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vinay28
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Post: #211  Posted: Mon Dec 03, 2012 6:03 pm Post subject: |
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| ST, after so much discussion, I forgot how you calculate option sentiment. Do you take into account PCR? Also, VIX may be playing a role w.r.t. what nitin has posted but I am not sure. |
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SwingTrader
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| Post: #212 Posted: Mon Dec 03, 2012 6:55 pm Post subject: |
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| vinay28 wrote: | | ST, after so much discussion, I forgot how you calculate option sentiment. Do you take into account PCR? Also, VIX may be playing a role w.r.t. what nitin has posted but I am not sure. |
Options sentiment is a type of PCR but it is weighted in a certain way and only certain key strikes are used to compute it based on a criteria. Since options sentiment is a ratio, volatility/vix will not have much affect as both puts & calls will be affected similarly. But volatility skew is something I need to look at as that might have changed significantly. This is my opinion.
I will post more on this in the next few days.
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vinay28
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| Post: #213 Posted: Mon Dec 03, 2012 6:59 pm Post subject: |
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SwingTrader
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| Post: #214 Posted: Tue Dec 11, 2012 8:06 pm Post subject: |
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Updated options sentiment chart. I am posting the "extreme bands" chart and not the signal bands which has few issues. This particular chart just shows how extreme the options sentiment is. Options sentiment had recently hit bullish extreme and is in the process of reversing at the moment.
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Srikanth Kurdukar
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SwingTrader
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| Post: #215 Posted: Wed Dec 12, 2012 10:22 pm Post subject: |
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NIFTY 2nd Month ATM Straddle PCR
What is this chart? For explanation, please take a look at this article : http://www.leadingtrader.com/12/open-interest-a-sneaky-way-to-measure-market-sentiment/
The only difference is that PCR does not work the way implied by the article, it works as a contrary indicator which is how it has been plotted in my chart below. I hope it is useful...
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Srikanth Kurdukar
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vinay28
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| Post: #216 Posted: Wed Dec 12, 2012 10:27 pm Post subject: |
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| ST, I presume PCR is plotted for each day? |
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iakash
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| Post: #217 Posted: Wed Dec 12, 2012 11:18 pm Post subject: |
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Dear ST,
Thanks for this chart and the article. Definitely gives good insight on how PCR can be used as guide for change in market sentiment.
One question... are the next month ATM options' OI values always more reliable than the current month's values for predicting mkt sentiment... or can we say that current month values can be used for short term sentiment and next month values for long term sentiment?... please guide.
Thanks in advance,
Akash. |
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SwingTrader
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| Post: #218 Posted: Thu Dec 13, 2012 8:44 am Post subject: |
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| vinay28 wrote: | | ST, I presume PCR is plotted for each day? |
Yes.
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SwingTrader
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| Post: #219 Posted: Thu Dec 13, 2012 8:56 am Post subject: |
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| iakash wrote: |
Dear ST,
Thanks for this chart and the article. Definitely gives good insight on how PCR can be used as guide for change in market sentiment.
One question... are the next month ATM options' OI values always more reliable than the current month's values for predicting mkt sentiment... or can we say that current month values can be used for short term sentiment and next month values for long term sentiment?... please guide.
Thanks in advance,
Akash. |
It depends on what we want to use it for. Front month options data is too dynamic and lots of manipulation goes into it and they are used for lots of things like covered calls, short calls for speculation, OTM credit spreads, hedging - much of the chunk of front month options are used for short calls/puts due to the greater time decay. Far month options are used more as direction plays as time decay is relatively low. That is the idea behind using next month options for the ATM straddle PCR analysis. I tried to plot the chart using front month atm straddle pcr and the chart was more or less meaningless.
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iakash
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| Post: #220 Posted: Thu Dec 13, 2012 9:30 am Post subject: |
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| SwingTrader wrote: |
It depends on what we want to use it for. Front month options data is too dynamic and lots of manipulation goes into it and they are used for lots of things like covered calls, short calls for speculation, OTM credit spreads, hedging - much of the chunk of front month options are used for short calls/puts due to the greater time decay. Far month options are used more as direction plays as time decay is relatively low. That is the idea behind using next month options for the ATM straddle PCR analysis. I tried to plot the chart using front month atm straddle pcr and the chart was more or less meaningless. |
Thanks again ST, for the valuable insights.
Won't the volumes for far month contracts be much lesser than those for near month... would these lower volumes reflect the sentiment of the entire market correctly? |
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SwingTrader
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| Post: #221 Posted: Sat Dec 15, 2012 10:10 pm Post subject: |
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| iakash wrote: |
Thanks again ST, for the valuable insights.
