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Check Anlayze max pain data , Max pain bank nifty with help of Quantsapp Tools."Get Powerful Options Trading Data & Analytics on your Android / iOS devices". If you beginners and want to learn option trading basics and advanced level so this is the right place. visit website
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"NSE Live Option Chain, get Call and Put Option Quotes. Check out live NSE Nifty Option Chain, Bank Nifty Option Chain and Stocks Option Chain. Find Option Premiums & Option Vega now."
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If Underlying Price goes up Call Premium would go up and Underlying Price goes down Call Premium would go down.
Every once in a while it makes sense to go back to the basics and re-evaluate the mechanics of the very instruments that help us make money. So, in this discussion let us understand what impacts the options in what way and draw learnings out of them.
To understand this though, we need to first list down the key inputs used to price an option because these inputs would eventually turn into the list of determinants for change in option premium.
In NIFTY Option Chain , BankNifty Option Chain , Reliance Option Chain , etc. premium is an output of 5 inputs1. Underlying Price2. Strike Price3. Time to Expiry4. The volatility of the Underlying 5. Risk-free Rate of Interest
-- Underlying Price : The first one is rather straightforward and easiest to understand. I remember talking to many fellow traders when they were first introduced to options. The definition was quite simple - Call means Bullish Instrument and Put means Bearish Instrument.
Taking that very basic but accurate analogy forward for this one, if Underlying Price goes up Call Premium would go up and if Underlying Price goes down Call Premium would go down. The situation is exactly the opposite for Put options Other Things Being Equal (ceteris paribus).
Other Things Being Equal means this impact is accounting for no change in other factors affecting premium.
Learning: Just like trading the underlying make sure we are in the right instrument (Call/Put) while trading a directional move by buying option.
-- Strike Price: To understand the role of a strike price we would be twisting the representation a bit here. Instead of how strike price impacts premium, let us understand how premium behaves with exactly the same underlying move for two different strikes.
So, in case of Calls higher the strike, the less sensitive it would be to the underlying move. On the Put side, lower the Put strike and lesser sensitivity it turns to the same underlying move.
At the same time, Higher Strike Calls and Lower Strike Puts command fewer premiums than their counterparts.
Learning: Align the level of confidence to the Strike Price. Lower the confidence Higher would be the strike of selected Call or lower would be the strike of Put.
Remember, less sensitivity means less profits but also less losses.
-- Time to Expiry : Time to expiry is by far the most understood determinant of option premium. More the time to expiry, more would be the premium. As the time to expiry reduces the premium reduces - once again with other things being equal. This impact of time is similar for both Call and Put.
Learning: Always have a time stop loss along with stop loss in the underlying while buying options because the right direction will definitely pull option premium up but a longer holding period will start showing meaningful pushdown, making the trade unattractive.
-- Volatility : The volatility referred here is ideally a volatility figure of the underlying which would be drawn out of historical price movements. When it comes to option pricing though, there are references to the historical volatility but this input of volatility is more of an expectation of volatility.
Nonetheless, it’s a direct relationship here as well. Higher the volatility, higher would be the premium of both Call and Put and vice versa.
Learning: If there is an expected drop in volatility expect and account for a drop in premium despite no change time or underlying price. This generally happens in times of known events like corporate results, policy decisions, etc. So, if we are going through an event holding on to the option, expect and account for a fall in premium once the outcome of the event is announced.
-- Risk-free Rate of Interest: This is one factor that is least talked about and least impacting. Considering the smaller horizons (1 week to 1 month) of popularly traded options. This factor does not impact the option premiums much, so no need to account for it either.
But in case there is an inclination to participate in longer-term option, the relationship is direct in terms of Call premiums and indirect in terms of Put premiums.
Learning: Rise in interest rate would result in higher Call premium and lower Put premiums other things being equal.
These are the basic determinants of option premium. Always have these relationships of premium and its determinants at the back of the mind to trade more efficiently.
The author is CEO & Head of Research at Quantsapp.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. Check Live NSE Option Chain data @ Quantsapp web
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"Get NSE Open Interest Data Nifty, Bank Nifty, and Stock options. Perform oi data analysis with Real-Time Calls and puts Options & Check increase in open interest."
#Open Interest Open Interest Options Nse Open Interest Open Interest Meaning Open Interest Data#quantsapp#quantsappweb
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"NSE Live Option Chain, get Call and Put Option Quotes. Check out live NSE Nifty Option Chain, Bank Nifty Option Chain and Stocks Option Chain. Find Option Premiums & Option Vega now."
#nse option chain#nifty option chain#bank nifty option chain#reliance option chain#Quantsapp web#quantsapp
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Quantsapp is a platform focused on · Options Analytics · App || Learning || Advisory."
Open Interest: A unique market data to read market consensus
Open Interest is the number of contracts outstanding.From an analytical perspective the amount of interest in the derivative instrument that the contract represents.
undefined Open interest is one of the simplest to define when it comes to the terminologies related to the futures and options market. Being a market derived from another, Futures and Options have always had to rely on a set of underlying stocks and indices. These underlying stocks and indices are also traded in the market or at least valued (indices) independently.
Now since the derivatives are derived instruments, their accountability is not in terms of physical holdings but in terms of number of such derivatives contracts. Volume of such traded derivatives contracts remain pretty straight forward, but the number of existing contracts is accounted for by the Open Interest figure.
Like I said, Open Interest is simplest to define. Open Interest meaning is the number of contracts outstanding. From an analytical perspective the amount of interest in the derivative instrument that the contract represents.
In Open Interest Options there are different insights as each stock would have several Calls and Puts defined by their Strike Price and Expiry Date combinations. Here I am taking the liberty of not explaining what Strike Price, Call, and Put are to the participants of one of the largest Options markets of the world.
More than the change in Open Interest data , the Open Interest information that comes in really handy here are the strike-wise open interest and their placement with respect to the ongoing price.
Meaning, if a stock or index has very high Open Interest in a Particular Call in a strike higher than the current price. Check Live NSE Open Interest Data here.
visit quantsapp tools: https://web.quantsapp.com/home
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What is Guts Option Strategy?
"Long Guts like Strangle is a volatility strategy that aims to make money either way from a stock/index soaring up or plummeting down. Long Guts strategy demands underlying to move significantly up i.e., this is nondirection but volatility-based strategy. In other words, if the underlying fails to show a significant move trader will lose value in this, but the option will not expire worthlessly."
When to Execute?
The gut is a non-directional strategy, but trade must be bullish on volatility. It is advised that Guts should be implemented when there is an event in the near term, and volatility is on the lower and expected to increase or can be implemented on high Volatile underlying. Expiry should be distant to avoid exponential time decay that happens as expiration approaches.
What is the Trade?Under Guts we buy One lot of In-the-Money (ITM) Call and Put for the same expiration, distance should be equal between the strike price from the ATM.Break-Even Point
Under Guts we buy One lot of In-the-Money (ITM) Call and Put for the same expiration, distance should be equal between the strike price from the ATM. Lower Breakeven = PE - Net Premium Paid. Upper Breakeven = CE + Net Premium PaidWhat will be the maximum profit?
Maximum Profit is undefined if the market shows a significant move above or below the upper or lower breakeven respectively.
What will be a maximum loss?
It is Net debit Strategy as you have bought both Call & Put. Maximum Loss is limited to the total premium paid If the market fails to show the significant move and stays in between upper and lower breakeven.What are the advantages?
Being Directional Neutral, you can participate in either way volatility jumps. . Ideal to trade Guts would be when you are expecting wider movement in stocks.What are the disadvantages?
Time decay is harmful to the Guts. Time day accelerates exponentially in the last week of expiry. It's expensive to build Guts as we are long on both ITM strikes which have higher premiums.
Example of Guts:
Nifty future price
is 15500. Guts can be devised by Adding one lot of 15200 CE @ 355 and one lot of 15800 PE at Rs. 345. Net Premium Paid = Rs.700. Undefined profit potential if the stock moves above or below the upper or lower breakeven i.e., 15900 and 15100. Max Loss if underlying closes at between 15100-15900.
visit more articles: https://www.quantsapp.com/learn/articles/open-interest-a-unique-market-data-to-read-market-consensus-63
#NSE option chain #nifty #bank nifty #bank nifty option chain #reliance option chain #nifty option chain #Quantsapp web #long guts, #long guts options, #what is long guts, #nifty long guts
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"Pre Market Analysis - Get all the derivative data points before market opens. Get the update about Nifty, Bank Nifty on the basis of oi built-up, & know top gainer-losers.
Daily Pre-market brief Live at 8:30 AM to understand the option market trends. Stay updated every morning before the market for free.
check out here Pre Market Analysis here: https://www.youtube.com/results?search_query=quantsapp+webinar+daily+market
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Here is a guide by Shubham Agarwal on popularly-monitored Options Greeks, their utility, and action.
