Tracking Nifty PC OI w.r.t Option Writer
- Thread starter Pralhad
- Start date
Some days back, we had another thread started to track OI.
I made some postings there regarding my interpretation of OI. Here is link for one of the post. Feel free to explore that thread for more discussion on this topic.
http://www.traderji.com/options/34089-tracking-put-call-open-interest-2.html
In my view, interpreting OI is not easy.. So far, I haven't got any firm approach to use it hence I just use it to support my other analysis. But knowledge of this helps a lot in understanding in market undercurrent. Certainly a skill worth developing over a period of time.
Biggest myth of OI is - smart money always write OPTIONS.
In my view, it can't be correct, cause Smart Money knows the basics of option trading. And all market condition is not appropriate to sell options. There are times, when risk reward is against selling options. And they know (or should know) risk management more then anybody else on dalal street.. hence they must be buying option to manage their risk.
There are time when market shows topping pattern (double top, tripple top, H&S, Stoch/RSI divergence etc) which indicates that mkt is struggling to go up.. so if they are sitting on big portfolio of stocks, wouldn't they like to protect their profit.
Say in today situation, we have travelled up by almost 600+ points without any proper retracement. Even if we take fib level 32% retracement, then we are easilty looking for 200 points drop. And to protect this 200 drop, the insurance, i.e. put is available in 60 Rs.
Hope you are able to see their perspective and think as professional i.e in terms of risk mgmt.
Happy Trading
I made some postings there regarding my interpretation of OI. Here is link for one of the post. Feel free to explore that thread for more discussion on this topic.
http://www.traderji.com/options/34089-tracking-put-call-open-interest-2.html
In my view, interpreting OI is not easy.. So far, I haven't got any firm approach to use it hence I just use it to support my other analysis. But knowledge of this helps a lot in understanding in market undercurrent. Certainly a skill worth developing over a period of time.
Biggest myth of OI is - smart money always write OPTIONS.
In my view, it can't be correct, cause Smart Money knows the basics of option trading. And all market condition is not appropriate to sell options. There are times, when risk reward is against selling options. And they know (or should know) risk management more then anybody else on dalal street.. hence they must be buying option to manage their risk.
There are time when market shows topping pattern (double top, tripple top, H&S, Stoch/RSI divergence etc) which indicates that mkt is struggling to go up.. so if they are sitting on big portfolio of stocks, wouldn't they like to protect their profit.
Say in today situation, we have travelled up by almost 600+ points without any proper retracement. Even if we take fib level 32% retracement, then we are easilty looking for 200 points drop. And to protect this 200 drop, the insurance, i.e. put is available in 60 Rs.
Hope you are able to see their perspective and think as professional i.e in terms of risk mgmt.
Happy Trading
Hello,
I have reduced the size of image to fit in page layout.
Today's Nifty spot range was lowest for March month. VIX reduced by 2.04% and PCR reduced by 8.93%
The Great China Wall was still intact.
Today action zone shifted from 5000~5100 lvl to 5100~5200 lvl. Here we can see that new Resistance zone at 5200 lvl emerging. But no put was covered so we can say our Support zone is still safe.
Call OI @ 5100 & 5200 lvl increased by 20% & 28% respectively
I have reduced the size of image to fit in page layout.
Today's Nifty spot range was lowest for March month. VIX reduced by 2.04% and PCR reduced by 8.93%
The Great China Wall was still intact.
Today action zone shifted from 5000~5100 lvl to 5100~5200 lvl. Here we can see that new Resistance zone at 5200 lvl emerging. But no put was covered so we can say our Support zone is still safe.
Call OI @ 5100 & 5200 lvl increased by 20% & 28% respectively
Who does the planning? Expiry is still 10 days away. Don't try to judge the expiry from the call put writing that goes on. At any given time when the mkt is in a tight range, it is the nearest OTM that gets written. Does not mean anything much. The option premium is so low, it is almost useless to write options at these prices as the risk far outweighs the reward. As range keeps contracting, the probability of range expansion becomes greater and greater with each passing day. All we need is a 2% move on either side to break supports and resistances. That can come any time.
