Month: August 2011

Nifty Future chart August Series :

Perspective : 4 sessions to expiry left, and we are seeing put writers on the back foot from 5700 levels. Generally in such environments, the offensive party ( call writers) end up putting the losing party ( put writers) on the mat and we see an expiry at the lowest point of the series.

Global markets may also be eyeballing the FED meet, where the market is expecting QE3 to stem the rot.


Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.


Chart Speak :

1) A gap on charts between 4903 and 4930
2) Profile is balanced indicating buying and selling efforts.
3) Prominent POC at 4850 may act as a magnet again for price.
4) Breakdown below 4790 PS1 levels.

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Profile charts for 22nd August

Nifty Future chart August Series :


Perspective
: With 6 sessions left for expiry ( including today) , the focus shifts from the external to the internals.The cues will be from Option Open Interest as option writers take center stage. Follow the Kris commentary to get up to speed on what the market is doing with option and future volumes.

Option Open Interest is another form of “volume at price”- another name for Volume profile analysis.

Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.


Chart Speak :

1) Yesterday was a Neutral day ending at the day’s developing point of control.
2) Failed auction at 5014
3) 2 day market is in balance also
4) Inside day yesterday.

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Nifty Road Map 18th August

Nifty Future chart August Series :

Perspective : On Friday afternoon, before our markets closed we had profiled the SPX, which was a market trying to establish balance.We did say that the overnight cues from that market would influence our open on Tuesday.

On Friday, whilst traders on the NSE chose to close their long positions, the traders on the NYSE chose to retain them and the market showed short covering on Monday.

It remains to be seen if the overnight gains in our market can last beyond the IB hour or we see a repeat of the moves of the SPX.The SPX chart is below :

SPX Cash Market :

Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.
2) A failed auction at 5233

Chart Speak :

1) Friday was a Double distribution ( DD ) day.
2) We consider a DD to be two separate auctions.
3) Overnight sentiment based on SGX is long and shows an open in the upper distribution.
4) 5185 is PR3 for the day. PR2 at 5143 will be first sign of weakness till 5100.

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Profile charts for 16 th August

I got the idea of this from a book that mentioned that portfolio investors like to buy 10% out of money options (OTM) for hedging their portfolios. It got me thinking:-

  • Isn’t 10% way too much out of money?
  • Will this money used for hedging not get wasted?
  • Is it worth the trouble?

Instead of checking the fact, I just went ahead and bought five 5000 strike Nifty puts on 1st August’ morning. Nifty kind of crashed after that so I booked at 900% profit on monday, just one week later. Today I mentioned the fact that I made 10 times my investment (Rs 20,000 made on Rs 2,000 invested) at Vtrender trading chatroom. My good friend RM from the trading room discussed the possibility of testing the strategy of buying deep out of money puts as a money maker. Now RM is good with scripting and logic but the task is quite complicated because it needs lot of data crunching and scripting. So we decided to put away the testing of this strategy few days away.

However, being impatient, I decided to do a quick-and-dirty testing first and simplified the task by using a few simple rules to find out payoff of this strategy. Boring assumptions are at bottom. Interesting results are right below.

  1. Out of 53 months, OTM puts struck money in 3 months. In rest of 50 months, they expired worthless.
  2. A total of Rs 3,40,280 (Rs 3.4 lac) was invested. On avg Rs 5970 per month.
  3. Total payoff was Rs 5,68,200. That means a profit of Rs 2,27,920.
  4. Profit is 67% of investment!
  5. On a per month basis profit is Rs 4000
  6. To make a similar return from 9% FD, you would have to invest Rs 5,33,000 on 1st Jan 2007 upfront. I don’t want to go into calculating the two strategies on NAV basis but I am pretty sure OTM put strategy is giving almost twice return compared to 9% FD. Those who would like to keep their FDs could put their FD interest every month into this strategy and get win a lottery every 17th month or so.
  7. Negatives of this strategy: Who has patience to wait 17 months before striking paydirt! This return is not fantastic; I want to make 10% every month! This is like a lottery!
  8. Positives other than returns: If you are an investor in equity market and are holding these puts the day Nifty crashes and hits circuit breaker, you will thank me and thank god. In that order.

While the strategy made intuitive sense to me it right away, it seems profitable even when applied mechanically. So go ahead and hedge your longs. Your money will be returned back to you by market automatically. All you have to do is buy ten (maybe 100) 10% out of money puts on 1st day of every new series in Nifty options and hold till expiry. Don’t think, don’t act after that! Of course if you think you can outguess the market, go ahead and make some variations. Make it your own!

Boring Assumptions:-

  • Period used 1st Jan 2007 till 31st July 2011. For those of you thinking this strategy may not work prior to that period because Nifty was in a strong bull market, check out months of May 2004 and May 2006. This strategy would have rained money in those months too.
  • Day of buying of put options changed from first day of series to 1st trading day of calendar month because did not have patience of plugging in 57 dates carefully into my spreadsheet.
  • Day of selling of option similarly changed to last trading day of calendar month.
  • Option strike assumed to be rounded down figure 10% below closing price on 1st trading day
  • Cost of options assumed to be 0.12% (on 1st August cost of option was 0.10%) on average.
  • Brokerage cost assumed to be Rs 100 per option both ways.
  • Options are not encashed at any discretionary level. Assumed to automatically expire at closing price of last trading day of calendar month.

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Make lazy money from Nifty put options

Nifty Future chart August Series :

Perspective : Same as yesterday- The bounce off the lows yesterday nearing 200 points, RM’s wonderful charts of the MO which are displaying extremely oversold values, seem to be indicative of a bounce in store. Generally such counter reactions tend to be violent, and if the lows hold for the next two days, we should rally by 6-10 % over the next 4 weeks.

Back Ground :-

1) Huge gap between 5325 and 5233 which is a single print seller.
2) A failed auction at 5233

Chart Speak :

1) pr2 at 5078 and pr 3 at 5044 are supports for the market today
2) resistance seen at PR1 5182.
3) 5050 zone is an important base for the market to hold.

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Profile charts for 101th August