Options Greeks are turned away most of the time due to their heavy mathematical calculations and not being so simple to comprehend. So, instead of trying to derive values of such Options Greeks, let us try to just define them and at least get the applied utilities of them in our everyday option trading.
If we were to calculate each and every Options Greek of our position it would not be possible unless one is a mathematician. However, there is an easy way out as there are numerous platforms available nowadays that help us with Options Greeks of our total options positions.
Why look at Options Greeks? Well, because they give an insight on the options positions. It would throw light on the fact that in an attempt to contain the unfavorable underlying price risk if we have taken any other risk that could ruin our profitability despite our view going right.
Let us understand popularly-monitored Options for Greeks, their utility, and action.
Delta
Delta is the rate of change of the options price with respect to the price of the underlying. Deltas can be positive or negative. Deltas can also be thought of as the probability that the option will be in profits upon expiring. Having a delta-neutral portfolio can be a great way to mitigate directional risk from market moves for options sellers.
Utility
Look at this number as a representation of our position in the underlying. Positive 0.50 delta means the Options position represents 50 percent of buy exposure in the underlying and vice-versa.
Action
As long as for a positive view we have Positive Delta and vice-versa nothing needs to be done.
Theta
Theta measures the rate of change in an options price relative to time. This is also referred to as time decay. Theta values are negative in buy option positions and positive in sell option chain nifty positions.
Utility
Theta number is nothing but the amount of money we will lose or gain (based on the negative of positive value) if a day passes by with all other factors like Price remains the same.
Action
In case Theta is negative and we have a trading break in front of us, it makes sense to Sell cheaper or Call/ Put against the Bought one of the farther strikes. This will reduce the negative Theta.
Vega
Vega is the Greek metric that allows us to see our exposure to changes in implied volatility (the volatility implied by option premium). Vega values represent the change in an option’s price given a 1% move in implied volatility, all else equal.
Implied Volatility is the volatility figure derived from options premium traded in the market. Higher Implied Volatility means Higher Premiums (apparently ) and vice-versa.
Typically, Implied Volatility would have a big move in times of uncertainty. Commonly Implied Volatility goes up ahead of an event, which could have any unforeseen outcomes. Once the event is passed Implied Volatility drops down as the unknown is now known.
Utility
Generally, Vega should be looked at by all of us especially when we intend to hold our option trade thru the event. A recent reading of Implied Volatility a few weeks before the event could give us a ballpark number to which the Implied Volatility can come down to post the event. So, the difference in Implied Volatility ahead of the event and that recent reading could give us a possible drop in Implied Volatility post the event.
Now Vega value multiplied by the possible fall in the Implied Volatility will let us know that in case if the price does not move, what is the kind of dent in our profitability can come if the Vega value of our positions is positive.
Action
In case such number of the dent is too big than our budgeted loss then one could explore winding up ahead of the event or at least Sell a relatively cheaper Call/Put against Call/Put whichever is bought. This added Sell option position would automatically reduce the Vega value.
There are sophisticated Option Portfolios already run utilizing this and beyond, for these Greeks would help us realize that we are in better control of our pay-offs.
#nse option chain#nifty option chain#bank nifty option chain#reliance option chain#Quantsapp web#option trading analytics app#option chain nifty
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Gamma is a second-order derivative of the underlying. The rate of change in delta is known as gamma. In simple words, it is the momentum of the instrument.
After the Gamestop saga, meme stock traders once again took the market makers for a toss, this time with AMC Entertainment. The stock price of AMC entertainment doubled in a single day, creating a short squeeze by market makers who sold options and eventually fell into a gamma trap.
Let us understand what a gamma squeeze is, and how it can lead to wild moves in markets.
Market Type Before we learn about gamma squeeze, we need to understand what kind of market does this study applies to. With options volume being 80%-90% of the overall volume in many instruments nowadays, the theory of options being priced on the underlying may not hold anymore.
In fact, the demand and supply in the options market may lead to wild moves in the underlying. So, for the relationship to hold true, the instrument we would like to track a gamma squeeze on, should be highly liquid in the options market.
Understanding Gamma
Gamma is a second-order derivative of the underlying. The rate of change in delta is known as gamma. In simple words, it is the momentum of the instrument. If the instrument moves slowly there may not be a gamma risk as the short sellers of options will have time to adjust their trades but when the move is fast, it creates a trap leading to a gamma squeeze.
Option sellers are short on gamma and since they hold an unlimited risk profile, this is an important option Greek for them to manage. For example, if a trader sells a call option for 15500 on Nifty and the Nifty immediately moves to 15700 the next day, it will lead to panic by option sellers, and they will jump into square off or adjust their trades leading to further rise in the call option price.
When is gamma active?
One important thing to note is that gamma is related to time and gamma is high only near expiry. The expiry week will have the highest gamma risk as the time is very less for any reversal to happen in the case of a trap. Hence, if looking for a gamma trade, that is the expiry week to trade into.
How does a gamma squeeze happen?
Traders generally tend to copy the consensus trades and due to common trades market-wide, it creates a chained reaction. For instance, when an option seller looks to sell options, the highest open interest strike tends to be of general choice and it increases the quantum in those pivot points.
When these levels are chased and the underlying surpass those levels, it creates panic as there are not enough suppliers to let the option sellers cover their position. This leads to a few choices to option sellers - either increase the price and cover the sold option at any cost or, buy the underlying or, buy some other strike option to cover.
In all cases, it pushes the instrument higher and due to this trap, the prices could climb to any levels without a cap. In the case of AMC Entertainment, the stock doubled in a single day.
How to earn from gamma squeeze
When underlying chases the consensus pivot points of the markets like highest open interest call strike or highest open interest put strike, there is always a marginally higher odds that it may lead to a trap.
Buying single options for those strikes with small stops can be a trading strategy in the expiry week. The risk in this trade is very limited, just to few points of premium loss but if the trade works in favor, in many cases the option prices may double in few hours keeping the reward to risk high in trades.
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If Underlying Price goes up Call Premium would go up and Underlying Price goes down Call Premium would go down.
Every once in a while it makes sense to go back to the basics and re-evaluate the mechanics of the very instruments that help us make money. So, in this discussion let us understand what impacts the options in what way and draw learnings out of them.
To understand this though, we need to first list down the key inputs used to price an option because these inputs would eventually turn into the list of determinants for change in option premium.
In NIFTY Option Chain , BankNifty Option Chain , Reliance Option Chain , etc. premium is an output of 5 inputs1. Underlying Price2. Strike Price3. Time to Expiry4. The volatility of the Underlying 5. Risk-free Rate of Interest
-- Underlying Price : The first one is rather straightforward and easiest to understand. I remember talking to many fellow traders when they were first introduced to options. The definition was quite simple - Call means Bullish Instrument and Put means Bearish Instrument.
Taking that very basic but accurate analogy forward for this one, if Underlying Price goes up Call Premium would go up and if Underlying Price goes down Call Premium would go down. The situation is exactly the opposite for Put options Other Things Being Equal (ceteris paribus).
Other Things Being Equal means this impact is accounting for no change in other factors affecting premium.
Learning: Just like trading the underlying make sure we are in the right instrument (Call/Put) while trading a directional move by buying option.
-- Strike Price: To understand the role of a strike price we would be twisting the representation a bit here. Instead of how strike price impacts premium, let us understand how premium behaves with exactly the same underlying move for two different strikes.
So, in case of Calls higher the strike, the less sensitive it would be to the underlying move. On the Put side, lower the Put strike and lesser sensitivity it turns to the same underlying move.
At the same time, Higher Strike Calls and Lower Strike Puts command fewer premiums than their counterparts.
Learning: Align the level of confidence to the Strike Price. Lower the confidence Higher would be the strike of selected Call or lower would be the strike of Put.
Remember, less sensitivity means less profits but also less losses.
-- Time to Expiry : Time to expiry is by far the most understood determinant of option premium. More the time to expiry, more would be the premium. As the time to expiry reduces the premium reduces - once again with other things being equal. This impact of time is similar for both Call and Put.
Learning: Always have a time stop loss along with stop loss in the underlying while buying options because the right direction will definitely pull option premium up but a longer holding period will start showing meaningful pushdown, making the trade unattractive.
-- Volatility : The volatility referred here is ideally a volatility figure of the underlying which would be drawn out of historical price movements. When it comes to option pricing though, there are references to the historical volatility but this input of volatility is more of an expectation of volatility.
Nonetheless, it’s a direct relationship here as well. Higher the volatility, higher would be the premium of both Call and Put and vice versa.