No support is too great to break and no resistance is too great to cross. They have all been broken and crossed in the past and will be broken and crossed in the future. It needs one big trader to beak them.
IMO reading too much into OI, option volumes etc would be missing the forest for the trees.
No support is too great to break and no resistance is too great to cross. They have all been broken and crossed in the past and will be broken and crossed in the future. It needs one big trader to beak them.
IMO reading too much into OI, option volumes etc would be missing the forest for the trees.
If the risk rewards ratio is very low as mentioned by you, why are these guys writing calls and puts at 5100, when they know very well that the supports and resistance which are just at a stones throw distance and are bound to be broken in the very near future.
Why take such high risks, it is better to buy these calls than write them and trade, which is low risk due to the low premiums on these calls and puts. might as well buy both as the net preimum is less than 50, after reducing the in the money values. A break of 100 to 200 points on the nifty will rewards you with more than 100 rs profit. than wirte them for such low profits.
Just beats me, please throw some light on the call writers strategy.
Why take such high risks, it is better to buy these calls than write them and trade, which is low risk due to the low premiums on these calls and puts. might as well buy both as the net preimum is less than 50, after reducing the in the money values. A break of 100 to 200 points on the nifty will rewards you with more than 100 rs profit. than wirte them for such low profits.
Just beats me, please throw some light on the call writers strategy.
scplindia,
What if I sell 5100 mar PUT and buy 5100 April put
- With this position, I am bearish on market but March PUT OI has gone up by 1 here. So novice OI / PCR reader will think that market is bullish.
Who is right ? only time will tell. till everybody is free to put their own reasoning behind it and interpret it as bullish or bearish...
It is just that rate of drop in premium near expiry is high hence people use this opportunity to encash on fast change in price. At the same time, if they are smart, they would protect themselve with far month, or far strike options or futures. In such case, selling low value options puts the additional cream on the pudding cause timedecay is straight profit in next 8 days.
Hope this gives u different perspective.
Happy Trading
What if I sell 5100 mar PUT and buy 5100 April put
- With this position, I am bearish on market but March PUT OI has gone up by 1 here. So novice OI / PCR reader will think that market is bullish.
Who is right ? only time will tell. till everybody is free to put their own reasoning behind it and interpret it as bullish or bearish...
It is just that rate of drop in premium near expiry is high hence people use this opportunity to encash on fast change in price. At the same time, if they are smart, they would protect themselve with far month, or far strike options or futures. In such case, selling low value options puts the additional cream on the pudding cause timedecay is straight profit in next 8 days.
Hope this gives u different perspective.
Happy Trading
Hello,
Today was Nice trending day and good range to trade. Please note that Nifty increased by 1.35% but PCR increased only by 1.81% and also VIX reduced by 3.31%
Yesterday we saw that The Great China Wall got fortified. Today no major changes 5000 Put lvl.
Today all action zone concentrated on 5200 Put Option. See at 4900 lvl on PUT option Profit was booked on around 5.50 Lack OI and at 5000 lvl around 3.50 lac Call Option OI got covered.
70 Point stright increase in Nifty from 5128 to 5198 may be the reason to increase 80% OI of 5200 PUT.
Today was Nice trending day and good range to trade. Please note that Nifty increased by 1.35% but PCR increased only by 1.81% and also VIX reduced by 3.31%
Yesterday we saw that The Great China Wall got fortified. Today no major changes 5000 Put lvl.
Today all action zone concentrated on 5200 Put Option. See at 4900 lvl on PUT option Profit was booked on around 5.50 Lack OI and at 5000 lvl around 3.50 lac Call Option OI got covered.
70 Point stright increase in Nifty from 5128 to 5198 may be the reason to increase 80% OI of 5200 PUT.
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