Whilst we do not really have good reliable software like max pain to get the correct expiry figure, I have found that some good old-fashioned Option arithmetic can help predict the closing price of the Nifty fairly accurately.
I had posted this information on a public forum earlier, so those who know it already, please excuse us, but for those who do not- have a pencil, paper and calculator ready.
I intended to do this post in the morning and even communicated to Viren a closing price of 5272 ( +/ - 10 points), but got stuck in my daily routine and when I saw the close, I had to leave everything aside and do this post.
Hopefully it should help you sort out the next one...
Here are the calculations. If you are good in options, you will have this figured out...Old schoolers like us used these maths to figure out if options were cheap or expensive.
We begin by looking at the VIX and the spot closing from the day before.
Step 1 : Look at the spot price from the day before ( 5225 )
Step 2 : Look at the Vix from the day before ( 18.13 )
Step 3 : Look at the days to expiry ( 1).You can do this any number of days before expiry.
Step 4 : Divide this figure from step 3 by the nos of days of the year ( 365/1 )
You get 365.
Step 5 : Take the square root of the figure in step 4 ( 19.10)
Step 6 : Divide Vix by 100 ( 0.1813)
Step 7 : Now divide step 6 by step 5.You get 0.0094.
Step 8 : Multiply step 7 by the spot price of step 1 ( 0.0094 x 5225 = 49.6 )
Step 9 : Add and subtract step 8 from step 1 ( 5175-5275)
Step 10 :Now let’s monitor the Open interest.
5200 PE has OI of 6 million and the OI at 5300 CE is of 5.6 million. In view of this, we can forecast an expiry between 5200 and 5300.This also discounts the possibility of a move to 5175.
Aligning this view with our range from step 9, we can see Nifty at the upper end of the range.The high of the day was 5268 and the Nifty closed at 5260.
That's it. 10 easy steps to take expiry blues away.
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15 comments:
Shai,
Good post as usual and good info.
I see a time of 12.40 on the post. Are there time issues on the blog? I didn't see this post at 2.30 when I did an update.
There are no time stamp issues, but certainly some html ones.
I tried getting the post up in the morning, when I saw your "long at 5217" comment,but the post did not publish because of the OI table. Again I tried at 12.30 pm with no success.Finally got the error sorted out now and could get the post in.
I think it shows 12.30 because of my afternoon attempt.
Actual time of post is 4.45 pm after the Nifty close.
Good.
Because I was worried, since I put up some real time trades and the time stamps can validate.
Good long trade today.
It's a pity though you got out at 5235.
Actually the market makers were messing up with the premium. At one point March was at a 8 point discount and april was at a 15 point premium!!
Got out becuase of that..but I had your 5272 in mind.It was also the MP top of the range 5220-5272.
' Best to you, my friend.
The joy of spamming at your blog is mine to behold!
shai
hats off to you.
There are very few people who really share their secrets.
may god bless you more wealth.
sri
i am with sriganeshh's opinion, shai.
Thanks.
@viren,
hi,
"Because I was worried, since I put up some real time trades and the time stamps can validate."
I suggest to put your post time in the post itself, viren, so that the timestamp problem will be nullified.
with regards to both of you.
shai, this is an useful informative artice, shai, All the best, and thanks.
viren, hi, why not enter time in your post itself while you give live calls ... that would make it easy for readers.
To both of you, i second sriganeshh ...
Mok,
You mean out the time of the trade along with the trade.
Yes..can do.
Mr.Shai,
Excellent piece of work..Amazing..
Can we use this math to have ideas for day closing or week closing figures? Can we get closer figures to guard our positions?
Mr.Shai,
great work. I ama newbie and did not understand this "5200 PE has OI of 6 million and the OI at 5300 CE is of 5.6 million. In view of this, we can forecast an expiry between 5200 and 5300.This also discounts the possibility of a move to 5175.".
Can you explain why it is a close between 5200 and 5300 ?
Thx
gd
Sriganesh, Mok, Assortz, Gofdude
Thank you for your kind comments.
Assortz,
You can do the same math for any Time Frame. I do it for a yearly also at the start of the year.Just change the input in 'nos of days'. Also remember, VIX is dynamic and may give varying results.So watch that too.
Golfdude,
We are assuming that most of that OI is 'written'.These are mostly institutions and they will gain if it moves in the opp direction of the buyer.
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