NIFTY Options Trading by RAJ

[mohan.sic]

Going back to fundamental reason of this thread,
Raj developed the system to give us an edge in executing short straddle strategy. Looking at the MAX OI position we need to sell OTM CALL - PUT pair. That was the primary strategy.
My observations over last 2 - 3 months:
1. Option chain analysis is not appropriate for positional / day futures trading (Raj developed a separate tool for that called MTP).

you say not good for day trading ?


2. The COI action 15 - 20 mins after market opens gives a good idea about direction ( bullish / bearish ). E.g there were no put writers yesterday in the 1st half so it was a very bearish day. Today there are no call writers so ...... you get the idea

I really dont understand your example. Yesterday in the 1st half, market was clearly down right from the opening ( trending downside market with no consolidation pattern ). So how can we see put writing ? Neither smart money nor dumb money would write puts in sell off. So it was bearish not because there were no put writing... There was No put writing because it was bearish.

3. The average of call - put COI gives a pretty good idea about the range and target for the day.

Most of the times, distance between the strikes with max change in OI of CE & PE is atleast 4 strikes. So do we need some logic to consider that market would be in a range of 200 pts.

4. Like all technical indicators option chain analysis may give wrong signal / frequently changing signal in an extremely volatile market (like we have seen in last 4- 5 sessions)
Mohan is correct in saying option chain will not always give a reversal signal before it happens. It however gives a clear vision of market direction which is all a trader need to stay with the market direction

What about markets like today.. has it giving any clear vision of the wave pattern formed today. Up.. Down.. Flat .. Up ..Flat

 

[healthraj]

NIFTY Daily, Weekly and Monthly Futures Charts

Daily

Weekly

Monthly

 

[healthraj]

OI numbers what we see are result of what already happened in the market.
so it is not certain that, now market should move as what is hinted by option chain at this point.

How are you so certain that it is an After effect ?
When you see the MAX OI at 8000-8500, what it says is that the Top could be 8500 and bottom could be 8000.

Do not think that OI will always change prior to price and will give you reversal signals.
OI changes occur parallel to market movement, and that is why by the time you notice changes in OI signalling a direction, you will see market has already taken that move.

The Change in OI gives an indication. The argument of saying that the changes occur after market movement is not correct. In that case it will be true for all the Technical signals. It also amounts to saying we cannot take any entries.

So most of the times option chain analysis on eod will look like a cooked dish.
but real time it is

At the end of the day, Day trading is always Risky. So whatever technical we use for Day trading it is not going to be 100% correct.

If you have a feeling that Options Chain is not a leading indicator, then do not use Options Chain.

For doing Day trading, I have explained the strategy to use COI. So it is possible to Day trade using COI.

But the Basic low risky strategy that I suggested was using OI. For whatever system or strategy you should have belief and you should observe and practice. There is no magic. Every profession requires some traits or skills. Trading requires a skill of taking Risk at the right point in time and sticking to your positions.

 

[hardik229]

Raj,

Please provide your thought on the post 7210.

Thanks..!!
Hardik Shah

 

[healthraj]

Hi Souma,

I want to add 2cents from my end.
- I read somewhere that OI analysis wont work for trending market.
- Moreover Raj mentioned somewhere, any given day if the VIX is up for 5% then better to close the position as more positions are being built in OTM calls and puts. Better to settle down the Vix and take a trade.

So as per my understanding, on 6th May in the morning itself one should have closed their position and waited for VIX to settle.

@ Raj: Please provide your thought on the above points.

I am still learning. I need clarification on this from seniors.

Thanks..!!
Hardik Shah

OI Analysis works for Trending market. But the strategy of SELLing pairs might not work. Yes the indication might come from the VIX. So all these applies only when someone is trading pairs and not for someone who has taken a Naked Call / put

 

[soumanag]

Going back to fundamental reason of this thread,
Raj developed the system to give us an edge in executing short straddle strategy. Looking at the MAX OI position we need to sell OTM CALL - PUT pair. That was the primary strategy.
My observations over last 2 - 3 months:
1. Option chain analysis is not appropriate for positional / day futures trading (Raj developed a separate tool for that called MTP).

you say not good for day trading ?


