NIFTY Options Trading by RAJ
- Thread starter healthraj
- Start date
- Tags nifty options chain raj oat
Rule 1 to 6 are more general Rules. Now comes the most important Rule. With all these Rules we have to now take a position. The possible options we have are
Naked Options
Debit Spreads
Credit Spreads
I will put down my experience on the above. So use these more as an observation and not as a Rule because I am still learning.
For Naked Options and Debit Spreads we want the VOLT to increase or Stay ASIS but we definitely don't want the VOLT to come down which will hurt our positions. From My experience the VOLT increases when the Market goes down and the VOLT Decreases when the Market goes UP. VOLT is also a function of INDIAVIX. So you can use VIX and VOLT interchangeably.
So General Rule would be
- Go for Debit Spreads when you feel that the market is on DOWN TREND
- Go for Credit Spreads when you feel that the Market is on an UP TREND
So the basic assumption is on the VOLT. Now in a REAL BULLISH market, VOLT can Go UP also. Now somebody can say that Market has moved from 5100 to 6100. Will you not call it a BULL market. The answer from my point of view is NO, it is not a BULLISH market.
After all these rules, We have to finally Take a call on where the market will Go. UP or DOWN. The second thing is we also need to have an idea on Where the VOLT will go, UP or DOWN. So a combination of Market Trend and VOLT should help take the Debit Spread or Credit Spread.
VOLT UP + MARKET UP = Debit Spread = REAL BULLISH Market
VOLT UP + MARKET DOWN = Debit Spread = REAL BEARISH Market
VOLT DOWN + MARKET UP = Credit Spread = REVERSAL
VOLT DOWN + MARKET DOWN = Credit Spread = REVERSAL
So you can see that finally it is a GAME OF VOLT and we end UP predicting the VOLT
JULY-13 - Market was going UP - VOLT was flat and so Credit Spreads were profitbale
AUG-13 - Market was going DOWN - VOLT was going UP - Debit Spreads would have been profitable
SEP-13 - Market was going UP - VOLT was going DOWN - Credit Spreads would have been more profitable
OCT-13 - So far Market is going UP - VOLT is coming down - Credit spreads would have been profitable.
One more important data you have to observe is that the INDIAVIX normally is in the Range of 20-25 for the majority of the time and where all our General Rules would be successful.
Naked Options
Debit Spreads
Credit Spreads
I will put down my experience on the above. So use these more as an observation and not as a Rule because I am still learning.
For Naked Options and Debit Spreads we want the VOLT to increase or Stay ASIS but we definitely don't want the VOLT to come down which will hurt our positions. From My experience the VOLT increases when the Market goes down and the VOLT Decreases when the Market goes UP. VOLT is also a function of INDIAVIX. So you can use VIX and VOLT interchangeably.
So General Rule would be
- Go for Debit Spreads when you feel that the market is on DOWN TREND
- Go for Credit Spreads when you feel that the Market is on an UP TREND
So the basic assumption is on the VOLT. Now in a REAL BULLISH market, VOLT can Go UP also. Now somebody can say that Market has moved from 5100 to 6100. Will you not call it a BULL market. The answer from my point of view is NO, it is not a BULLISH market.
After all these rules, We have to finally Take a call on where the market will Go. UP or DOWN. The second thing is we also need to have an idea on Where the VOLT will go, UP or DOWN. So a combination of Market Trend and VOLT should help take the Debit Spread or Credit Spread.
VOLT UP + MARKET UP = Debit Spread = REAL BULLISH Market
VOLT UP + MARKET DOWN = Debit Spread = REAL BEARISH Market
VOLT DOWN + MARKET UP = Credit Spread = REVERSAL
VOLT DOWN + MARKET DOWN = Credit Spread = REVERSAL
So you can see that finally it is a GAME OF VOLT and we end UP predicting the VOLT
JULY-13 - Market was going UP - VOLT was flat and so Credit Spreads were profitbale
AUG-13 - Market was going DOWN - VOLT was going UP - Debit Spreads would have been profitable
SEP-13 - Market was going UP - VOLT was going DOWN - Credit Spreads would have been more profitable
OCT-13 - So far Market is going UP - VOLT is coming down - Credit spreads would have been profitable.
