iCharts Discussions

[saumya12]

But it is different, all the way, this time.

"abki baar, modi sarkar"
"achchhey din aayengey"

So market is moving to the all the time high, every other day.

[welgro]

[welgro]

[skr1975]

nice call.thks

[welgro]

Nifty strong support at 7700 level(Max change OI : PE).
Nifty future today added 4.5% open interest.

[amitagg]

Pls confirm or amend my understanding of below OI data ( not the chart)

1 since max change in OI @ call is greater than that of puts, it's intra day bearish

2 since total OI "change " for calls is greater than that put, it's again bearish

3 since total OI of calls is greater than for puts, it's bearish

If these are the signals given by OI data then how to "price" and " vix" influence the judgment on interpretation of increase or decrease in either of the above parameters for analysis.

[welgro]

dear amitagg,

i learned this logic from another one forum(Mr.Raj), As per i charts rule i cannot give the link url, so just i copy paste that article.

Total concept and article from raj.

I am starting this thread to focus specifically on NIFTY Options. Those who have been following my other thread will know the details.

The Strategy is based on the Options Chain data.

Pair Trading for the Pair with MAX OI.

Other Options Strategies based on
- Volatility
- MAX CHG in OI
- MAX OI

So here we go on the understanding of the Options Chains data for those who were not following my Previous thread. For the Experts it might see as baby steps. So the experts please forgive.

Understanding the Options Chain Data correctly : Forget what you know already about the market and the Option Chains data. The Future and Options are traded in the Secondary market. So the primary market is Equities. So without equities(cash market), Futures and Options do not exist. So for those who are trading purely in F&O, Look at the Futures and Options as someway to Protect your Stocks (Cash).

For the F&O market to exist, we need the Market Makers. And Market makers are also here to make some money.

Now going to Options Chain data. Let us take the Options Chain of NIFTY. Hope there are so many links for getting the Options Chain data. But I use the following link

http://www.nseindia.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbol=" & NSECode & "&date=" & ExpiryDate

For example to get the NIFTY Options data for the month expiring Jul-14, the link would be

http://www.nseindia.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbolCode=-10007&symbol=NIFTY&symbol=NIFTY&instrument=-&date=-&segmentLink=17&symbolCount=2&segmentLink=17

So there are so many Columns and Values. What we are interested is the Following

OI - Open Interest
Chng in OI - Change in Open Interest
IV - Implied Volatility
Volume - Volume and Of course the
Strike Price

What do we need to make the decisions

1. Find out the Strike Price and OI, where we have the MAX OI in PE - MAX_OI_PE
2. Find out the Strike Price and the OI, where we have the MAX OI in CE - MAX_OI_CE
3. Find out the Strike Price and CHG in OI, where we have the MAX Change in OI in PE - MAX_CHGOI_PE
4. Find out the Strike Price abnd CHG in OI, where we have the MAX Change in OI in CE - MAX_CHGOI_CE

Intraday day trading would be based on Change in OI
Positional/Swing trading would be based on OI.

Rule 1: If the MAX (CHG in OI) @ PE > MAX (CHG in OI) @ CE, then it is a Bullish market.

Why MAX (CHG in OI) PE will be a Bullish signal?

For the Market to exist we should be Have Bears and Bulls. Market is always trading in a specified range for any day. So we have to assume that BULLs will try to Protect the Bottom of the Range and Bears will Try to Protect the Top of the Range (Not let the market beyond the Range). BULLs have LONG Positions in the market. So to protect their LONGs they take the Opposite positions in the Options market by Selling the PUTS (PE) to hedge their positions, so that if the market goes in the opposite direction of their Longs they can make money using Options. But normally the market makers make money both in the Equities and in the Options market. When They build a Huge volume around a Strike Price, they are basically sending a signal to the BEARS saying "This is our area - We will not let you go below this level". So BULLs normally control a Lower Strike and BEARS normally control a Upper Strike. For a given day this Range would act as the Intraday Range.

Rule 2: If the MAX (CHG in OI) @ PE <MAX> 6L and PE > CE, so it is a BULL.
Now let us look the Volumes @ 6100CE and 6000PE

Volume @ 6100CE - 5.5L
Volume @ 6000PE - 17

Now compare the CHG in OI and Volume @ 6100CE.
Volume (5.5L) <6L> CHG in OI.

What if the Volume does not indicate like above?
Then most probably the market is Range bound.

[b]Rule 5: Can we always go with this logic on the MAX(OI) and MAX(CHG in OI)?

NO. This might not work during the last week of Expiry when the Market makers are closing their positions. So during the last week of Expiry better to stay away from the market or Play the market using the Implied Volatility

Rule 6: In the CHG in OI, what if we get Negative values? What signals does it give?

If we get the Negative values in "CE", that means Market makers (BEARS) are squaring off the Call Positions (The SHORT Positions). So heavy squaring off in CE is a BULLISH signal and we have to expect a BREAKOUT if there is a sudden spike in the squaring volume. There is a panic situation. Normally this will happen all of a sudden in say 10-20 minutes and we have to exit the Shorts immediately and can GO LONG.

It is the Vice versa if we get Huge Negative Values in "PE".

If we get Negative Values both in PE and CE, then blindly SELL the OI pair

Small negative values indicate the normal profit booking.

Rule 7: OK. For Intraday trading, based on the "CHG in OI" I got the Bullish or Bearish signal. Can I go and BUY the Options? How do I decide whether to BUY/SELL the option?.

Important and a Difficult question.

Unless if it is a Strong BULL or a STRONG BEAR, the Safe strategy would be to SELL the pair so that it is less risky. I mean if we get the Range as 5800PE and 6000CE. Then Sell 5800PE and 6000CE.

Rule 7B: No I don't want to do Pair Trading. I want to take more risk and do some naked Calls / Puts. How do I decide whether to BUY/SELL.

Use the Implied Volatility. I normally take the top (most traded) 5 Strikes and calculate the Average PE and CE volatility.

Also find out the Historic Volatility of the underlying Futures.

Let us take NIFTY and say we have

Historic Volatility HVOLT= 21.18% (Get it from the NSEindia.com - FOVOLT.csv)
Average PE VOLT - 18.78%.
Average CE VOLT - 19.4%.

So the observations are

PE VOLT < HVOLT - Low Volatile market
CE VOLT < HVOLT- Low Volatile market


So in a Low volatile market, and if the signal is Bullish, then instead of the Buying Calls, SELL the Puts and vice versa.

Note : I am still discovering and learning about the Volatility. So will give more details when it comes. But in summary, if the Volatility is Low, then it is a Buying market and if the Volatility is High it is a Selling market. Experts should be able to throw more light on volatility

Rule 8: Respect the Strike Price where the MAX Pain is situated

The Strike where the MAX Pain is like the Centre of Gravity. So especially during the Expiry the market will try to move and will try to expire around the MAX Pain. So in the last week of expiry one should avoid any OTM call around the MAX Pain because the OTM calls around the MAX Pain will expire worthless.

For Example in Jul13 Expiry the MAX Pain on 22-Jul-13 is at 6000. So any 6100, 6200,... Calls will expire at Zero value. Similarly for 5900PE, 5800Pe, etc,,,

[welgro]

[welgro]

[Ruchirgupta2000]

Hi Welgro, I see a rising Wedge in Nifty.. is fall expected?

[Ruchirgupta2000]

Hi Welgro, I see a rising Wedge in Nifty.. is fall expected?

[amitagg]

[amitagg]

[welgro]

[apka]