Month: August 2021

Nifty channel chart

Sep21-W1: Nifty to bounce between parallel channel this week (Aug30 to Sep3)?

Though the market though began with a gap-down last Monday, it remained in a rising mode throughout the week. The market tested the red rectangle and is now hovering around it. The hovering has been happening for last 3 days now and this consolidation is what I was anticipating last week.

Now the following is my analysis for coming week based on what I am looking at (You may want to open image in new tab or save it for better view)

Even though the price action is shouting for a breakout above red rectangle, RSI is giving a different story. It almost looks like a head and shoulder formation in the making on RSI along with possible divergence. Furthermore, the Bollinger bands have expanded too much and are set for compression. Thus, I remain neutral on market for now due to conflict between price chart and momentum chart. The market might just consolidate in the parallel channel.

Scenarios for the week ahead (highlighted as yellow box with black lines dissecting scenarios)…

ScenarioProbabilityAnticipated Price Action
ConsolidationMedBetween 16900 and 16500
DowntrendMedIf breach below 16500; to drop somewhere till 16275
UptrendMedIf breach above 16900; to rise somewhere till 17050

Just like ‘winter is coming’ in Game of Thrones, the world is chanting ‘taper is coming’. When it comes, the flight of money from stock market to safe havens like USD and gold is imminent.

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.

counting money

Aug21-W3: When money is coming, stop counting it

Last Friday was a gap-down event. I remained glued to screen for the first 15-20 minutes. I booked profit on the call options.  I also sold additional put options with intent to make some intraday money. But the deadly ‘validation pending’ problem of Zerodha spoiled the entry and trade had to be closed at no profit – no loss. I then made content by selling OTM calls.

The gap-up opening on Monday made me think of aggressive roll-in of my puts. And I went a bit too aggressive. I ended up selling a strike which was not OTM enough. However, I kept holding the strike and eventually it became comfortable.

This led me to an important introspection. How much of an aggressive roll-in is aggressive enough. I cannot be subjective about it. I have now formed a rule that I will not roll-in more than the ‘adjusted ATR’ value of my indigenous model.

I am not sure if this new rule of mine makes sense in a trending market. In my last blog, I had written about the advantage of aggressive roll-in. Maybe I will know more once I trade such a market. I guess there is no way other than trial and error.

On Tuesday, my self-created alert system shouted ‘oh no’ on my call position. After taking that mega loss during first week of August, I built some checks in my indigenous system. The ‘oh no’ alert indicates that trade might go wrong.

However, my call position was still green and still contained a lot of premium. I got greedy and chose to ignore the warning. It turned out to be a bad bet and I had to book loss later. The good takeaway is that I hit the stop loss button. This is a good sign. I hope I can fix my weakness of not booking losses.

For the time being, I should stop looking at premium i.e. I should absolutely stop counting how much would I make if I hold this option to expiry. I remember doing so a lot of times earlier also. This just makes mind go wrong. Perhaps I should take positions blindfolded.  

roi

Aug21-W4: Nifty Option Trades beat target CAGR

I have clocked my second maximum ROI this week. The highest annualized ROI was 80.68% in the first week of July series. Successes like these are important when the going is good. Selling options is risky and losses are unavoidable. So, maximizing the gains when they come helps in averaging the inevitable red numbers. Nonetheless, it is very important for me to do this analysis only on weekend and not during the week. I could have earned more if I had adhered to this principle.

So I sold OTM strangles from Aug 13 to Aug 18 whose daily candles were like this:

Here are the results:

Net Profit (after deducting brokerage)Capital deployed (approx)Week’s ROIAnnualized ROI for this weekTotal no. of weeks traded till todayAnnualized  return till today
Rs. 5,344.17Rs. 7,11,3840.751%47.58%1115.24%

The following is breakdown of week’s positions:

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.

nifty aug end

Aug21-W3: Nifty to remain range-bound this week (Aug23 to Aug27)?