One more important data you have to observe is that the INDIAVIX normally is in the Range of 20-25 for the majority of the time and where all our General Rules would be successful.
The Problem with the Rule 7 was the basic assumptions which are made with respect to Implied Volatility and say INDIAVIX.
The Assumptions made in Rule 7 were
- Go for Debit Spreads when you feel that the market is on DOWN TREND - Does not work always because we are making an assumption that In a downtrend the Volatility will go UP
- Go for Credit Spreads when you feel that the Market is on an UP TREND - Does not work always because we are making an assumption that In a downtrend the Volatility will go DOWN
VOLT UP + MARKET UP = Debit Spread = REAL BULLISH Market - Difficult to Predict VOLT
VOLT UP + MARKET DOWN = Debit Spread = REAL BEARISH Market- Difficult to Predict VOLT
VOLT DOWN + MARKET UP = Credit Spread = REVERSAL - Difficult to Predict VOLT
VOLT DOWN + MARKET DOWN = Credit Spread = REVERSAL- Difficult to Predict VOLT
My Modified Rule
- Take the MAX OI or Find a suitable pair - We will always SELL this Pair
- Find the Trend using the Hourly charts - If We feel the market will go down we will BUY Put and Will Buy Call if we feel that Market will GO UP. So yes In Trading we have a to take a Decision or a BIAS based on the charts. Simply Selling OI Pair does not always work. Actually it works 90%. But the 10% of the times it does not work because of the VOLT Shoot up and takes away all your Money. So this additional BUYing or Calls or Puts is to Cover the sudden Spurt in Volatility Or in other words I think this strategy will be Volatility Neutral.
- One more change is for the BUY Call/Put I always choose a ITM/ATM Option so that the Change in VOLT does not really affect the position.
- The other important point is to choose Call / Put strike so that it is slightly greater than combined premium of the pair. In other words we are financing our Calls or Puts by selling the Pairs.
Sample Trades taken from 13-MAR-14.
13-MAR-14 : NIFTY - OPEN - BUY 6500CE@97, SELL [email protected], SELL 6600CE@54 - Net out flow 18
27-MAR-14 : NIFTY - CLOSED - SELL [email protected], BUY [email protected], BUY 6600CE@37 - Profit of 70 points
27-MAR-14 : NIFTY - OPEN - BUY [email protected], SELL [email protected], SELL [email protected] - Net flow 5.3
31-MAR-14 : NIFTY - CLOSE - SELL [email protected], BUY [email protected], BUY [email protected] -Profit of 25 points
31-MAR-14 : BANKNIFTY - OPEN BUY 13000PE@468, SELL 12000PE@117, SELL 13000CE@337 - NET FLOW 14
31-MAR-14 : BANKNIFTY - CLOSE SELL [email protected], BUY [email protected], BUY [email protected] - Profit of 80 points
09-APR-14 : SBIN- OPEN BUY [email protected], SELL [email protected], SELL [email protected] - NET -0.7
15-APR-14 : SBIN- CLOSE SELL 2020PE@73, BUY [email protected], BUY [email protected] - Profit of 34 points
Now that we have VIX futures, what are your thoughts on using VIX futures directly to take advantage of the movement of VIX?
1. Even though it is a future, the volatility is much greater (almost like options).
2. VIX tends to range between a upper and lower band.
These are the disadvantages that i know of:
1. Low liquidity
2. High margins
3. Weekly contracts/frequent rollovers
1. Even though it is a future, the volatility is much greater (almost like options).
2. VIX tends to range between a upper and lower band.
These are the disadvantages that i know of:
1. Low liquidity
2. High margins
3. Weekly contracts/frequent rollovers
Now that we have VIX futures, what are your thoughts on using VIX futures directly to take advantage of the movement of VIX?
