Day: October 24, 2021

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.