There are times when I surprise myself with my predictions. Last week was one of them as I wrote about Nifty to face resistance around 16675. Though it would have been a better prediction had Nifty touched mid of my parallel channel but who am I to dictate how market should behave.

Now the following is my analysis for coming week based on what I am looking at (You may want to open image in new tab or save it for better view)

While last Wednesday saw a gap up opening and closing as a fat red candle, Friday was a gap down opening with closing as a green candle. This is too much to take and I expect market to remain range bound for the coming few days. Alternatively, Nifty may touch lower end of the parallel channel to take support. But I would be surprised if RSI breaks the support line.

Scenarios for the week ahead (highlighted as yellow box with black lines dissecting scenarios)…

ScenarioProbabilityAnticipated Price Action
ConsolidationHighBetween 16650 and 16150
DowntrendMediumIf breach below 16150; to drop somewhere till 15950
UptrendLowIf breach above 16650; to rise somewhere till 16875

It is ironical that such big trending news on Afghanistan has no impact on global financial markets. I hope that stays the case for future as well. However, uncertainty on tapering by US is not cool. This will make market volatile until a clear direction emerges.

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.

rolling options

Aug21-W3: Rolling in put options aggressively makes money

During this week, I felt comfortable with my bias as Nifty kept trending up nicely. This gave me the confidence to sell put options aggressively. Especially on Friday, I sold relatively expensive put options by my standards.

The other thing that helped was that I had no clue about NSE’s holiday on Thursday. My wife told me about it on Wednesday. So, I kept selling with an extra day in ‘days to expiry’ value of my indigenous model. This meant that I was selling extra premium options anyway.

The put options kept giving steady profits. This is the expected behavior. What I mean is that for X% change in price (in favorable direction of option), put options return more profit than call options. I think this is because option sellers already factor the velocity at which market can fall and price put options more expensively anyway.

I was listening to a webinar about option trading. The speaker said that buying call options was the safest bet between the 4 possibilities of option trades (i.e. buy call, buy put, sell call and sell put). He was absolutely against the idea of selling, as is everyone for obvious reasons.

He further said that buying puts might be enticing because if it works, it rewards very handsomely. However, price falls less often as compared to rise in price. Therefore, most of the put options expire worthless.

Based on his above comments, I have a hypothesis. It goes like this

“Between selling of call and put options, selling put options has higher probability of success along with better return on capital”

I wish I could extend the hypothesis to option buying also. But I believe it would become apple to orange comparison.

Anyhow, I have made a note. If market is expected to trend up and if it does so, I am going to sell put options aggressively. It brings good money. There is nothing better in life than a trading strategy that brings good money. Or maybe the best thing in life is good food. Yeah, it’s the latter.

nifty index 50 trades

Aug21-W3: Nifty Option Trades beat target CAGR

In last week’s log, I forgot to mention that I had infused further capital of Rs. 22,000 in this account. With that, the assets under management is now above Rs. 7,00,000. I do often think about taking loan to put more capital. Or maybe someone can invest in this account and I share profit. Or maybe I deploy the same trades in someone else account and share profits. I might pursue any of these 3 scenarios soon. But the catch is that I should be steady and consistent. This week was one of them.

So I sold OTM strangles from Aug 13 to Aug 18 whose daily candles were like this:

Here are the results:

Net Profit (after deducting brokerage)Capital deployed (approx)Week’s ROIAnnualized ROI for this weekTotal no. of weeks traded till todayAnnualized  return till today
Rs. 4,809.09Rs. 7,06,5740.681%42.29%1012.27%

The following is breakdown of week’s positions:

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.

nifty analysis

Aug21-W3: Nifty to rise slowly this week (Aug16 to Aug20)?

Like I was anticipating, Nifty did have momentum. Nifty did reach top of my red rectangle. But what Nifty did next was not anticipated. It broke above the rectangle and ended Friday with a big green candle.

Now, here’s what I am looking at:

This is a strong uptrend. It would not allow market to go low. RSI too does not have any divergence. Thus, market may continue to move up or stay around this height. The mid or top of parallel channel should be the target.  

Scenarios for the week ahead (highlighted as yellow box with black lines dissecting scenarios)…

ScenarioProbabilityAnticipated Price Action
ConsolidationMedBetween 16675 and 16350
DowntrendLowIf breach below 16350; to drop somewhere till 16050
UptrendMedIf breach above 16675; to rise somewhere till 16925

Fundamentally, there is still no news that can pause this juggernaut of a market. The world is living in euphoria. It remains to be seen how long this lasts.

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.

percentage base effect

Aug21-W2: Rollover of bad trades can cause recovery

The last week’s disaster was quite something. I have had such experiences earlier also while selling options. After such events, I try to create scenarios which can bring some recovery. Even though I knew that the whole idea of this weekly option trading model would work only when I don’t let such disasters happen, I ended up making the same mistake.

As part of my earlier experience, I know that the next useful step towards recovery is to rollover the options and in fact, try to double down on number of lots. This step should be taken only when there is more than 100% confidence that the trade will go right. Even then, it is rarely possible to obtain complete recovery of loss.

Keeping all of the above in mind, I did go for rollover on Thursday. I had high hopes of a complete recovery but I remained extremely alert. I must have analyzed charts 20 times before finalizing the rollover decision on Thursday.

On Friday, I kept analyzing market behavior. Instinct and analysis told me that Nifty may not drop more from Monday. I thus reluctantly booked profit on Friday itself and made peace with whatever recovery was done.

However, I still wanted more. I wanted to squeeze as much as possible this week so that my P&L book can reflect numbers in greener color. This led to whipsaws as I kept adjusting strikes. Nifty’s direction and volatility was all over the place. Even though I had predicted this, my strikes were problematic. I just did not have it in me to take risk and kept paying adjustment brokerage.

Anyhow, the week’s recovery is ok. Rolling over turned out to be a good decision. This only happened since I was very alert during market hours. This alertness was not there for past 3 weeks during which I incurred drawdowns and the humongous loss. Staying vigil helps and hopefully, profits in future weeks shall quickly take overall CAGR to above 15% and beyond.

nifty index 50 trades

Aug21-W2: Nifty Option Trades beat target CAGR due to base effect

I had wiped off 6.6% of my capital in last expiry. However, I had rolled over call options and booked profit on Friday. Furthermore, I further infused capital of Rs. 22,000 so that I can sell at least 6 lots per side. However, I did not have any luck on Monday and Tuesday. My strikes were not OTM enough and I kept adjusting them causing nothing but profits to Zerodha as brokerage. But I am satisfied with whatever recovery I have made. And hopefully, I shall stay on track now.

So I sold OTM strangles from Jul 30 to Aug 5 whose daily candles were like this:

Here are the results (the annualized ROI for week is funny due to this one time recovery) :

Net Profit (after deducting brokerage)Capital deployed (approx)Week’s ROIAnnualized ROI for this weekTotal no. of weeks traded till todayAnnualized  return till today
Rs. 26,931.15Rs. 6,79,643-3.96%654.4%99.16%

The following is breakdown of week’s positions:

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.

nifty analysis

Aug21-W2: Uptrend almost over, Nifty to hang around this week (Aug9 to Aug13)?

My last week’s analysis was a case of right observation, wrong diagnosis. Yes, Nifty was range bound but expecting it to remain like this forever was a stupid call. Nifty broke the range to go in in uptrend with high momentum.

Now, here’s what I am looking at:

Nifty does have enough momentum to reach the top of red highlighted channel. However, law of moving averages is also at play here. Thus, I remain neutral on market.

Scenarios for the week ahead (highlighted as yellow box with black lines dissecting scenarios)…

ScenarioProbabilityAnticipated Price Action
ConsolidationMedBetween 16350 and 16150
DowntrendMedIf breach below 16150; to drop somewhere till 16000
UptrendMedIf breach above 16350; to rise somewhere till 16500

The liquidity forces continue to rule this uptrend. As long as inflation rates remain in check, there is no reason for money to exit stock markets.

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.