2. The COI action 15 - 20 mins after market opens gives a good idea about direction ( bullish / bearish ). E.g there were no put writers yesterday in the 1st half so it was a very bearish day. Today there are no call writers so ...... you get the idea

I really dont understand your example. Yesterday in the 1st half, market was clearly down right from the opening ( trending downside market with no consolidation pattern ). So how can we see put writing ? Neither smart money nor dumb money would write puts in sell off. So it was bearish not because there were no put writing... There was No put writing because it was bearish.

3. The average of call - put COI gives a pretty good idea about the range and target for the day.

Most of the times, distance between the strikes with max change in OI of CE & PE is atleast 4 strikes. So do we need some logic to consider that market would be in a range of 200 pts.

4. Like all technical indicators option chain analysis may give wrong signal / frequently changing signal in an extremely volatile market (like we have seen in last 4- 5 sessions)
Mohan is correct in saying option chain will not always give a reversal signal before it happens. It however gives a clear vision of market direction which is all a trader need to stay with the market direction

What about markets like today.. has it giving any clear vision of the wave pattern formed today. Up.. Down.. Flat .. Up ..Flat

Hi Mohan,

Really appreciate your comments. This has led me to articulate my strategy / though process as below. Would highly appreciate your views on these

1. I really dont think its a good idea to use option chain analysis for day trading in futures since it is a delayed / lagging indicator. Better to use a polynomial support - resistance indicator as being posted by Raj recently. I am trying to combine option analysis with Pivot - support - resistance levels at present and see whether it works.

2. Day before yesterday it was clearly a down trend from the beginning. Charts were clearly indicating that. I used the charts along with the option analysis to reaffirm the down trend. I wanted to be ready for an up move / slowdown in down movement in case there was some PUT writing / lessening in call writing which never happened. Yesterday was a bullish day since the call writing was minuscule compared to put writing. Later in the 1st half call writing picked up and gave a bearish signal which again reduced when Europe opened so we ended up bullish (as far as I remember). This was reflected in charts also (I use pivot - support - resistance in charts no other indicator). Bottom line is I don't use option analysis on stand alone basis and try to combine it with other indicators to reaffirm my conviction.
I took two trades (actual, not paper) one when the market was going up when the option chain indicated bearish trend and it was near resistance levels, second when the market was at support and option chain indicated call COI was reducing.

3. Raj has said in one of his earlier posts that if the range is wide then the market move tends to be flat. Often the range becomes very narrow ( 100 pts say) and I look for those opportunities to get in trade.
E.g today in the morning the range was 7900 - 8300 which gave a target of 8100. However now the range has shifted to 8300 - 8100 giving a target of 8200. On futures chart the pivot is at about 8210 and it is hovering around that poit. At this moment MAX OI & COI for put are at 8100. So any downward movement breaking pivot level will give me a target of 8110 (10 pts premium) for futures where there will be a chance of reversal.
You see this is a study in progress and I know it needs a lot of work before it can be successfully implemented in trades on consistent basis.
4. With respect to my earlier point the system is indicating a flat to negative market till this moment. But as I said COI is pretty dynamic and any reduction in 8300 call / increase in 8100 put would signal a up move.
Comments from other members will be highly appreciated.

 

[mohan.sic]

Hi Mohan,

Really appreciate your comments. This has led me to articulate my strategy / though process as below. Would highly appreciate your views on these



2. Day before yesterday it was clearly a down trend from the beginning. Charts were clearly indicating that. I used the charts along with the option analysis to reaffirm the down trend. I wanted to be ready for an up move / slowdown in down movement in case there was some PUT writing / lessening in call writing which never happened. Yesterday was a bullish day since the call writing was minuscule compared to put writing. Later in the 1st half call writing picked up and gave a bearish signal which again reduced when Europe opened so we ended up bullish (as far as I remember). This was reflected in charts also (I use pivot - support - resistance in charts no other indicator). Bottom line is I don't use option analysis on stand alone basis and try to combine it with other indicators to reaffirm my conviction.
I took two trades (actual, not paper) one when the market was going up when the option chain indicated bearish trend and it was near resistance levels, second when the market was at support and option chain indicated call COI was reducing.