Learning: If there is an expected drop in volatility expect and account for a drop in premium despite no change time or underlying price. This generally happens in times of known events like corporate results, policy decisions, etc. So, if we are going through an event holding on to the option, expect and account for a fall in premium once the outcome of the event is announced.
-- Risk-free Rate of Interest: This is one factor that is least talked about and least impacting. Considering the smaller horizons (1 week to 1 month) of popularly traded options. This factor does not impact the option premiums much, so no need to account for it either.
But in case there is an inclination to participate in longer-term option, the relationship is direct in terms of Call premiums and indirect in terms of Put premiums.
Learning: Rise in interest rate would result in higher Call premium and lower Put premiums other things being equal.
These are the basic determinants of option premium. Always have these relationships of premium and its determinants at the back of the mind to trade more efficiently.
The author is CEO & Head of Research at Quantsapp.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. Check Live NSE Option Chain data @ Quantsapp web
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Despite heavy volume activity only increment in OI will give us reasonable evidence of incremental trading interest into a particular stock. Similarly lowering OI will signal loss of trading interest into a particular stock.
Open Interest (OI) - this word gets tossed around in our equity derivatives market discussions a lot. Financial data analysts do take Open Interest a.k.a. OI very seriously. Let us understand what it is and why it is so important.
Open Interest Data as the word suggests is the amount of interest on any derivatives instrument. The Indian equity derivatives market has two kinds of instruments - Futures and Options .
Options have further 2 varieties - Call and Put.
For today, let us concentrate on Futures. Most of us have traded in these futures but let us just refresh our memories. A Future is a contract where a buyer is obliged to buy and a Seller of a future is obliged to sell a certain quantity of a stock at a particular price at a pre-defined future date. Here are the stocks where futures/options can be traded, the quantity and the future date are decided by the exchange.
Now, while with the stocks there is a finite number of equity available and can be accounted for against their physical (now electronic) availability for trading, with derivatives, such accountability gets generated by total number of fresh contracts created. This does not necessarily mean total number of Buyers and Sellers. In this sense it is different from Volume.
Let us understand with the help of an example.
Mr. X Buys a Futures Contract, Mr. Y Sells a Futures contract.Volume = 1, Total OI = 1Then, Mr. A Buys a Futures Contract, Mr. B Sells a Futures contract.Volume = 2, Total OI = 2Afterwards, Mr. B Buys back the Futures contract and Mr. X Sells his Futures Contract.Now, Volume = 3 but Total OI = 1This is because one of the futures contracts got unwound. That's sumps up the brief on what is OI.
Now, this same example holds the essence of the analytics hidden into OI number as well. Despite of heavy volume activity only an increment in OI will give us reasonable evidence of incremental trading interest into a particular stock. Similarly lowering OI will signal loss of trading interest into a particular stock.
Now, let us try to incorporate the price into the entire mix. Imagine there is 10 per cent increment in stock futures OI and the stock for that day is up by 3 per cent. Is it safe to say that all those Mr. Xs and Mr. Ys who were buying futures were buying it with an intent to acquire it at an even higher price? In such a situation the overpowering buyers are pushing the price up. The reason for buying at even higher prices could be the very expectation that the stock has a short-term potential to rise, and one is anxious not to miss that expected momentum.
Similarly, consensus expectation of upcoming weakness can be sensed with a meaningful (10 percent+) rise in OI and above normal fall in the price of the stock.
To summarize the importance of OI data with a meaningful change in Price and OI following combinations can help us give the following respective indications of the consensus expectation of the forthcoming move.
OI Up + Price Up = Bullish
OI Up + Price Down= Bearish
OI Down + Price Down = Bulls Unwinding (Time to book Profit in Buy Trades) This data is generally meaningful when there is a preceding rally in the stock.
OI Down + Price Up = Bears Unwinding (Time to book Profit in Sell Trades)
This data is generally meaningful when there is a preceding fall in the stock.
There we have it, Futures OI data and its importance as an indicator of the market expectation of momentum.
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One of the most comfortable times to buy is to buy in pullbacks. That said, one must have the conviction to buy in a market that is failing to build a consensus bullish argument for the market trend. The risk here is that the ongoing pullback could convert into a reversal.
The comfort in such a market set-up is that one must not be in a hurry to buy as a tiny bit of wait could get us a better bargain amid nervousness. Again, that said, the same nervousness that could get us a better bargain can come along right after our entry into a buy trade in a pullback from a rally.
