iCharts Discussions

SwingTrader · Posted: Sun Sep 02, 2012 8:17 am Post subject:

Options sentiment indicates short-term oversold state but we might just get a breather at the most. Significant rise from current levels seems difficult. Long term sentiment also is indicating more decline.

The charts posted last week (NSE options premiums - PE vs CE, NSE stocks % moves) have indicated significant deterioration of market internals, long term sentiment confirms this. All this is going to take a while to resolve. If we do rise from these levels we will just get more overbought and the subsequent declines can be much worse.

I am sitting pretty with SEP 5500 puts that are now deep in-the-money. I was thinking of hedging partially for the weekend but I have not done so. I will let these run. I am in this extended trade where initially I had bought AUG 5400 puts on 24th Jul after options sentiment bias changed to bearish on 23rd Jul. I hedged these puts on 6th Aug with NF futures (did not exit puts as the bias was bearish). Unhedged on 24th Aug and rolled over to SEP 5500 puts.

SwingTrader · Posted: Tue Sep 04, 2012 7:15 pm Post subject:

Splendid!!! things are moving along just like I expected. One up day and options sentiment is back to nearly overbought levels. This indicates nothing more than a breather for the down move, we should soon start the downward journey. Holding on to my puts...

SwingTrader · Posted: Sat Sep 08, 2012 7:34 pm Post subject:

What a move on Friday! This is what makes trading interesting Very Happy

There was nothing much to do on Friday morning, I hedged my SEP 5500 PUTS. I usually either hedge with NF futures or convert the existing position and make it in line with the short-term trend. This time I did not hedge with futures like last time. I shorted the SEP 5600 PUT and converted my position to a BULL PUT SPREAD. This is a credit spread - a limited risk, positive theta (time working on my side), mildly bullish option spread.

With this trade adjustment I have accomplished this:

- I have locked in about 40 pts profit per lot in SEP 5500 PUTS. If I hold this position until expiry, this is the minimum profit I will get.

- I will be able to participate partially in any continuing up move as my current position is mildly bullish (at the moment +15 delta per lot)

- On the downside, as I mentioned above, my risk is nil as I have locked in 40 pts profit.

- If the trend turns down firmly I can choose to close the 5600 PUT short and continue with my long SEP 5500 put to capture downside move.

My position details : LONG SEP 5500 PUT on 24.08.2012 @ 149.25, SHORT SEP 5600 PUT on 07.09.2012 @ 267.50.

I will consider further adjustments and see if I want to get aggressively long if the uptrend sustains.

OPTIONS SENTIMENT BIAS CHANGE : Options sentiment has given an intermediate term change of bias signal today and is now BULLISH. We have got the signal too low which is a bit risky but I will stay in line with the signal. I had adjusted my position before the options sentiment change of bias. It is anyway mildly bullish which is in line with options sentiment. I will think of adding more positions once uptrend sustains.

p_wangdu · White Belt Joined: 30 Apr 2012 Posts: 126

Vevensa · White Belt Joined: 12 Jul 2011 Posts: 59

SwingTrader · Posted: Sat Sep 08, 2012 10:57 pm Post subject:

SwingTrader · Posted: Sat Sep 08, 2012 10:59 pm Post subject:

Vevensa · White Belt Joined: 12 Jul 2011 Posts: 59

iakash · White Belt Joined: 07 Mar 2012 Posts: 46

Dear ST,

Thanks a lot for posting ur options stategy.... My view of the mkt until this sudden upmove on friday was very similar to ur view posted in this thread... but i ws trading only futures and not options and hence, cdnt hedge my position and lost all the gains made during the down move...

I have recently started learning options and hence m curious about ur strategy mentioned here and have a small query... plz find time to answer this...

Since the delta keeps changing over time and even the rate of change of delta (the gamma) is also not a constant... it means ur position of +15 delta today will not be +15 delta tomorrow... it might shift to +25 or even -10 as per the mkt movement.... such shifts can affect ur hedged positions...

In such scenario, how to maintain the delta of ur position?... should one modify their options positions every day to maintain the delta or keep the positions same and let the delta change?

Thanks in advance.

SwingTrader · Posted: Mon Sep 10, 2012 10:42 am Post subject:

iakash · White Belt Joined: 07 Mar 2012 Posts: 46

Dear ST,

Thanks for ur reply... i ll study on the suggestions u hv made and try to implement them into my trading....

Do keep posting ur trades here as it will be good learning for newbies like me....

Thanks again.

SwingTrader · Posted: Wed Sep 12, 2012 7:39 pm Post subject:

Options sentiment is at an extreme indicating highly bullish sentiment but which is also contrary at the same time. Only the Jan/Feb 2012 rally had extended beyond the current levels where options sentiment is at the moment. One must be careful given the fact that long term market internals continue to be bearish. Options sentiment indicates only the near term probable trend.

I have lightened my position (Long SEP 5500 PUTS + SHORT SEP 5600 PUTS) by taking profits on half the number of lots I was carrying. I plan to keep the remaining half of the bull spreads going as long as I can. This was supposed to be my "trend" riding position that had to be adjusted to keep it going & profitable. I also had few other bullish credit spreads active since the last few days, I closed those too today as I could book 80% of the credit received.

Here is the general idea of what I am doing. I keep two sets of trades going all the time:

ONE (trend riding positions) : ITM options in the direction of sentiment (and trend hopefully). I adjust/hedge these aggressively if the positions go against the short-intermediate term trend. I use ITM options as they have high delta and less theta/time decay. One gets bigger bang for the buck if price moves in the expected direction. But these need to be properly managed.

TWO (sideways market positions) : OTM Credit spreads to take advantage of any sideways range developing. Sometimes credit spreads both above & below current price (iron condors) if clear range starts to develop. These are tricky and need to be managed properly. I do all sorts of jugglery with these like taking on more spreads on one side or the other based on my bullish/bearish stance. From my experience managing these properly and booking profits is the key to success for such trades.

Most of my focus while managing both these is to keep losses as low as possible. If trend develops then sideways positions are aggressively adjusted to keep losses low so profit on trending positions is maximised. Vice versa if trend is absent and sideways positions are profiting. Focus is to keep losses low so profits take care of themselves. This dual positioning setup has been working well this year but initially was a big pain to manage until I got used to it. Hope all this gives others some ideas...

NOTE : All the above discussion applies to NF options only. There are no stock options that are fit to be traded.

Gemini · White Belt Joined: 28 Apr 2009 Posts: 166

Sincere thanks for allowing insight into your system. So nice of you.

One question on iron condor: Do you create condor using puts also (when trend is sideways) ? I am raising this question as my experience with shorting (writing) puts indicates that when market falls, speed of fall is very high, leaving put writers stranded.

May be one learns from experience on managing such situations !

Please keep us enlightened on option sentiment stratgey.

SwingTrader · Posted: Wed Sep 12, 2012 9:56 pm Post subject: