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iakash
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Post: #121  Posted: Thu Sep 13, 2012 1:34 am Post subject: |
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Dear ST,
Thnx again for posting in details ur options strategy and the thought process behind picking strategies.
After going thru the strategies u suggested me and a few more, i was wondering whether profit booking in the underlying serves the same purpose as hedging with an option....
for e.g. if i buy NF and after price moving in my favor, booking partial profits will serve the same purpose, viz. locking profits, as buying a put to hedge my position...
In buying put, i incur an expense of paying the premium while in profit booking the expense is in the form of giving up the opportunity of further profits in the booked lots... i guess the expenses in both cases shd be comparable...
Also, with profit booking one won't hv to spend time and energy estimating the volatility and calculating deltas and gammas of various options....
But i guess, profit booking wont safeguard from the downside risk on the remaining lots as against buying put which converts entire position to a synthetic call...
Request u to share ur views on the same...
Thanks.
| SwingTrader wrote: | 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. |
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SwingTrader
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Joined: 11 Aug 2006
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Location: Hyderabad, India
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| Post: #122 Posted: Thu Sep 13, 2012 7:04 pm Post subject: |
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| iakash wrote: | Dear ST,
Thnx again for posting in details ur options strategy and the thought process behind picking strategies.
After going thru the strategies u suggested me and a few more, i was wondering whether profit booking in the underlying serves the same purpose as hedging with an option....
for e.g. if i buy NF and after price moving in my favor, booking partial profits will serve the same purpose, viz. locking profits, as buying a put to hedge my position...
In buying put, i incur an expense of paying the premium while in profit booking the expense is in the form of giving up the opportunity of further profits in the booked lots... i guess the expenses in both cases shd be comparable...
Also, with profit booking one won't hv to spend time and energy estimating the volatility and calculating deltas and gammas of various options....
But i guess, profit booking wont safeguard from the downside risk on the remaining lots as against buying put which converts entire position to a synthetic call...
Request u to share ur views on the same...
Thanks.
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Yes, basically, one would convert a long futures position to a synthetic call by initiating a long put to accomplish two things : one, lock in big chunk of profits. two, still stay in the position and reconsider removing the put hedge if price breaks out up again and it looks like the trend will continue OR if there is a trend reversal after initiating the put hedge then one might consider closing the long futures position and ride the put down with the trend.
The main idea of converting a current position is to protect existing profits and give us time to think instead of we closing the whole position and then regretting if there is a big move. One saves the hassle of closing/initiating positions frequently too.
But there are pros/cons for everything. Such type of trading adds to complication initially but once one gets used to it, it becomes second nature.
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Srikanth Kurdukar
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iakash
White Belt
Joined: 07 Mar 2012
Posts: 46
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| Post: #123 Posted: Thu Sep 13, 2012 8:25 pm Post subject: |
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Dear ST,
Once again thanks for your response. There definitely looks to be more value in hedging than merely booking profits.
Currently i am not holding any position... But considering the effect of Bernanke's speech on our mkts tomorrow, i was thinking of buying both calls and puts so tht i cd capture a swift move in either direction. But i cdnt figure whether i shd buy ITM calls & puts or OTM calls and puts... so have decided to paper trade with both and see wch wd have worked better.... this wd b a good learning exercise for me....
Regarding mkt direction, as per my study, nifty has reached resistance zones in Fibo and momentum studies... As always, would like to know your opinion based on options sentiment...
Cheers,
Akash.
| SwingTrader wrote: | | iakash wrote: | Dear ST,
Thnx again for posting in details ur options strategy and the thought process behind picking strategies.
After going thru the strategies u suggested me and a few more, i was wondering whether profit booking in the underlying serves the same purpose as hedging with an option....
for e.g. if i buy NF and after price moving in my favor, booking partial profits will serve the same purpose, viz. locking profits, as buying a put to hedge my position...
