Month: October 2021

nifty novw1

Nov21-W1: Nifty to continue to swing wildly? (Nov1 to Nov3)

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)

I am no expert at wave theory but if this is onset of downtrend, then one more wave of reds is yet to come. Before that happens, Nifty may inch up a bit. On the other hand, if this is A-B-C type of correction, then this is mostly over? Anyways, this is a very short week and I wonder how much can Nifty swing in 3 days especially when we have 3 big fat red candles in the backdrop.

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

ScenarioAnticipated Price Action
ConsolidationBetween 18050 and 17400
DowntrendIf breach below 17400; to drop somewhere till 17100
UptrendIf breach above 18050; to rise somewhere till 18600

Diwali muhurat trading has a history of taking the market up. Let’s see

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 oct21W4

Oct21-W4: Nifty to take a breather and go nowhere? (Oct25 to Oct 29)

Last week’s prediction stands as one of the most perfect predictions I have made till date. Nifty exactly took resistance from my last week’s red colored horizontal resistance line. It then went to middle of this black channel.  

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 Nifty has taken a beating on daily timeframe, its trend is still strong on weekly charts. However, I do see divergence on weekly timeframe and therefore there can be weakness. However, it may take some time for this weakness to become a downtrend. Therefore, I believe at least the first half of the coming week will go in consolidation and eventually a downtrend should commence. Honestly, I am not very sure about the coming week and this is only a half-hearted prediction

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

ScenarioAnticipated Price Action
ConsolidationBetween 18400 and 17850
DowntrendIf breach below 17850; to drop somewhere till 17650
UptrendIf breach above 18400; to rise somewhere till 18750

Everyone is worried about inflation even though it has not reflected on the WPI and CPI yet. However, there exists this universal consensus about inflation about chips, crude, metals, transport…comb, toilet paper, salt…basically everything. Such apprehensions usually become self-fulfilling prophecies. I wonder.

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.

spanner, wrench, tool

Oct21-W3: Mean reversion strategy needs some fixing

The week was dedicated to my indigenous and highly risky mean reversion strategy. It is highly risky because there is no stop loss. If I continue to be in loss by Thursday expiry, the idea is to roll over the trades. Also, there is no way for me (or anyone) to catch the top but I take trades thinking that the entry is the top.

Even though all of the above sounds like a plan of disaster, the above is the only method in option selling on which I am highly comfortable. It is because Vega and Theta play a vital role in making profits. The main problem that I face is position sizing. If I go wrong in catching the top, the next thing to do is to perform averaging. Therefore, the initial position size is quite important.

The inability to be in control of margin compounds the problem. Even though I deploy vertical spreads for this strategy, I never quite know when I might run out of money. This whole concept of VaR and SPAN and what not makes it impossible to guess position size. Even Zerodha’s basket order is quite useless as it attempts to place limit orders instead of market orders. Limit orders typically fail to execute or worse only 1 leg gets executed, which further compounds the margin problem.

Having said all of the above, I guess I just need to keep experimenting with my position size and identify the optimal solution. The facility to bring hedges closer to strike is a solution. However, when I already have a large number of spreads and I do not have sufficient margin, exiting a hedge can make me go out of margin. Managing all this is ridiculous.

Therefore, brokers and SEBI must figure out something to make life simpler for trading options spreads. Until, then I need to somehow figure it out. I gained 2 insights this week:

  1. Don’t let Zerodha’s Average LTP fool you because it is based on FIFO method and does not show the true picture in case some loss was booked the previous day
  2. Keep hedges closer to sell strike for gaining margin benefit  

This mean-reversion strategy is my hedge against the inevitable weeks when I will lose money. Thus, I must make the most of it whenever I am deploying it.

return

Oct21-W3: I think I thought I saw me make lotta money

I went for the kill with my super-risky mean reversion style of trading. In this style, I try to catch the top i.e. I don’t even wait for a signal candle. Catching the top is impossible. I then start averaging by using a mathematical formula based on ATR. The formula also helps in computing the position size to perform averaging. I think I am slowly getting good at it.

All this is not possible by shorting naked options. My strike of choice was 18600 CE, and my choice of hedge was 19100 CE. As market tended to go up, I once tried to use Zerodha’s basket order to place trade but accidently placed order of buying 18600 CE. I instantly fixed the mess and tried to place a basket order again. The order failed again as Zerodha places limit orders and not market orders. The trades simply did not get executed. Feedback to Zerodha: Please allow market orders as part of basket order.

The above fiasco happened on Monday. Now, I forgot that Zerodha follows a FIFO method when it comes to calculation of average LTP. I got fooled on Tuesday with the average LTP and notional P&L. When the market dropped, I saw that I was making more than Rs. 20,000 but in reality I had made only around Rs. 8000 since I had actually booked loss on Monday while trying to adjust positions.

It is not like I would have traded otherwise. I needed to exit on Tuesday as my target was hit but I was quite happy until I checked my P&L report today. I had to check the log twice to understand how my profit of 20,000 got reduced to 8,000. I am not sure if other traders often fall for this misunderstanding also. Irrespective of this accounting misunderstanding, I believe I should have made more money anyway during this mean reversion trade. I was facing margin problem due to far OTM hedge. Next time, my hedge won’t be that far.

So I was trading between these candles:

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. 14615.95Rs. 888512.661.65%133.6%1935.45%

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 oct21w3

Oct21-W3: Nifty to respect the constraints? (Oct 18 to 22)

Last week’s prediction was a politically predict statement. It would not be fair to call it a prediction anyway. I said that Nifty could go either way after 2 days. I have been proven wrong as market chose the upside instead of downside.

