MY TRADE LEARNING
WITH NK Sir
TRADE LEARNINGS AND
STRATEGIES
The content of this document is based on my learning and teaching by
Nitesh Sir of NKStockTalk. I have also incorporated some useful content
written by fellow students and written content from NK Sir. Combining all
will help in learning and referring it when needed at one place.
1
TABLE OF CONTENTS
Section 1: Arbitrage Brief Overview ..................................................................................................6
Section 2: A 100 (A100) .....................................................................................................................6
Section 2.1: Taking the Trade and Managing It ....................................................................................................... 6
Section 2.2: Profit Booking and Hedge ................................................................................................................... 6
Section 2.3: Handling Losses, Averaging, Short-selling and Re-entry .................................................................... 7
Section 2.5: Using Short Sell .................................................................................................................................... 8
Section 3: ABOUT A90 ......................................................................................................................9
Section 3.1: Taking the Trade and Managing It ....................................................................................................... 9
Section 3.2: The Zero Line and Its Importance ........................................................................................................ 9
Section 3.3: How to Hedge ..................................................................................................................................... 10
Section 3.4: A90 Hedging and Multiple Uses......................................................................................................... 11
Section 3.5: H17 Hedged with A90 And Standalone | H 20:20 .............................................................................. 11
Section 3.6: What Does Arbitrage Indicates? ........................................................................................................ 12
Section 3.7: Some Repairs ...................................................................................................................................... 12
Section 3.8: Arbitrage 90 Other Uses .................................................................................................................... 12
Section 3.9: Reference Document | A90 Hidden Secrets...................................................................................... 12
Section 3.10: A-90 and Covered Call ..................................................................................................................... 13
Section 4: FUTURES BRIEF AND HEDGE ........................................................................................ 14
Section 4.1: steps to plan the trade ....................................................................................................................... 14
Section 5: INTRADAY TRADING RULES ......................................................................................... 16
Section 5.1: Managing the Trade ........................................................................................................................... 16
Section 5.2: When to Exit ....................................................................................................................................... 16
Section 5.3: Berish Market | Rules of Entry ............................................................................................................ 17
Section 6: OPTIONS BEHAVIOR ..................................................................................................... 18
Section 6.1: Understanding Chips and Air ............................................................................................................. 18
Section 6.2: Types of Stop Loss ............................................................................................................................. 19
Section 6.3: Taking Options Trade with Indicator ................................................................................................. 20
Section 6.4: Understanding Option Selling ........................................................................................................... 22
Section 6.5: Understanding Loss in Call Options Selling ....................................................................................... 22
Section 6.6: Understanding Loss in Call / Put Options Selling .............................................................................. 23
Section 6.7: Understanding Loss in Put Options Selling ....................................................................................... 23
Section 6.8: Options Buying Types ........................................................................................................................ 23
Section 7: UNDERSTANDING VIX................................................................................................... 24
Section 7.1: VIX Behavior ....................................................................................................................................... 24
Section 7.2: VIX Behavior and Options pricing ...................................................................................................... 25
Section 7.3: VIX and VWAP .................................................................................................................................... 25
2
Section 7.4: Low VIX Strategy................................................................................................................................ 26
Section 7: CHART READING ........................................................................................................... 27
Section 7.1: Chart Reading | Positional .................................................................................................................. 27
Section 8: BOLLINGER BAND (BB) ................................................................................................. 28
Section 8.1: Knowing Bollinger Band..................................................................................................................... 28
Section 8.2: Bollinger Band | No Trade Zone ......................................................................................................... 31
Section 8.3: Bollinger Band | Squeeze and Blast ................................................................................................... 31
Section 8.4: Bollinger Band | Trap Pattern ............................................................................................................ 32
Section 9: AVWAP INTRO AND APPLICATION ............................................................................... 33
Section 9.1: Importance of Average Price ............................................................................................................. 33
Section 9.2: Useful for Trade Decision .................................................................................................................. 34
Section 9.3: How to Trade using VWAP................................................................................................................. 34
Section 9.4: Use It for Positional Trade ................................................................................................................. 34
Section 9.5: Intraday Trade Use ............................................................................................................................. 34
Section 10: Hilega – Milega Trade Indicator .................................................................................... 35
Section 11: SPECULATION RATIO TERRITORY .............................................................................. 45
Section 12: CONVERGENCE ............................................................................................................ 46
Section 12: PRE-MARKET ANALYSIS ............................................................................................. 52
Section 13: VWAP ........................................................................................................................... 53
Section 14: CENTRAL PIVOT RANGE .............................................................................................. 57
Section 15: ORB .............................................................................................................................. 63
Section 16: RSI BASED DEMAND SUPPLY ..................................................................................... 65
Section 17: 3 STEPS CHART READING ............................................................................................ 67
Section 17.1: BB Trap And 3 Steps ......................................................................................................................... 69
Section 17.2: 3 Steps Along with BB Band ............................................................................................................. 70
Section 17.3: Not Getting Trapped in 3 Steps ........................................................................................................ 71
Section 18: IDENTIFYING MARKET TREND .................................................................................... 72
Section 18.1: Intraday ............................................................................................................................................ 72
Section 18.2: Intraday ............................................................................................................................................ 74
Section 19: RSI ................................................................................................................................ 75
Section 20: A19 ............................................................................................................................... 76
Section 8.1: Breakeven........................................................................................................................................... 77
Section 21: H 21| FIRE AND FORGET ............................................................................................... 78
Section 21.1 Designing of Hedge ........................................................................................................................... 78
Section 21.2: Options Mathematics – Max Risk .................................................................................................... 79
Section 21.3: Possible Scenarios ............................................................................................................................ 80
3
Section 21.4: H 21 and Wild move ......................................................................................................................... 80
Section 21.5: Taking order in Zerodha ................................................................................................................... 80
Section 21.6: Impact of VIX .................................................................................................................................... 81
Section 21.7: Making a Sequence in 200-point range bound market.................................................................... 82
Section 21.8: Making a Subordinate in 300 - 400-point range bound market ...................................................... 83
Section 21.9: Making a Sequence in Range Breaks ............................................................................................... 84
Section 21.10: Some Important Tips...................................................................................................................... 85
Section 21.11: Intraday H21 F2 ............................................................................................................................... 85
Section 21.12: Entry and Exit ................................................................................................................................. 85
Section 22: H22 ............................................................................................................................... 86
Section 23: TIME TRACK ................................................................................................................. 87
Section 23.1: BNF Weekly Expiry Day Trade ......................................................................................................... 88
Section 23.2: Shorting BNF Monthly CE/PE | OTM ............................................................................................... 88
Section 23.3: Shorting BNF Monthly CE/PE | ITM .................................................................................................. 88
Section 23.4: Shorting BNF Monthly CE/PE | OTM ............................................................................................... 89
Section 23.5: Wednesday 1-2-ka-4 ........................................................................................................................ 89
Section 24: A19 EXTENSION .......................................................................................................... 90
Section 24.1: Trade Range ..................................................................................................................................... 90
Section 24.2: Intraday Use ..................................................................................................................................... 90
Section 24.3: Other Areas ...................................................................................................................................... 90
Section 25: CALENDAR STRATEGY FOR STOCKS .......................................................................... 91
Section 26: ARBITRAGE MONTHLY EXPIRY................................................................................... 91
Section 27: DAILY BNF +NF + STOCKS ........................................................................................... 92
Section 28: KILLER WAVE PATTERN .............................................................................................. 93
Section 29: BB TRAP PATTERN ...................................................................................................... 95
Section 29.1: Trap Rules ......................................................................................................................................... 96
Section 29.2: Planning a Trade .............................................................................................................................. 96
Section 30: OPEN = HIGH AND OPEN = LOW ................................................................................. 98
Section 30.1: Making A Hedge ............................................................................................................................. 100
Section 31: TRADE USING VWAP ................................................................................................. 101
Section 32: HEDGE 20 - 20 ............................................................................................................. 102
Section 32.1: Plan A Trade ................................................................................................................................... 102
Section 32.2: Key Notes ....................................................................................................................................... 102
Section 33: HEDGE 17 ................................................................................................................... 103
Section 33.1: Plan A Trade ................................................................................................................................... 103
Section 34: POSITIONAL TRADE WITH 20 & 50 MA ...................................................................... 104
Section 34.1: Positional Trades ............................................................................................................................ 105
4
Section 34.2: Scalping or Swing Trade ................................................................................................................ 106
Section 35: FUTURE HEDGE ......................................................................................................... 107
Section 36: EXPIRY DAY SELLING ................................................................................................ 108
Section 36.1: Trade Example................................................................................................................................ 108
Section 37: SIMPLE HEDGE | LEVEL 2 ........................................................................................... 109
Section 37.1: Hedge with Covered Call ................................................................................................................ 109
Section 37.2: Hedge with Covered Call ................................................................................................................ 109
Section 37.2: Covered Call Adjustments .............................................................................................................. 109
Section 37.3: Option Hedge ................................................................................................................................. 110
Section 38: SIMPLE HEDGE Part 2 ................................................................................................ 111
Section 38.1: Possibilities ..................................................................................................................................... 111
Section 38.2: Higher Profit ................................................................................................................................... 112
Section 38.3: Example of Covered Call ................................................................................................................ 112
Section 39: INVESTMENT ............................................................................................................. 113
Section 39.1: Intraday Trade ................................................................................................................................ 114
Section 39.2: Investment Spread | Portfolio ........................................................................................................ 114
Section 39.3: System 9 ......................................................................................................................................... 115
Section 39.4: 7 Steps ............................................................................................................................................ 116
5
SECTION 1: ARBITRAGE BRIEF OVERVIEW
General definition of arbitrage is that one can buy an instrument in one market and sell in second market, considering
the instrument is listed in both markets, taking advantage of the price difference.
Indian stock market has 2 important indexes, Nifty (NF) and Bank nifty (BNF) with some common shares listed in both
the indexes.
•
•
E.g., an instrument is listed in both the indexes and has higher weightage in one and lower in the second, the difference
creates a vacuum. This vacuum creates an opportunity to take advantage of price variation of indexes during trading hours,
day month etc.
The vacuum makes the price work as a sign wave, e.g., when NF price increases, BNF decreases and vice versa, this cycle
continues or occurs few times every month.
SECTION 2: A 100 (A100)
A100 takes advantage of the price difference between BNF and NF. When trade is taken, one leg shall remain in profit
and second in loss, this is due to the hedge. Through Hedge the capital is protected, and we can adjust and keep the
overall trade in profit.
SECTION 2.1: Taking the Trade and Managing It
Listing below steps to plan and execute A100.
•
•
•
How to trade A100
INSTRUMENT
MONTH (Present)
MONTH (Next)
Bank nifty
Long
Short
Nifty
Short
long
Here, it can be opposite of what is presented above
The ratio will remain same between BNF and NF.
Both instruments, for same months are referred as leg, this means when we do anything with the trade, e.g.,
buying the trade or booking profit, both must be actioned together.
SECTION 2.2: Profit Booking and Hedge
•
Profit Booking: When profit for leg-1 reaches 12,000 or 17,000 or 18,000, book the profit per own understanding
of market trend. E.g., profit can be booked from 12,000 onwards. Once profit is booked in any leg, do not leave
the remaining leg hedge-less, this means buy a PE and CE with opposite behavior of Futures, this will protect
against any wild move. Or enter in far month future, this will continue the A100 cycle.
6
SECTION 2.3: Handling Losses, Averaging, Short-selling and Re-entry
Assuming that Leg1 was booked with profit and the leg-2 will remain as is, this means will remain open. Either the
remaining leg with losses can be averaged immediately after booking profit in Leg1 or let the loss in Leg2 reach around 24,000, then average it, this means buying same quantity of same instruments with same month at the market price. If
required, before averaging leg 2, convert the position to MIS to reduce the margin.
•
•
•
•
•
•
•
•
•
•
When averaging, remember to add Options with opposite behavior, this means:
o If BNF Future is a buy: Buy BNF PE Monthly Expiry
o IF NF Futures is a Sell: Buy CE Monthly Expiry
o Note: the combined premium cannot be more than 12,000-13,000.
When adding Options to average the position, remember to add 2 lots each of BNF and NF, this should be equal to the
Futures lot after averaging.
Buying Options is important when only one leg is in trade, this will provide good support against any wild move.
When averaging the futures with Options, Also, sell Options of same behavior and strike price to recover some money. This
should be of upcoming weekly expiry or next, where we are receiving 70-100-rupee premium. The addition of short sell when
averaging will always be weekly and not monthly.
o If 30,000 monthly expiry PE was bought, then, Sell 30,500 PE of next weekly expiry. With minimum 70-100 points
premium received when shorted, if not available in upcoming weekly expiry, go to following week.
o If BNF 35000 was bought, then aggressively short higher OTM with weekly expiry, strike and week that offers
maximum premium.