1. Even though it is a future, the volatility is much greater (almost like options).
2. VIX tends to range between a upper and lower band.
These are the disadvantages that i know of:
1. Low liquidity
2. High margins
3. Weekly contracts/frequent rollovers
1. Even though it is a future, the volatility is much greater (almost like options).
2. VIX tends to range between a upper and lower band.
These are the disadvantages that i know of:
1. Low liquidity
2. High margins
3. Weekly contracts/frequent rollovers
Agreed. Yes the greatest challenge was the VOLT, which is not like the Price chart, where someone can predict. So the strategy to me is Volatility neutral. But the important catch is to keep switching between Calls and Puts and once you have sold the pair. If i have to take an example,
On 15-APR, when the Trend was down, SOLD 6000PE-7000PE at around 280 and bought 6800PE@ 300. So the outflow was 20.
On 17-APR, there was a Reversal. So Closed the 6800PE @ 325 - 25 points profit. That time 6000-7000 Pair was trading at 240 - With 40 points profit. But did not close the 6000-7000 Pair. Bought 6700CE around 265. So my net flow was 25 points compared to 240 and not 280.
Today it is at a overall profit of around 140 points. So the key is to catch the Reversal using the Hourly charts. You don't need to be exact because the cushion will come from the Pair that you have sold.
Now What if you have sold only the pair 6000-7000 for 280. You will still be making some profit now because the pair is trading around 240. But then you would be around 40 points instead of 140 points...
Now I must also tell you that Catching the reversal is not very difficult if you just follow the Hourly charts.
Today I had closed the 6700CE with 100 points and went for 6900 PE @ 255. Net flow of 15 points. The 6000-7000 Pair is still trading at around 240.
So the 280 points will come to you only at the end of MAY-14 Series.
To Summarize
There is no strategy which can be RISK FREE from GAP UP / DOWN. But we can handle a REVERSAL if we catch the REVERSAL correctly.
SELL the MAX OI Pair or an appropriate pair which you think can act as cushion and which would not broken in the month. (You can use Weekly Resistance and Support).
Then keep switching between a ITM/ATM Call / Put based on the Trend in the hourly charts (I use hourly charts because I don't want to change my positions every hour) and keep booking the profits. Some one can use a lower timeframe also. NEVER fo LONG on OTM Call/Put
I hope it is a simple strategy, which works well even when the VOLT GOES UP.
When the VOLT Goes UP the loss in the SELL Pair should be compensated by the LONG Call/Put (Provided you are in the right direction)
When the VOLT Goes DOWN the loss in the the LONG Call/Put should be compensated by the Sold Pair (Provided you are in the right direction)
On 15-APR, when the Trend was down, SOLD 6000PE-7000PE at around 280 and bought 6800PE@ 300. So the outflow was 20.
On 17-APR, there was a Reversal. So Closed the 6800PE @ 325 - 25 points profit. That time 6000-7000 Pair was trading at 240 - With 40 points profit. But did not close the 6000-7000 Pair. Bought 6700CE around 265. So my net flow was 25 points compared to 240 and not 280.
Today it is at a overall profit of around 140 points. So the key is to catch the Reversal using the Hourly charts. You don't need to be exact because the cushion will come from the Pair that you have sold.
Now What if you have sold only the pair 6000-7000 for 280. You will still be making some profit now because the pair is trading around 240. But then you would be around 40 points instead of 140 points...
Now I must also tell you that Catching the reversal is not very difficult if you just follow the Hourly charts.
Today I had closed the 6700CE with 100 points and went for 6900 PE @ 255. Net flow of 15 points. The 6000-7000 Pair is still trading at around 240.
So the 280 points will come to you only at the end of MAY-14 Series.
To Summarize
There is no strategy which can be RISK FREE from GAP UP / DOWN. But we can handle a REVERSAL if we catch the REVERSAL correctly.
SELL the MAX OI Pair or an appropriate pair which you think can act as cushion and which would not broken in the month. (You can use Weekly Resistance and Support).
Then keep switching between a ITM/ATM Call / Put based on the Trend in the hourly charts (I use hourly charts because I don't want to change my positions every hour) and keep booking the profits. Some one can use a lower timeframe also. NEVER fo LONG on OTM Call/Put
I hope it is a simple strategy, which works well even when the VOLT GOES UP.
When the VOLT Goes UP the loss in the SELL Pair should be compensated by the LONG Call/Put (Provided you are in the right direction)
When the VOLT Goes DOWN the loss in the the LONG Call/Put should be compensated by the Sold Pair (Provided you are in the right direction)
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