In buying put, i incur an expense of paying the premium while in profit booking the expense is in the form of giving up the opportunity of further profits in the booked lots... i guess the expenses in both cases shd be comparable...
Also, with profit booking one won't hv to spend time and energy estimating the volatility and calculating deltas and gammas of various options....
But i guess, profit booking wont safeguard from the downside risk on the remaining lots as against buying put which converts entire position to a synthetic call...
Request u to share ur views on the same...
Thanks.
|
Yes, basically, one would convert a long futures position to a synthetic call by initiating a long put to accomplish two things : one, lock in big chunk of profits. two, still stay in the position and reconsider removing the put hedge if price breaks out up again and it looks like the trend will continue OR if there is a trend reversal after initiating the put hedge then one might consider closing the long futures position and ride the put down with the trend.
The main idea of converting a current position is to protect existing profits and give us time to think instead of we closing the whole position and then regretting if there is a big move. One saves the hassle of closing/initiating positions frequently too.
But there are pros/cons for everything. Such type of trading adds to complication initially but once one gets used to it, it becomes second nature. |
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Gemini
White Belt
Joined: 28 Apr 2009
Posts: 166
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| Post: #124 Posted: Thu Sep 13, 2012 10:35 pm Post subject: |
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Dear ST,
Thanks for very elaborate and practical explanation on managing trades.
Hats off to you ! |
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SwingTrader
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Joined: 11 Aug 2006
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Location: Hyderabad, India
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| Post: #125 Posted: Sun Sep 16, 2012 4:52 pm Post subject: |
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What a move on friday! Glad to be net long on days like these, but I wish I was more long. I had converted my long sep 5500 puts to bull put spreads on 07.09.2012 (short sep 5600 puts + long sep 5500 puts). I had taken profits on half the position on 13th as we approached resistance and now I look foolish  but well...that is trading. But at least the position is in decent profits. I will see what happens on Monday and then decide what to do with the current position.
Options sentiment, strangely, has not changed much on 14th. Under normal circumstances I would have expected options sentiment to drop sharply but it did not. It indicates not too many calls were bought by speculators. Options sentiment is close to being at bullish extreme, so I will have to be careful and watch out for a reversal down. This is mainly because I am trading short-to-intermediate term using options sentiment.
Long term sentiment is neutral and will require more sustained up move to turn bullish. This indicates a wait & watch mode for long term.
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Srikanth Kurdukar
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SwingTrader
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| Post: #126 Posted: Mon Sep 17, 2012 7:22 pm Post subject: |
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I was very happy to see this morning after market open that my put bull spreads were giving me almost 80% of max profit (max profit was going to be 118 pts per lot approx at expiry). I gladly unloaded the remaining position of put bull spreads (long sep 5500 puts + short sep 5600 puts).
Nothing remaining in my short-to-intermediate portfolio. I did not trade this cycle ideally but eventually turned the trade profitable. I was short since Jul 23rd (long puts), hedged/rolled out/adjusted and closed the trade profitably. My whole trade was mostly against the trend and later mildly with the trend (bull put spreads) but it has ended profitably. Being in line with the trend would have been very profitable, I plan to make sure that I minimize such mistakes as one can't get away this easily everytime after making such mistakes
There was no point holding the bullish position further. There was not much profit left in it and two gap ups in sequence are much more than one can expect. I don't like the price action very much, there is more risk in holding bullish position now until things are clearer.
Will wait for the next signal now....
Options sentiment movement for friday & today has been interesting. Bullish move pushes down the sentiment indicator and one would have expected atleast friday's move to push it down significantly but it has moved down very little. Today it has gone up. This points to long puts & short calls being traded more (more than long calls & short puts). Looking for consolidation/down move soon but I will not bet on it and trade. I will wait for a clear signal before positioning my trades.