Note: This is Zerodha specific, if it does not allow to buy far OTM, then first short sell that strike in MIS, then buy CE or PE. this
step is linked with above explained process to short sell next week’s Options of same strike to earn little more.
o In case, BNF starts rising and reaches the levels at which a call was shorted, we shall do following:
▪ Add one more lot of same strike which was shorted
▪ Buy 2 CE lots of monthly expiries of same strike, one which was shorted.
When Leg 2 the one which was averaged is at 10000 – 12,000 losses, exit from one pair, this means after averaging, we have
2 BNF and NF, exit from 1 BNF and NF, this will leave us with 1BNF and NF. We should also convert this to A100, by adding
BNF and NF with opposite behavior and month then already available BNF and NF.
The second cycle of A100 will again give 18,000 profits. Continue this cycle.
NOTE: the price change happens for 5-6 times each month, hence, gives opportunity to enter-exit-average-reenter in the
trade.
If profit is booked in the Current months Futures and next months is in loss, check if far month futures are liquid, can trade
them with same principal. Far month Future can be illiquid and it’s not available at market, enter with limit order.
Create basket order this avoid the buy or sell price differences., the required capital is around 3,50, 000 actual margin is
around 50,000.
Some key points:
o Rollover – very rare that rollover wound be required, in case it is required, overall, the month will be in profit as
would have already made profit.
o When leg related to any month is closed with profit, try executing far month instrument. And the trade or Leg(s)
can move between the 3 months for which the futures are available. This will also help in tracking MTM on trader
website.
o Consider clubbing options with this trade, after knowing the market movement.
TIP: To do this, regular tracking of price movement in required of BNF and NF. Since the price movement is cyclical,
it has potential to offer more benefits.
•
•
If BNF’s bought future is in downtrend and NF is either in upward or the drop % is much less than BNF, then
it is assumed that BNF will continue downward journey for next few days.
o Key BNF shares can be shorted through calls
And in case of reverse situation, key BNF shares Puts can be shorted.
7
SECTION 2.5: Using Short Sell
Using A100 trend to short sell can be planned in both BNF and NF. To do this, behavior of BNF and NF must be tracked
and the trade to be planned.
•
•
•
Analyze each leg under A100 to determine which symbol is trending upward or downward.
The indication to short sell is if the difference between BNF and NF in one leg and 1 lot is around 5,000 a change in trend is
expected.
To short sell, choose OTM around 1000 to 1500 points away from ATM. In case the trend view fails, and the short sell CE or
PE goes in loss, we can buy monthly CE/Pe to hedge.
SYMBOL
Nifty
Banknifty
DOWNTREND
UPTREND
Short Calls
Short Puts
Short Calls
Short Puts
8
SECTION 3: ABOUT A90
The nature and focus on A90 remains same as explained under A100, though some factors are different
in this. When this trade is taken, it has single leg that too of same month of NF and BNF with opposite
behavior, this means buy/sell futures of present month. A90 has multiple uses and can be expanded with
Options buying and selling.
INSTRUMENT
MONTH (Present)
Bank nifty
Long
Nifty
Short
SECTION 3.1: Taking the Trade and Managing It
•
•
•
•
•
Profit Booking: The PnL will show around 12,700 to 13,000 per lot. Profit can be booked at these levels.
After booking profit or squaring-off the position, enter in the opposite trade.
INSTRUMENT
MONTH (Present)
Bank nifty
Short
Nifty
Long
This strategy allows us to remain in trade for the entire month/all trading days.
The price change between BNF and NF happens every week.
This trade has potential to give profit 5-8 times every month.
Handling Loss: This strategy has potential of showing max loss or profit in range of:
o 22,000 to 27,000, both profit and loss, though this range is rare to occur.
o In case of 12,000 profit, book it and enter in reverse trade.
o In case of 12,000 loss, need to average it.
• In case of loss is around 22,000 or more, average the positions with same quantity, this means that
everything remains same as the existing position.
• The averaging and shift in cycle will bring the trade into profit same day or in 48 hours.
• With averaging, the profit can increase to Rs, 25,000.
