Hi Abhinay,
I look for very simple setup for a trade and also dont want to make my trade to be a complex one. I do this because I can't promise myself complete attention to market during trading hours.
Main intention is to take low risk. First and foremost thing in my mind is to save the capital...then manage the trade properly money will come automatically..I'm just learning like you!
There are few things we need to keep in mind when we are trading options. Few things i can list down are,
1) OI - check where is the highest OI in options chain. Currently its at 5700PE and 6100CE. I take these two act as support and resistance. So market can bounce from support and fall from resistance. If these points are broken then further downside or upside can be possible and the become strong support and resistance
So if market is near support you can take Debit call spread or Credit put spread and if market is near resistance you can take debit put spread or credit call spread both these spreads act simillarly but the difference is the RR.
2) IV - observe the IV of options. They say if IV is low and expected increase, buy options. If IV is high and expected to decrease then sell options.
3) Direction of the market - this is bit tricky but you need to find some way to find it, like using EMA's or trend lines. I sometimes use ADX too. However these are not necessary. You can see the direction of the market just by seeing any graph. You dont need to be always correct because even if you are wrong you can adjust the spread or get out with minimal impact to your spread. What I do is keep a SL in mind in terms of NIFTY levels. Say now i feel 5800 is SL..so i will adjust my spread if its breached or simply get out and look for another opportunity.
4) You need not have position in market always...sometimes you will miss some rally but its ok. Sometimes I also feel I should have played a naked option..missed such a good run in market because of my spreads my profit is limited and all that things but try to control that because spread will save us in bad times...surviving in market is important than earning.
5) For exiting the trade, If market is in my favor i try to ride it as much as possible until it finds resistance and if we see some change in direction, exit is triggered. If we play OTM's it will be usually 10 - 15 points. There are exceptions..if IV increased after we enter sometimes we get more than 20 points..
I also play naked options when I feel but I know my limit and play within my boundary.
These are all not hard and fast rules...sometimes I take high risk trades like 30-40 points(ATM)..but it all depends on situation but always I avoid trading current month options during expiry week.When my intention is to take low risk trade and I'm able to get consistent return, I'm happy with it. Just need to maintain discipline. There is nothing secret in this other than what I mentioned above.One just need to enter the trade and learn to manage it.
For more knowledge, read AW10 & Dan's thread which I mentioned in the first post of this thread.
If you have any more queries you are welcome to ask here. Experts like Dan visits this thread, he shares his knowledge if its a genuine and valid question.
All the best!.