To deal with situations like these, nifty option chain can be used as trading vehicles to capitalize on the bargain hunting at the same time to keep oneself safe from any big damage that could create a bigger dent.
Following are a few trading tactics that I have been practicing in such times.
Bargain Hunting Spreads:
To avoid any negative surprise we could just go ahead and buy a call option but that would open two potential issues.
1. If we just loiter around the same levels. The reduction in premium due to the passage of time (time value decay) could ruin our economics of trade
2. Often times the price of options across go up during nervousness as the premiums led by risk observed increases. So, if we Buy a Call and we rise then the nervousness led risk premium would reduce. This could create pressure on the upcoming rise in Call premium due to the rise in the market, again ruining the economics of the trade.
So, the solution is instead of just Buying a call, buy a call and simultaneously sell a few strikes higher call. This would safeguard against both above problems by at least partially funding the possible dent and thereby improving profitability.
Keep a Mix of Long with Shorts using Options:
Many of us trade majorly in the future. However, in times like these one may diversify the directional trades by adding a few shorts in the mix.
Since the major trend has not yet reversed and we still have a conviction of it resuming (hence calling it a pullback), it is prudent to keep a few put spreads (buy a put and sell a lower strike put) in the trading portfolio of underperforming stocks in the pullback mode.
Use Covered Calls:
This is strictly for one of those boring pullbacks where the market just loses momentum and keeps moving around in a tiny range. In such markets, a bargain-hunting trade via Covered call is a good idea.
What is a covered call? Well, we would anyways trade in futures with a stop loss and a target. In case of a covered call, we would just add a sell position in the call alongside the future. Strike for such a call would be closer to our target price.
Benefit:
If the stock/index takes a little bit longer in getting to the price target, our sell position in the call would reduce due to passage in time. This would augment our profit if we were to cut out future in tiny profit or even reduce our loss if the stop loss gets triggered.
The cost of this transaction is that we will not get the benefit of the move above the strike of call in the future. However, in my experience, one would generally be out of the position around the target anyway be it traded with or without a sell position in the call.
These are some of the tactical trading strategies when the ongoing mode of the market is observed to be that of a pullback. Quantsapp web
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A pullback is different from a reversal as it is temporary. Tracking some data points can help differentiate between the two
A common behaviour observed in many traders is that each move tends to make them believe that it is a long-term top or a long-term bottom but in a real-world scenario, the market will not move vertically up or down. It will have interim adverse moves, commonly known as pullback which are different from a trend reversal.
Let us understand both these terms and then we will look at some Open Interest data points that can help us identify these.
The terminology
Reversal
A reversal is when the market changes its direction from bullish to bearish or vice versa. For a reversal to happen, it requires enormous adverse force to establish a new trend. Often traders tend to tag temporary moves as reversals and ultimately lose to whipsaws.
Remember, reversals will occur less than 20 percent of the time, so if you see an adverse move, probably it is still in the favour of the previous trend.
Pullback
A pullback is a common phenomenon where the market or instrument tends to witness some temporary adverse moves. If it is properly utilised, it can provide an opportunity to re-participate in a major trend. Pullbacks do not need a lot of force to lead to this.
How to differentiate between a pullback and a reversal?
A pullback is different from a reversal as it is temporary. Tracking some data points can help differentiate between the two.
Built-ups
Derivative built-ups are a data points that can be analysed to establish a conclusion. Let’s assume that the market was moving up and naturally lots of long additions must take place. When the market starts correcting, it would be important to check if the correction is due to the unwinding of previous trades or new shorts being initiated.
If the overall nse open interest of the futures is reducing, it will mean that traders who were earlier long are now booking profits. Profit-booking is temporary in nature and does not define a trend and this occurrence can be termed as a pullback.
If the correction is due to increasing open interest meaning, it means new trades are being initiated to participate in the trend and can be termed as a reversal.
Skew
Options skew can be another indicator in understanding the quantum of fear. If the option skew is not highly affected, it would derive the confidence of writers in holding their trades being an expectation of a temporary correction.
Trading a pullback
When the market or an instrument is in a pullback mode, instead of short selling (in a bullish market) which is against the overall trend, it would be prudent to wait for the correction to end. Technical oscillators, mean-reversion models, etc can be used to identify over-sold zones and odds favour that those levels will be respected.
Let us say the Nifty is in an uptrend and a pullback starts with diminishing Open interest and the 20 days rolling return coming down to 2 Standard deviations, that would be an opportunity to buy. Similar systems can be built using technical indicators as well.
