The market has remained sideways and 22800 and 23175 continue to be short term reference points.
A strong bull market consolidates rather than corrects after a big run up. We may be witnessing that consolidation now. I still maintain that 30 % upside I spoke about earlier this month, 10 of which have already been done!
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shai,rm
i m slowly getting things clearer reg. options trading....
for a 1 lot of NF at Rs. 25,000 - i can buy how many lots of CE options?
for eg: if i am confident mkt. is going to touch 5800 before expiry - instead of buying 1 lot of NF, wudn't it be better to buy more lots of 5800ce options? if possible, can u pl. give a hypothetical ex. of profits using above mentioned scenario?
Hi Janak
If you are sure of the trend then options should give you better returns on your money but they are high risk/high reward instrument.
About your expectations of NF touching 5800 before expiry. A workout of returns on 5800 expiry are given below:
5600CE CMP 68.05 Expiry price 200 Risk Reward 1:3
5700CE CMP 23.25 Expiry price 100 Risk Reward 1:4
5800CE CMP 6.90 Expiry price Nil
Since Options premiums decline in direct proportion to volatility and remaining time to expiry, the 5800CE may be a good bet only if Nifty reach 5800 on Monday or Tuesday. By Late Wednesday the time premium on 5800CE will be very little and on Thursday the time premium would be almost nil, only volatility premium will remain. So 5800CE will be a good bet only if you feel that NF will go higher than 5800.
I hope I have not written too much of gibberish. :))
@Janak
When you buy 1 lot of NF for 25000 Rs, you risk maximum 2500 Rs with a 50 point SL. Though you can buy 20 lots of 5700CE with that amount the risk will be entire 25000 Rs if NF expires below 5700.
rm, thanks a lot for the explanation. I will insert 5600,5700,5800 ces in my market-watch and observe the value behaviours for few days to get more clarity.
Janak,
When you trade options, knowing the target price is not enough. If you are sure about 5800 as a target, you should also know the amount of time the market will take to reach there.It's the time value which is more important than target price in the case of options. Accordingly you would know to buy ITM, ATM or OTM options.The OTM is high risk- high reward whereas ITM is relatively safer.
Options are called wasting assets, akin to holding an ice cube in your hand which after some time will leave you with nothing!
One should be fully aware of all Option Parameters before indulging in it.
jank ..best way is to go to otm on news and itm everytime :)
make it a point that on every calender 15th ..u shift to next month written options..make it a priciple in ur writing ..ur all bad(hand)writing will improve for sure
thanks shai....very wise words. I am going to try out your calls on option trading for quite some time before allowing the gambler in me to take better of me :-)
manu, i still have to understand what is ITM, ATM and OTM....
@Janak
Sorry for using jargon. The full forms are as follows:
ATM = At the money (if the CMP is 5600 then 5600CE and 5600PE will be ATM options)
OTM = Out of the Money (if CMP is 5600 then 5700CE and 5500PE will be OTM options)
ITM = In the money (if CMP is 5600 then 5500CE and 5700PE will be ITM options.
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