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Srikanth Kurdukar
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iakash
White Belt
Joined: 07 Mar 2012
Posts: 46
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| Post: #127 Posted: Mon Sep 17, 2012 7:57 pm Post subject: |
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Dear ST,
Congrats for the success of the bull put spread
I too was short in this cycle since august but had to exit at break-even and then didn't participate in the bull move  Still searching for a good opportunity to initiate my first options trade.
Looking at historical options sentiment values, it looks like there is not much possibility of further upside movement... but mkt has consistently moved up in past few mths regardless of any indicator values... plus gov is lining up for more reforms... so not sure about which way nifty wd head from here....
Wait & watch looks like the best policy... 
| SwingTrader wrote: | I was very happy to see this morning after market open that my put bull spreads were giving me almost 80% of max profit (max profit was going to be 118 pts per lot approx at expiry). I gladly unloaded the remaining position of put bull spreads (long sep 5500 puts + short sep 5600 puts).
Nothing remaining in my short-to-intermediate portfolio. I did not trade this cycle ideally but eventually turned the trade profitable. I was short since Jul 23rd (long puts), hedged/rolled out/adjusted and closed the trade profitably. My whole trade was mostly against the trend and later mildly with the trend (bull put spreads) but it has ended profitably. Being in line with the trend would have been very profitable, I plan to make sure that I minimize such mistakes as one can't get away this easily everytime after making such mistakes
There was no point holding the bullish position further. There was not much profit left in it and two gap ups in sequence are much more than one can expect. I don't like the price action very much, there is more risk in holding bullish position now until things are clearer.
Will wait for the next signal now....
Options sentiment movement for friday & today has been interesting. Bullish move pushes down the sentiment indicator and one would have expected atleast friday's move to push it down significantly but it has moved down very little. Today it has gone up. This points to long puts & short calls being traded more (more than long calls & short puts). Looking for consolidation/down move soon but I will not bet on it and trade. I will wait for a clear signal before positioning my trades. |
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SwingTrader
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Joined: 11 Aug 2006
Posts: 2903
Location: Hyderabad, India
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| Post: #128 Posted: Mon Sep 24, 2012 9:25 am Post subject: |
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No positions yet (short-to-intermediate term). Looking for a low risk entry point. The problem with such a stand is that I may just be left behind watching the market take off. That may happen but I will not enter a position if the risk/reward is not optimal.
Options sentiment obviously continues to be bullish, at the same time things are extremely overbought. But if this is going to be the start of a true uptrend/bull move then this overbought conditions can go on for a while. We will have to take this day by day / week by week. Let us see...
Long term sentiment moving up strongly but still neutral. We will get some clear idea on this in the next 7-10 days.
Other thoughts....options implied volatility is rising so credit spreads or short calls may not be that profitable anymore for a while (indiavix gives good clues for such analysis). Long options would work better. Will look too initiate long vertical spreads if I see optimal entries. Iron condors are less affected by rising volatility but its profit curve is stretched (will take more time to book decent profits) if volatility keeps rising through the life of the trade. Also, given the current price expansion scenario putting on Iron condors is slightly risky.
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Srikanth Kurdukar
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SwingTrader
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| Post: #129 Posted: Mon Sep 24, 2012 12:06 pm Post subject: |
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One more chart...this is "NSE Cummulative Advance/Decline Line Vs Nifty spot index" from 2008 to now. The only twist is that this advance/decline line is only for the top most active 50 stocks (by avg 3 month volume). This line provides a much better idea compared to the regular advance decline line (that includes all NSE stocks). Since market is moved mostly by the key leading stocks, I have taken top 50 by avg volume.
Key thing to observe is that the AD line breaks down far earlier than the index. As the AD line is breaking down the index could be on the last leg of the bull run. That is what seems to be visible at least in 2010. Currently AD line seems to be sideways, it is important that the base holds and AD line does not fall from here. This will ensure an extended rally. A breakdown of the AD line base can signal internals breaking down and a swift decline can begin.
Are we on the last leg of the bull run or are we starting a new long bull run? I have absolutely no idea but if AD line goes above the Feb 2012 peak then it would indicate broad strength in the market and would probably indicate a long bull run.