Strategies for pullbacks
Since pullbacks can be time-consuming and you would not know the exact bottom, strategies cannot be aggressive. Option strategies that are conservative in nature can be used to participate in a pullback. Some of the strategies could be Vertical Spreads and OTM butterflies, which generally offer a comfortable reward to risk and also allow additional time to save on theta decay.
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The vertical spread family can consist of multiple strategies, but the most popular ones are Bull Call Spreads and Bear Put Spreads. Read on to know what all parameters you need to keep in mind while adopting these strategies
One of the key benefits of trading options is that instead of a straight-line Profit & Loss curve that Futures offer, options can be customized to fit the reward and risk of a trader.
Over millions of options strategy combinations can be achieved from the options chain and one of them is vertical spread. The vertical spread family can consist of multiple strategies, but the most popular ones are nifty option chain & Bear Put Spreads.
A bull call spread is a strategy where one buys a Call option and sells a higher strike call option. The net premium outflow reduces the extent of sold options premium, yet the risk reduces as you have less to lose.
At the same time, the trade-off is that a bull call spread offers a limited upside versus a simple long call. How much risk is one willing to take and how much reward one expects varies from trader to trader but in this article, we’ll learn that being an opportunist when should one prefer a bull call spread over a long call. Similarly, the concept could be applied for anifty option chainversus a Long put.
Time
A key input for choosing an Options Trading Strategy revolves around time. If the time frame for a forecast is extremely short term i.e. 3-4 days then in most cases Long call will be a preferred strategy but, the moment the forecast is for a long time period then getting compensated for the time with a vertical spread is a good idea.
Vertical spread can improve the pay-off in terms of the reward to risk when the time frame is more positional (generally more than 4 days) and the strategy can also be carried till expiry.
Momentum
Consider a market that is oscillating within a few hundred points, it becomes a challenging task to identify stocks that may witness a directional move, in these cases, a lot of Theta is lost in expectations of breakouts which lacks due to the overall market structure.
In a market where momentum is lacking, vertical spreads can be a better bet versus buying a single reliance option chain.
Expiry Placement
Expiry placement or days to expiry, is an important input when deciding on an options strategy and where are you placed in the expiry affects the decision. From mid expiry when the options theta starts to decay faster, it is generally a better idea to resort to vertical spread over single options contract.
Most importantly, in the expiry week when options are decaying very fast it might always be a good idea to resort to a vertical spread for any trades being carried for more than a day.
Risk Aversion
Many investors look forward to options to build their portfolio and to make returns from medium-term moves. Since deploying a vertical spread is far cheaper than trading futures, it naturally restricts the risk.
A vertical spread with one OTM as buy and few OTMs as sell strike typically offers a 3:1 reward to risk. It means that if you succeed you make 3 times more profit than the risk you take and for strategies with a medium-term approach, this helps in reducing risk yet providing a handsome profit potential.
Strategic Forecasts
In many cases traders do forecast probable targets of underlying equity and trades for them. Vertical spreads are a good way to trade if you are confident that the target will act as a resistance. If your forecast suggests that the underlying equity may not move above those levels, then in those cases you may not want to pay a high premium that a single option brings to the table. Instead, selling the strike of the target reduces your premium outflow and optimizes your trade to customize to your forecast.
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Considering the mix of longs & short in the week gone by and last day swings in VIX, it is prudent to approach the market with a low-risk strategy like Modified Put Butterfly.
Last week was a roller coaster for the Nifty and the Bank Nifty, which slipped to their lowest since February 1, 2021 to 14,371 and 33,526, respectively.
The Nifty remained in an unwinding mode during the week, falling from 15,050 to 14,750, losing around 2 percent along with OI (Open Interest) shedding nearly 11 percent.
The Bank Nifty, on the other hand, had more shorts over the week. It saw a bigger fall compared to the Nifty, slipping from 35,500 to 34,140, losing nearly 1,400 points, or 3.7 percent, week-on-week along with OI Built up of nearly 4.5 percent attributed to Short.
Monthly nse open interest data show a wide range for the Nifty expiry. Call writers are seen active on the level of 15,000 to 16,000, whereas Put writers are more aggressive. The broad range of Put addition is seen from 14,500 to 13,000 strikes. Vital support level can be seen at 14,500 and for any further down move 14,000 level stands as second highest Put OI.
