Higher Premium which should be helping if your bias is on the LONG side.

If you can afford more premium and take a little bit of Risk then SELL 6200PE-6450CE Pair

Dear raj,
can you please explain why you not recos buying strangle/straddle? selling options are always a fear factor for small traders

NB :answer got it from your post itself ...still pls give reco for buying...

 

[Cubt]

You can buy this month put and sell next month call.

munde,

If market goes up on monday, I shall profit from futures and I will lose my put value but shorting next month call will result in higher loss than the profit I get from futures, right.



Pls clarify! I want to understand my risk amount.

 

[munde_77]

munde,

If market goes up on monday, I shall profit from futures and I will lose my put value but shorting next month call will result in higher loss than the profit I get from futures, right.



Pls clarify! I want to understand my risk amount.

Alternatively . You can buy lower strike price pe of the same month and sell higher strike price of ce o f same month. You can use collar trade strategy

The beauty of using a collar strategy is that you know, right from the start, the potential losses and gains on a trade. While your returns are likely to be somewhat muted in an explosive bull market due to selling the call, on the flip side, should the stock heads south, you'll have the comfort of knowing you're protected.

http://www.theoptionsguide.com/the-collar-strategy.aspx

 

[VJAY]

Dear raj,
One of my myth on options ....Please throw some light on it as per your views& experience..

If VIX low=buying options= options are under valued?
If VIX high=selling options=Options are over valued?

 

[healthraj]

Dear raj,
can you please explain why you not recos buying strangle/straddle? selling options are always a fear factor for small traders

NB :answer got it from your post itself ...still pls give reco for buying...

I don't normally recommend Strangle or Straddle because there is a BIG Risk involved because normally the Strikes for Strangle / Straddle should be chosen as ITM/ATM. There is no big gain of doing Strangle or Straddle with the OTM strikes. But we can always go for a Combination of Credit Spreads and Straddle OR Debit Spreads and Strangle.

For Example since we are expecting the market to move UP. We can do a Combination of

SELLing 6050PE-6450CE or 6100PE-6450CE

And BUY the 6250CE-6250PE as a Straddle, Which is more or less available at the same premium. The Premium as you see would be 268. And if the VIX does not move as expected then both the pair will be at a loss even if the market moves 100 points.

So it is basically a question of how much risk you want to take ?

 

[healthraj]

Dear raj,
One of my myth on options ....Please throw some light on it as per your views& experience..

If VIX low=buying options= options are under valued?
If VIX high=selling options=Options are over valued?

You are right. But also take a view on where the market will GO, whether it will go UP or DOWN.

That is the reason I am saying,
When you expect the market to GO UP, SELL Pairs, - VIX/IV will go DOWN
When you expect the market to GO DOWN, BUY Pairs, - VIX/IV will go UP

Because we are in a Trader's Market. We are not in a Real BULL / BEAR market.

 

[anup]

Dear raj,
One of my myth on options ....Please throw some light on it as per your views& experience..

If VIX low=buying options= options are under valued?
If VIX high=selling options=Options are over valued?

Its not myth, its the fact..:thumb::thumb:

Raj can clarify these

 

[healthraj]

Raj,
Need your suggestion on hedging my position. Am long on PNB and YES Bank, PNB if it breaks out 600, possible target 670 and Yes Bank if breaks out 400, possible target 420/450. I have calculated it based on support/resistance.

However I want hedge my long position if in case of BIG BLOW on Monday. Considering IVs, am not sure which strike price to choose. Pls advice. Thanks!

FIRST Of all BANKNIFTY is Trading above the RESISTANCE and so there will always be pressure to SELL unless some magic happens through the ELECTION results and BREAKSOUT.

YESBANK - Currently SHORT Call is LIVE and Trading Above Pivot of 388. If 388 breaks then it can touch 378. So I would buy the 390PE as a Hedge. As per OAT, YESBANK RESISTANCE is at 400 and the current SELL is taken at 399.

PNB - SELL is LIVE from 598. Trading above the Pivot of 581. Support at 567. So if you have Bought the futures, Hedge it with 580PE.

 

[healthraj]

Due to Pre Poll Results, Market has built an Expectation of 4-0 Win for BJP. Mizoram is Not considered because it is a Stronghold for Congress. Now on Monday anything less than 4-0 could be considered as Negative for the market. But if it is a 4-0 and favors BJP, then market can cheer it with another 150-200 points.

I am from Tamilnadu and I can surely say BJP will not even get a Single Seat in Tamilnadu unless they ties with a Regional party like DMK, ADMK.

So for the current Assembly Elections people living in the State will be able to give a more reasonable answer.

I don't want to start some BJP Vs Congress by this post.

We only want to know whether it would 4-0 or not. So those who can speak from their mind, please comment. Those who want to speak from their heart please avoid your comments.

So my suggestion would be to avoid Taking too much risk now. We will know the Result on Monday and We can always take a Trade and make some money in the coming Weeks.

 

[healthraj]

I don't normally recommend Strangle or Straddle because there is a BIG Risk involved because normally the Strikes for Strangle / Straddle should be chosen as ITM/ATM. There is no big gain of doing Strangle or Straddle with the OTM strikes. But we can always go for a Combination of Credit Spreads and Straddle OR Debit Spreads and Strangle.

For Example since we are expecting the market to move UP. We can do a Combination of

SELLing 6050PE-6450CE or 6100PE-6450CE

And BUY the 6250CE-6250PE as a Straddle, Which is more or less available at the same premium. The Premium as you see would be 268. And if the VIX does not move as expected then both the pair will be at a loss even if the market moves 100 points.

So it is basically a question of how much risk you want to take ?

Those who want to Buy a Straddle 6250CE-6250PE is just an example. Ideally I would wait till the market touches 6200 and the 6200-6200 Pair