Won't the volumes for far month contracts be much lesser than those for near month... would these lower volumes reflect the sentiment of the entire market correctly? |
Volumes of far month contracts are not an issue at all. OI in far months builds up over time and that too for a reason. Far months are used to take serious directional stance as pure short-term speculation is done using near month options only to take advantage of liquidity and larger theta/time decay. This is why far month options (in our case only the next month) are useful in judging near term direction.
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p_wangdu
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| Post: #222 Posted: Sat Dec 15, 2012 10:17 pm Post subject: |
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| SwingTrader wrote: | | iakash wrote: |
Thanks again ST, for the valuable insights.
Won't the volumes for far month contracts be much lesser than those for near month... would these lower volumes reflect the sentiment of the entire market correctly? |
Volumes of far month contracts are not an issue at all. OI in far months builds up over time and that too for a reason. Far months are used to take serious directional stance as pure short-term speculation is done using near month options only to take advantage of liquidity and larger theta/time decay. This is why far month options (in our case only the next month) are useful in judging near term direction. |
 thanks sirji |
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vinay28
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| Post: #223 Posted: Sat Dec 15, 2012 10:29 pm Post subject: |
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".......Far months are used to take serious directional stance as pure short-term speculation is done using near month options only to take advantage of liquidity and larger theta/time decay........"
Absolutely, ST. I was going to mention something in the thread on PE but thought that this thread is more appropriate and then saw this post of yours as a coincidence.
While intentions may be to make money in trading based on sentiment or other indicators/patterns, the overall long term trend is decided by how much money comes in or goes out, FII money being the major driver. While FnO data is good for trading as it is often used for hedging, cash buying/selling is what drives a market in long term. In such a case, our aim should also be to guide on investment not just trading. Keeping this idea in mind, I was wondering whether it is possible to chart nifty vs. OI vs. cash buying, if at all accurate data for the latter is available. If that succeeds, we can extend it to mid and small cap later. This is important as there are periods when only latter go up as A group sees profit taking.
Just a thought. |
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iakash
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| Post: #224 Posted: Sun Dec 16, 2012 12:46 am Post subject: |
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| SwingTrader wrote: |
Volumes of far month contracts are not an issue at all. OI in far months builds up over time and that too for a reason. Far months are used to take serious directional stance as pure short-term speculation is done using near month options only to take advantage of liquidity and larger theta/time decay. This is why far month options (in our case only the next month) are useful in judging near term direction. |
Thanks again ST |
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SwingTrader
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| Post: #225 Posted: Sun Dec 16, 2012 10:37 am Post subject: |
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| vinay28 wrote: | ".......Far months are used to take serious directional stance as pure short-term speculation is done using near month options only to take advantage of liquidity and larger theta/time decay........"
Absolutely, ST. I was going to mention something in the thread on PE but thought that this thread is more appropriate and then saw this post of yours as a coincidence.
While intentions may be to make money in trading based on sentiment or other indicators/patterns, the overall long term trend is decided by how much money comes in or goes out, FII money being the major driver. While FnO data is good for trading as it is often used for hedging, cash buying/selling is what drives a market in long term. In such a case, our aim should also be to guide on investment not just trading. Keeping this idea in mind, I was wondering whether it is possible to chart nifty vs. OI vs. cash buying, if at all accurate data for the latter is available. If that succeeds, we can extend it to mid and small cap later. This is important as there are periods when only latter go up as A group sees profit taking.
Just a thought. |
Doing that kind of analysis for long term is an overkill. There are better ways to manage long term investments. Systematic timing of adding/removing portfolio hedges is the main method I employ for long term investments. This more of less eliminates the need to worry about what FIIs or the Govt are doing. There is too much money involved in long term investments and I don't like to depend on any kind of fancy analysis that I do for long term. Systematic hedging is the only thing that I have found that works well consistently over time. There are just too many factors that affect the long term - FIIs, Govt policies, political scenarios, interest rates, commodity trends, global shocks etc - what all can we monitor and track consistently?
I can't discuss more on systematic hedging. Serious investors should look/research into it in detail. Systematic hedging does not mean hedging the portfolio all the time, it just means hedging it when there is a risk of declines. The timing of hedges is everything. But the advantage is that one only needs to focus on this and forget all the above market risks. So instead of multiple things to worry about, one only has to worry about a single thing.
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Srikanth Kurdukar
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