It will be interesting to watch this chart in the future....
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Srikanth Kurdukar
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vinay28
Black Belt
Joined: 24 Dec 2010
Posts: 11748
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| Post: #130 Posted: Mon Sep 24, 2012 10:24 pm Post subject: |
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| ST, was the high of AD in feb'12 about -650? Also, I wonder whether the apparent -ve div on AD is actually be a hidden div indicating further strong upmove. |
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SwingTrader
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| Post: #131 Posted: Tue Sep 25, 2012 8:48 am Post subject: |
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| vinay28 wrote: | | ST, was the high of AD in feb'12 about -650? Also, I wonder whether the apparent -ve div on AD is actually be a hidden div indicating further strong upmove. |
The AD peak on 21.02.2012 was -625. Yes, there is certainly a good bullish case based on the recent AD action. The base formed itself could be a strong indication as long as it holds. Hidden divergence also is there....so things are looking positive. This is as long as things steadily improve from here technically - both in terms of the overall market and the leading stocks. Any serious breakdown in either can result in swift decline.
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Srikanth Kurdukar
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azaidi
White Belt
Joined: 28 Jun 2010
Posts: 18
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| Post: #132 Posted: Tue Sep 25, 2012 8:48 am Post subject: |
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| SwingTrader wrote: | One more chart...this is "NSE Cummulative Advance/Decline Line Vs Nifty spot index" from 2008 to now. The only twist is that this advance/decline line is only for the top most active 50 stocks (by avg 3 month volume). This line provides a much better idea compared to the regular advance decline line (that includes all NSE stocks). Since market is moved mostly by the key leading stocks, I have taken top 50 by avg volume.
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Can this chart be added to the breadth charts on the website? It seems more useful than the A/D chart currently there. |
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SwingTrader
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Posts: 2903
Location: Hyderabad, India
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| Post: #133 Posted: Tue Sep 25, 2012 8:51 am Post subject: |
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| azaidi wrote: | | SwingTrader wrote: | One more chart...this is "NSE Cummulative Advance/Decline Line Vs Nifty spot index" from 2008 to now. The only twist is that this advance/decline line is only for the top most active 50 stocks (by avg 3 month volume). This line provides a much better idea compared to the regular advance decline line (that includes all NSE stocks). Since market is moved mostly by the key leading stocks, I have taken top 50 by avg volume.
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Can this chart be added to the breadth charts on the website? It seems more useful than the A/D chart currently there. |
Azaidi,
Actually I have also been thinking of the same. I want to do a complete overhaul of breadth charts. I will add this and many other market internals/breadth charts soon.
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Srikanth Kurdukar
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vinay28
Black Belt
Joined: 24 Dec 2010
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| Post: #134 Posted: Tue Sep 25, 2012 8:51 am Post subject: |
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| thanks ST |
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azaidi
White Belt
Joined: 28 Jun 2010
Posts: 18
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| Post: #135 Posted: Sun Sep 30, 2012 10:30 am Post subject: |
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| SwingTrader wrote: | | azaidi wrote: | | SwingTrader wrote: | One more chart...this is "NSE Cummulative Advance/Decline Line Vs Nifty spot index" from 2008 to now. The only twist is that this advance/decline line is only for the top most active 50 stocks (by avg 3 month volume). This line provides a much better idea compared to the regular advance decline line (that includes all NSE stocks). Since market is moved mostly by the key leading stocks, I have taken top 50 by avg volume.
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Can this chart be added to the breadth charts on the website? It seems more useful than the A/D chart currently there. |
Azaidi,
Actually I have also been thinking of the same. I want to do a complete overhaul of breadth charts. I will add this and many other market internals/breadth charts soon. |
Excellent! If you're doing requests, how about a 52 week new high/low chart as well? I've read about it's usefulness in spotting market turns in several books...
Thanks. |
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