The Bank Nifty Open Interest has remained on the same pitch as the Nifty Open Interest in terms of wider range for the upcoming expiry. Writers are seen adding more positions on the OTM strikes. Data shows that the immediate hurdle is at 35,000 and 36,000 is the vital level. However, looking at the support side, 34,000 is the immediate support and 33,000 the vital support.
India VIX, the fear gauge, has declined from 21.71 to 19.83 compared to March 12. Despite the decline in the VIX, it had a huge intraday movement in the week gone by. Spike that came in the last two days has given causations to market participants. Further, any sustained uptick in India VIX can propel selling momentum.
The sentimental indicator, Nifty OIPCR, for the week increased from 1.02 to 1.21. The Bank Nifty OIPCR over the week increased from 0.672 to 0.839 compared to March 12. Overall data indicates higher Put OI versus call OI over the week for the Nifty and the Bank Nifty.
All sectors except FMCG (125 points) contributed negatively to the Nifty, marginal support came from metal, cements and telecom, whereas PVTB (-130) was the top negative contributor.
Among the top gainer and loser stocks of the week in the FnO segment, Coforge topped by gaining around 8.9 percent followed by the ITC at 8.5 percent and Dr Lal Path Lab 7.8 percent. PFC & IDFC First Bank lost the most at around 10 percent each, followed by Granules at 9.5 percent.
Conclusion: Considering the mix of longs & short in the week gone by along the last day swing in VIX, it is prudent to approach the market with a low-risk strategy like Modified Put Butterfly .
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Open Interest (OI) — this word gets tossed around in our equity derivatives market discussions a lot. Financial data analysts do take Open Interest a.k.a. OI very seriously. Let us understand what it is and why it is so important.
Open Interest Data as the word suggests is the amount of open interest meaning on any derivatives instrument. The Indian equity derivatives market has two kinds of instruments — Futures and Options .
Options have further 2 varieties — Call and Put.
For today, let us concentrate on Futures. Most of us have traded in these futures but let us just refresh our memories. A Future is a contract where a buyer is obliged to buy and a Seller of a future is obliged to sell a certain quantity of a stock at a particular price at a pre-defined future date. Here are the stocks where futures/options can be traded, the quantity and the future date are decided by the exchange.
Now, while with the stocks there is a finite number of equity available and can be accounted for against their physical (now electronic) availability for trading, with derivatives, such accountability gets generated by total number of fresh contracts created. This does not necessarily mean total number of Buyers and Sellers. In this sense it is different from Volume.
Let us understand with the help of an example.
Mr. X Buys a Futures Contract, Mr. Y Sells a Futures contract.Volume = 1, Total OI = 1Then, Mr. A Buys a Futures Contract, Mr. B Sells a Futures contract.Volume = 2, Total OI = 2Afterwards, Mr. B Buys back the Futures contract and Mr. X Sells his Futures Contract.Now, Volume = 3 but Total OI = 1This is because one of the futures contracts got unwound. That’s sumps up the brief on what is OI.
Now, this same example holds the essence of the analytics hidden into OI number as well. Despite of heavy volume activity only an increment in OI will give us reasonable evidence of incremental trading interest into a particular stock. Similarly lowering OI will signal loss of trading interest into a particular stock.
Now, let us try to incorporate the price into the entire mix. Imagine there is 10 per cent increment in stock futures OI and the stock for that day is up by 3 per cent. Is it safe to say that all those Mr. Xs and Mr. Ys who were buying futures were buying it with an intent to acquire it at an even higher price? In such a situation the overpowering buyers are pushing the price up. The reason for buying at even higher prices could be the very expectation that the stock has a short-term potential to rise, and one is anxious not to miss that expected momentum.
Similarly, consensus expectation of upcoming weakness can be sensed with a meaningful (10 percent+) rise in OI and above normal fall in the price of the stock.
To summarize the importance of OI data with a meaningful change in Price and OI following combinations can help us give the following respective indications of the consensus expectation of the forthcoming move.
OI Up + Price Up = Bullish
OI Up + Price Down= Bearish
OI Down + Price Down = Bulls Unwinding (Time to book Profit in Buy Trades) This data is generally meaningful when there is a preceding rally in the stock.
OI Down + Price Up = Bears Unwinding (Time to book Profit in Sell Trades)
This data is generally meaningful when there is a preceding fall in the stock.
There we have it, Futures OI data and its importance as an indicator of the market expectation of momentum.
Open Interest
Open Interest Options
Nse Open Interest
Open Interest Meaning
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