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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.

Oct21W1 Nifty

Oct21-W1: Nifty to do a boring consolidation (Oct4 to Oct8)?

Exactly as written last week, Nifty cracked and kept cracking. The law of moving averages spares none and momentum indicators were really exhausted. The writing was actually very clear on the charts.  

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)

One might get tempted to say that the top is done. At least, I would love to say that since I have missed so much of the upside. However, the green rectangle of 17400 is an important horizontal support zone whose breach is essential before shouting out loud that Nifty would not be making any more highs soon. However, the past momentum will not let this happen so easily and recent downtrend will not let Nifty rise so easily. Therefore, it is a boring stalemate and we are now in a triangle.  

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

ScenarioAnticipated Price Action
ConsolidationBetween 17825 and 17300
DowntrendIf breach below 17300; to drop somewhere till 16750
UptrendIf breach above 17825; to rise somewhere till 18200

Dow Jones has been really struggling since a month now. If it does not deliver some good up-move soon, a lot of hell may break loose and the fire may spread till Nifty too.

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.

fireworks, pyrotechnics, new year

Sep21-W4: Make money while the VIX shines

While thinking on what I did right the past week, I realized that I made money primarily because of high India VIX. It obviously makes sense to do selling during such times. I wondered if I could use India VIX chart to my advantage.

Yes, I can. Like everything else, India VIX follows principles of mean reversion and on an appropriate timeframe, the stochastic is working beautifully. This is the key reason I was able to book a lot of profit on Thusday as VIX crashed and met the average.

Given the fact that Nifty has to eventually meet its averages on weekly timeframe, this is an important learning for the next few weeks. If Nifty is to correct, IndiaVIX will remain on the higher side. A closer tracking of India VIX charts can help in timing of selling the options.

During the beginning of my trading week i.e. September 27th, I could have sold some more lots. The opportunity struck once again on September 28th and this time, I completely missed the bus. This is despite the fact that I had made an absolutely right prediction about market movement.

I should not complain much as the past 3 weeks have been quite kind to me. I should stick to basics and perhaps, profit maximization objective can wait. The focus on capital preservation and consistency remains for now.

So my Tradingview now opens with charts for Nifty spot, Nifty future and India VIX. It may sound like a case of over-analysis but I believe this is actually the bare minimum. Fireworks work well in unison.

returns

Sep21-W5: I could have made more profits

Upon the open of 24 September, I sold a couple of near the money call options. My degree of confidence on mean reversion was high on daily timeframe but that is a bit of a higher timeframe for my kind of trades. I rely a lot on intra-day timeframes which were giving me mixed signals. I had put exit orders on both call options which eventually got executed leading to good profits.

History repeated itself on 27 September and it was again an opportune moment to send near the money call options. In fact, I should have taken higher number of lots. However, I had some office work and I knew I would not be able to actively track. By the time I started paying attention, market had already begun reversing and I had lost the edge. So I had to stick with OTM options.

Had I paid attention, I could have gained a lot more. Anyhow, my overall CAGR has hit an important milestone of 25%. I hope I am able to maintain it.

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. 14451.92Rs. 7,82,9981.84%158.84%1625.1%

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.

sep21w5

Sep21-W5: Nifty momentum forewarns of a correction (Sep27 to Oct1)?

Exactly as written last week, Nifty did remain below 5 EMA for initial couple of days but resumed its uptrend subsequently. The reversal till 15 EMA did not happen.

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 is galloping ahead, the momentum indicators are exhausted now. There remain 3 parallel channels on my chart. The blue and green channels may only act as resistance from here on. Eventually, Nifty should settle after correction somewhere near the middle of black channel. This can happen either during coming week or next week.

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

ScenarioAnticipated Price Action
ConsolidationBetween 18150 and 17700
DowntrendIf breach below 17700; to drop somewhere till 17250
UptrendIf breach above 18150; to rise somewhere till 18450

Metals, steel and realty have been booming these days. I wonder if this is a good time to exit equity and invest in real estate?

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.

u-turn is prescribed, austria, street sign

Sep21-W4: The edge is in selling ATM options during mean reversion

Since I began wannabebull model, the biggest skepticism which I have been having is that option sellers win 90% of the time but lose it all during bad time. I know I am human and I will make the mistakes which will make me lose all profits. I have already made many such mistakes and this website has kept track for all of them.

The only way to counter this inevitability is to make an equivalent big gain once in a blue moon. The conventional approach of traders is to trade with trend. Basically, hold something and watch it grow over time. This does not work during option selling. Even if I roll-in strikes, the ROI will not be extraordinary.

There is only one way to make extraordinary returns in option selling. Sell as many near the money strikes as possible when you know mean reversion is inevitable. This is easier said than done of course. It literally means catching the top which is a mission impossible.

But high-risk-high-reward is the name of the game. I think I can play this game with following couple of hypthesis  

  1. If price is above average on both higher timeframe and lower timeframe. Additionally, EMA crossover on lower timeframe should not have happened recently. Target here is smaller EMA of intra-day timeframe
  2. Divergence on higher timeframe with target being smaller / bigger EMA of higher timeframe depending on divergence indicator’s look-back period.

Both above hypothesis require some more back-testing and custom indicators. I shall be doing that next week. This is worth the effort because ROI is sky-high. Such occasional ROIs can super help in the long run. Also, if I get good at trading mean reversions, I shall be day trading with such setups.

The only catch here is that no matter how thorough I get with my mean reversion setup, I won’t be able to catch top. Therefore, the trade will have multiple entries. I will have to build my short positions. one after the other. Here, ATR can help in knowing when to average my entries.

The theory is fail-proof only if I have unlimited capital. I hope I never again run into a situation when I hit the tilt.