iCharts Discussions

[ConMan]

Hi Baaz...

While I agree there are many who use it for hedging their positions my overall feeling is the % of those are not high. Moreover if they are buying PUTS for their long positions, there would be people who would be buying CALLS for their short position. The effect thus is nullified. The same holds true for stock options as well.

So while seeing PCR its safe to discount certain portion of PCR and arrive at a fair number which can give you a sense of market direction.

Hope this clarifies....

[ConMan]

Hi

Markets continue to hold above 4600 & the PCR for the same has gone above 2.7....

But 4800 CALL option has a lot of OI....PCR is very low..as per theory we shouldnt break 4800 level also.....

We need huge Open interest in calls now to get the market rolling down....till then enjoy the CALL Options

QuickGun Murugun

[PREMSINHA]

[ConMan]

Hi Prem

Looks like a difficult month....

We are going to trend in one way soon(basis VIX)...PCR suggests host of strong resistances both on downside and upside

We need a huge built of OI in calls at lower levels which is difficult, for the market to go down....as we go up we probably will see more OI in puts....

So we may continue going up....

(I am new to TA...this is purely on basis of PCR).....

Regards
QGM

[ConMan]

Hi

If you expect a straight line movement in the market with views inclining towards downside then probably you can try this option strategy.

Strip Straddle

The Strip Straddle, also known simply as a Strip, is a long straddle which buys more put options than call options and has a bearish inclination. As a Volatile Options Strategy, Strip straddles are useful when the direction of a breakout is uncertain but is inclined to downside. Strip straddles make a higher profit than a regular straddle when the underlying stock breaks downwards.

Buy to Open At The Money (ATM) Call Options and Buy to Open more At The Money (ATM) Put options.

Assuming Nifty is at 4800

Buy To Open 1 contract of Sept 4800 Call at Rs.124
Buy To Open 2 contract of Sept 4800 Put at Rs.77

Net Debit = 124 + (77 x 2) = Rs.278

Profit Calculation of Strip Straddle:
Profit = [(Difference between stock price - strike price of strip straddle) x number of call options (if stock is higher) or number of put options (if stock is lower)] - net debit

Maximum Loss = Net debit when stock closes at the options strike price.

Assuming Nifty Drops To 4400

Profit = [(4800 - 4400) x 2] - 278 = 800 - 278 = 522

Maximum Loss = 278

Breakeven Points of Strip Straddle:
A Strip Straddle makes a profit if it goes above its upper breakeven point or below its lower breakeven point.

Upper Breakeven Point = Strike price + net debit

Lower Breakeven Point = Strike price - (net debit/[number of put options/number of call options])


Upper Breakeven Point: 4800 + 278 = 5078

Lower Breakeven Point: 4800 - (278/[2/1]) = 4800 - 139 = 4661

Hope this is clear....

[san77s]

Hi QGM,
Small correction in ur profit calculation...
4800-4400 = 400*2= 800- 278 = 522 instead of 422

Regards,
S.Saravanan

[ConMan]

Thanks San...

I am being watched here.....

A good quote:

"Markets test patience & reward conviction" ......

[ConMan]

Hi

As posted earlier we continue to go up & PCR at higher levels continue to support the longs....BE CONTRA AND BE PATIENT

Regards
QGM

[ConMan]

Hi All

The PCR of

4800 SP is above 2.5 &
4700 SP is above 4.3

I really don't expect a major fall this expiry....Continue holding longs if you have....lets hope to see a fall next month

Rgds
QGM

[ConMan]

Hi

FIIs are not budging....do you wanna play against big money or play with them...pls look at the net purchases made by them month on month....

Date Net (Rs.crs)
2009 - Sep 12607.9
2009 - Aug 4902.5
2009 - Jul 11066.6
2009 - Jun 3830.2
2009 - May 20117.4
2009 - Apr 6508.2
2009 - Mar 530.1
2009 - Feb -2436.8
2009 - Jan -4245.1

VIX has not closed above 38 this month showing people are not looking at major downmove....Enough indicators to prove uptrend of September was valid...

Looking forward to Happy October Series

Regards
QGM

[ConMan]

PCR of 4900 strike price already trading at high levels. It logically means we should sustain levels of Nifty above 4900.....lets watch out.