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)

Someone has to name this trend which has existed post-pandemic. Should I name it the pandemic trend? I mean, even hurricanes are named alpha, beta, gamma etc. The trend has behaved itself whenever it goes to high. It follows law of moving averages, somewhat.

The time has now come for it to behave again as it finds itself to respect the red parallel channel and an overstretched Bollinger band. This can happen over the course of next couple of days but unsure what would happen subsequently. Maybe, Nifty will make another top.

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

ScenarioAnticipated Price Action
ConsolidationBetween 18600 and 17950
DowntrendIf breach below 17950; to drop somewhere till 17575
UptrendIf breach above 18600; to rise somewhere till 18975

Other than Nifty, Bitcoin too has gone crazy. If one looks at global equity indices and crypto indices, it would give an impression that everyone in the world is rich…but are we?

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.

desert, drought, dehydrated

Oct21-W2: Low volatility week doesn’t make much money

I was pretty much clueless about how Nifty was going to behave during the week. The macro trend is obviously bullish but momentum indicators on daily timeframe have been a bit weak lately. The exact in the middle position with respect to a parallel channel added to the confusion.

This is the easiest setup to create option selling positions. Just sell on both sides with a hope that everything will consolidate. In case price starts breaking out in 1 direction, reduce risk accordingly while adding to the other side.

I did all of the above but I was barely able to money. I hardly closed any positions on Friday and Monday. Whenever I did, the next strike of choice did not come at a valuation which would make money. However, I contended with what came to me. I did not move strikes closer to money.

Eventually, the ROI is above 15% but hey, my true interest is in getting return more than 30% on weekly basis. I guess I can’t have that on all weeks especially when VIX is trending down. I need to calm down and stay happy with what I get, especially when I had disastrous results during first 13 weeks.

I should start looking at banknifty for mean reversion trading setups if I need to quench my greed. Maybe not until week # 26, I suppose. It is not because I would not be able to manage both Nifty and Banknifty but mainly because I still lack enough funds to properly perform mean reversion trading. I have to fund my account a bit more.

oct21 w2 return

Oct21-W2: Did everything right but could not make enough money

Option valuation is crazy stuff. My wife keeps crying out loud daily as to why options were not behaving the way they were supposed to. I am joining her chorus as I think I should have earned more this week. Nifty was all green and I was on the right side as I was all short on puts. I even exited my call position when I found that Nifty was going to blast up. Should I blame the VIX? Maybe yes. Maybe unidirectional weeks don’t end up bringing enough money for option sellers.

Should I have been more aggressive with my put strikes? But then staying OTM is the name of the game. Whatever.

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. 3716.14Rs. 884796.520.42%24.35%1830.37%

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.

Oct21-W2: Nifty to do something in this channel but what? (oct 11 to 15)

Last week’s prediction didn’t exactly go my way and Nifty went into a mild bullish mode. It was not exactly a surprise since Nifty continues to be above my green rectangle around 17400 level. Until that rectangle is cleanly broken, the bias is always going to be up

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)

Nifty is sitting nice and tight exactly around the mid line of the black parallel channel. I have no clue what it would want to do now but if I have to make a guess, I would be bearish. The reason is that Nifty is at a double top with stochastic making a divergence type formation. A break below mid-line will take Nifty straight to the lower end of parallel channel.

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

ScenarioAnticipated Price Action
ConsolidationBetween 18075 and 17625
DowntrendIf breach below 17625; to drop somewhere till 17400
UptrendIf breach above 18100; to rise somewhere till 18300

India is running out of coal. Meanwhile, oil has breached the $80 mark and even $itself is nearing the 80 mark. WINTER IS COMING!!

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.

returns

Oct21-W1: Profits just happened by themselves

There is a way of managing strangles. The method requires selling call or put option at a premium which matches the opposite side. Man, I can’t explain this in simple words. Let me do that in detail in the blog section. However, I allowed trades to play out on their own while keeping a mental note to take the stop loss.

Basically, I was never in charge of the way candles were getting formed. I found market to be literally all over the place this week. But the edge in option selling is theta decay which helped in making good money.

I was trading last week in between these vertical lines

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. 12346.95Rs. 8474491.45%112.16%1730.83%

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.

market, marketplace, buying

Oct21-W1: Letting the market forces decide strike selection

My view for the week was a boring consolidation. I would say that I was not correct as market was mildly bullish. In fact, it broke above the resistance range. However, that happened on Tuesday.

I have observed that any positions taken before Tuesday don’t give that much trouble if carried till Thursday. However, this idea should not be mixed with the notion that any position taken on Tuesday or later is safe for Thursday expiry. These are 2 different things.

With the support of some money management policies, I was able to not play keep my positions safe but also able to make good money (at least by my humble standards). The trick was to keep matching option premiums on both sides. If call option premium was at 7, I would sell a put strike whose LTP was 7 and vice versa.

This worked well until Wednesday. The call options started showing a loss of more than Rs. 3000 but the intra-day charts were signaling strong possibility of mean reversion. I exited my put positions and added more to the call positions. This averaged the overall selling price and I eventually exited the call positions at breakeven. Subsequently, I sold OTM strangle for Thursday expiry.

The high ROI for the week is mainly attributed to high VIX. I wonder how much would be the ROI if VIX was somewhere around the typical 13 mark. For the time being, let me make do with what I can.

I learnt one important fact, thanks to Twitter and Zerodha. The basket order feature of Zerodha helps in enjoying margin benefit of selling options with hedge. I should really make use of this feature especially when I am selling far OTM positions. The increased utilization of margin can help in making more money. Thanks again Zerodha for being best at technology and for the reply on twitter.