I understand the points you are making. You are using option chain to confirm the trend and also to identify if reversal could happen.
If you go through your explanation in point no:1, you can notice that:

*First you say it was bullish because of less call writing. ( Reason 1 )
*Then call writing picked up.. so bearish ( Reason 2 )
*Then again it is bullish.. and the culprit is Europe ( Reason 3 )

Tell me frankly..have we never seen a super bull market when europe was down or the other way.

So every time there is a change in market we are looking into option chain and pulling out a reason. But where is the edge in this ?



3. Raj has said in one of his earlier posts that if the range is wide then the market move tends to be flat. Often the range becomes very narrow ( 100 pts say) and I look for those opportunities to get in trade.
E.g today in the morning the range was 7900 - 8300 which gave a target of 8100. However now the range has shifted to 8300 - 8100 giving a target of 8200. On futures chart the pivot is at about 8210 and it is hovering around that poit. At this moment MAX OI & COI for put are at 8100. So any downward movement breaking pivot level will give me a target of 8110 (10 pts premium) for futures where there will be a chance of reversal.
You see this is a study in progress and I know it needs a lot of work before it can be successfully implemented in trades on consistent basis.

As per your openion..
1) first the target was 8100. Is it touched ? ..No.
2) Now you say range has shifted to 8300-8100. So you shifted to 8200. But how can anyone predict that range is going to shift in some time.. so practically failed trade who traded targeting 8100.
3) Now when it is hovering around 8200, Then again you targeted 8100.
Reason is because max chng oi is at 8100.

Finally it closed above 8200. And of course now we find some reason in option chain for why it closed at that level. But this wont work my friend.

We are looking at Max oi, Max change in oi, Average of the ranges, polynomial supp/res, Again averages of those support/resistance, Then mixing pivots with them, munching with Europe, blaming volatality.....

Please undersand, everytime our idea is failed, we are attaching a reason to it. But can we learn from that reason and avoid it next time ? We are trying...but not able to do that. Because the reasons we are picking are not mistakes done by us. They are realities of market.

Souma,

thank you, you have not mistaken my views. It is from here i learned. it is from you people i learned. so it will be to you i will post my queries.

 

[mohan.sic]

How are you so certain that it is an After effect ?
When you see the MAX OI at 8000-8500, what it says is that the Top could be 8500 and bottom could be 8000.

I dint mention anything like After effect.
if you were asking about: " OI numbers what we see are result of what already happened in the market".

I am just saying that OI numbers or change in Oi numbers cant be trusted.
They can be changed any point of time before we notice and take action.




The Change in OI gives an indication. The argument of saying that the changes occur after market movement is not correct. In that case it will be true for all the Technical signals. It also amounts to saying we cannot take any entries.


Change in OI will give an indication. But how much can we trust that those numbers would not change. Many times these numbers change so fastly that we cant even notice them. By the time we notice, damage is already done.


At the end of the day, Day trading is always Risky. So whatever technical we use for Day trading it is not going to be 100% correct.

If you have a feeling that Options Chain is not a leading indicator, then do not use Options Chain.

For doing Day trading, I have explained the strategy to use COI. So it is possible to Day trade using COI.

But the Basic low risky strategy that I suggested was using OI. For whatever system or strategy you should have belief and you should observe and practice. There is no magic. Every profession requires some traits or skills. Trading requires a skill of taking Risk at the right point in time and sticking to your positions.

Raj,

A straight question - what is your success rate trading naked calls/puts using change in OI logic ?

 

[kcsusha]

Dear Mohan Sir,
If you come up with alternate ideas, all members will be benefited.

 

[mohan.sic]

Dear Kcsusha,

Frankly, i dont mean to underrate opion chain analysis.
my idea is that our friends here would come up with suggestions.