CE OI Strike pr PE OI PCR

227,550  3800.00  436,450 1.918039991
11,600  3900.00  464,050 40.00431034
169,000  4000.00  707,150 4.184319527
39,550  4100.00  478,650 12.10240202
37,900  4200.00  1,299,950 34.2994723
95,950  4300.00  1,404,150 14.63418447
74,050  4400.00  1,927,300 26.02700878
109,450  4500.00  2,197,900 20.08131567
225,000  4600.00  2,367,100 10.52044444
536,550  4700.00  5,417,900 10.09766098
893,650  4800.00  4,538,650 5.078778045
1,513,100  4900.00  6,183,450 4.08661027
3,261,550  5000.00  4,406,550 1.351060079
3,531,250  5100.00  851,050 0.24100531
3,817,550  5200.00  505,000 0.132283795
4,249,600  5300.00  135,900 0.03197948
1,467,500  5400.00  29,850 0.020340716
900,300  5500.00  115,500 0.12829057
562,400  5600.00  19,800 0.035206259
31,550  5700.00  -
21,755,050 33,486,350 1.539244911

[ConMan]

FII Inflow Outflow details

Reporting Net Investment
Date (Rs Crores)
01-Oct-09 1508.9
05-Oct-09 1372.1
06-Oct-09 -237.5
07-Oct-09 31.4
08-Oct-09 773.1
09-Oct-09 -361.9

FIIs have been not very active this week. Probably the INR/Dollar rate is a dampener. No wonder why market is trading in a tight band. We need volumes to either propel or fall. VIX is also on the rise.

After a very long time, PCR has started falling. It means people are slowly becoming bullish though very cautiously. The PCR of 4900 has dropped significantly making the market look weaker. If we dont see more PUT buying from people,we can see fall.

[ConMan]

Hi All

The PCR is yet again showing that breaking 4900 is a big big task. FIIs have been net buyers for the last few days & this month.

PCR Strike Price
8.08 4800
4.84 4900
1.42 5000

Regards

QGM

[ConMan]

PCR for lower levels are not very high inicating Vulnerability....


OI Str Prc OI PCR
301,200  4500.00  4,700,800 15.60690571
1,080,800  4600.00  6,026,600 5.576054774
2,569,700  4700.00  6,664,300 2.593415574
2,896,550  4800.00  5,667,200 1.956534498
3,271,600  4900.00  5,000,000 1.528304194
3,705,800  5000.00  3,753,550 1.012885207
2,641,000  5100.00  827,500 0.313328285
2,342,800  5200.00  172,350 0.073565819
1,468,100  5300.00  52,600 0.035828622

[ConMan]

I know many people would be confused about options strike price....atleast I am

I have been advised to buy Out of Money (OTM) options most of the time but it has particularly not worked for me....nor for ppl whom I know also.

I have a little inclination towards In The Money (ITM) options....now the question would be why? which ITM option & how to find the best one.

Before reading ahead please be clear that I am not positioning Options as a lottery ticket gamble here....its a pure simple investment strategy. I might be wrong,please do correct me.

Question 1: Why ITMs?

Answer: Volatility will not affect the pricing of ITM options as the current Market price is well above ITM strike price. The cost of acquiring the option is lower (yes!!!) than acquiring At The Money (ATM) options or OTM options.

Example: Nifty CMP:4997
Assuming your strategy suggest to go long at these levels...you can either buy ATM,OTM, ITM options.

Cost of Buying ATM: say 4900 CE is 155.80 - 97 = 58.80 (multiply by 50 = Rs.2940 already lost) (taking lieberty here)

Cost of Buying OTM: say 5100 CE is 47.10 (multiply by 50 = Rs.2355 already lost) plus you are sure to lose all the money till 5100 levels. So your invested money is not working for you for sometime.

Cost of Buying ITM: say 4700 is 318 (4700+318- 4997) = 21 (multiply by 50 = Rs.1050)

So I would say OTM is completely ruled out & between ITM/ATM, I would clearly choose ITM cos its available at a cheaper cost.


Question 2: Which ITMs?

Answer: Buy that ITM options which is trading at the least premium. Taking the above mentioned case,

Cost of 4800 ITM is (4800+232.7-4997) = 35.7
Cost of 4600 ITM is (4600+408-4997) = 11
Cost of 4400 ITM is (4400+605-4997) = 8
Cost of 4500 ITM is (4500+509.9-4997)= 12.9

Now I can decide to buy either 4600 or 4400 ITM. Which can be left to the individual investor's investment capital. I would probably look at 4600 (cos here the cost differencial is not high). There are times when ITMs can trade at discount also. If you find one grab them with both hands, I say.


Again, your question would be,if the market goes against us we will lose only limited money in OTM/ATM options. I would say what are SLs for? Place SLs in options & trade, you will not see more losses than ATM/OTM options.

Look at the other side of the coin, if market moves as per your trade system suggestion you would definately make an average of Rs.2500-3000 more per options (Than ATM) & atleast Rs.6000 more than OTM options.

This is how I would position options against Futures. So one can be happy with taking same position as futures at much lower cost + no more calling by brokers to fund margins ....

Hope this makes sense....more on how to close options later....

TATA .... QGM