• If this trade taken without hedge, the capital required is around 3.6 lacs and with hedge 1.6 lacs. Hedge can
help us earn big money if done properly.
SECTION 3.2: The Zero Line and Its Importance
•
•
The factor that makes A90 work is: BNF is weak, and NF is strong, or NF is weak and BNF is strong.
For the profitable A90, knowing Zero Line (ZL) or the vacuum point is important. Note
o To get to the ZL, note down the current futures prices of NF and BNF (paper or MS excel) and start
calculating them considering their behavior, this means apply calculation based on short or long.
o Track the overall PnL and when it becomes either +12,000 or -12,000, this is the Zero line for
entering the opposite trade.
o
9
SECTION 3.3: How to Hedge
Margin requirement when taking A90, without hedge is higher, it is around 3.6 lacs. The A90 can be made
better with hedge, a CE and PE can be added to reduce the margin around 1.50 lacs.
Here are the details on hedging, A90:
•
•
•
•
•
•
INSTRUMENT TYPE
NOTEs
Bank nifty
Sell
Same month or depend on the time of the month trade is
initiated
Nifty
Buy
Same month or depend on the time of the month trade is
initiated
Nifty PE
Buy
Strike closer to the future price of BNF or NF
Bank nifty CE
Buy
Strike closer to the future price of BNF or NF
The addition of Options to hedge shall work in opposite direction of the Futures. e.g.
o In the example on table above, BNF is sold, we shall buy BNF call (CE) and NF is bought, NF Put
(PE) shall be bought.
In most cases we shall buy monthly CE or PE, only, if this trade is initiated on Wednesday/Thursday or one
or two days before the weekly expire day, then the weekly expiries CE/PE can be traded (premium being
the lowest).
The options price closer to strike price will offer lower margin requirement.
Initiating this trade at the beginning of the month, buy monthly expiry of Options so that Options Leg can
be maintained throughout the month.
o On the intraday basis, options selling can be done.
NOTE: Other strategy that can be done along with above explained strategy. This to reduce the margin
requirement. Based on the trend, we can do following:
o We can short weekly expiry or put in the opposite direction of the trend in BNF and NF.
o This can help cover losses from the premium loss in the A90,
Important points to remember on short selling, and these should not be ignored.
o Short selling to be done only on intraday basis. No carry forward.
o With high IV and any news or announcement can impact negatively.
▪ E.g., if NF of 14300 PE is bought @ 28.35, then short sell 300 points far, i.e., 14600 PE in
intraday. This will give you 5-6 points in intraday; this will work as the return on the
premium paid to buy earlier PE.
▪ Important to remember, if the shorted options give 500 loss or remains around that, then
exit the short sell trade.
10
SECTION 3.4: A90 Hedging and Multiple Uses
The purpose of hedging is to protect the capital and reduce the capital deployed in a trade. In this section
some important points are mentioned.
•
For the options buying to hedge the A90, single leg positions the total premium paid should be around
5000.
A90 can be used in multiple ways, some of them are listed here
•
•
•
•
Future buying
Future selling
Nifty and Bank nifty are traded
Options selling and Buying
Nifty and Banknifty can give sharp moves during each month and A90 can help us capture the benefit
from it. Here some points are listed.
•
•
•
•
•
•
•
If BNF makes a sharp move on either side, a Rs. 100 Options can become 500 or more
Nifty Option can become from Rs. 40 to 150 or more.
When Options show profit, book it, do not bother about the losses in Arbitrage leg. After booking profit in
options wait for price to settle or cool-off and then make similar entry. For options to be in profit, the
Arbitrage shall be in losses, this could be in range of 20000-22000.
After booking profit in Options, can enter in the OTM, e.g., 39000 call options were bought, which was
closed with profit, now a call options which is 500 points away (38500) can be shorted, and If market moves
in our direction, trade will be in profit.
In case market is rangebound for 2 or 3 days, short sell weekly options of NF and BNF.
Options selling shall help recover premium paid on buying calls or puts and will provide additional income.
Remember to check the trend with the help of VWAP and plan the trade accordingly.
SECTION 3.5: H17 Hedged with A90 And Standalone | H 20:20
Hedge 17 with A90 has the potential to offer good profit in 2 days. Here are the details and rules to enter
H17. This must be avoided on important event days: Budget, Election result etc.
H17 with A90, first strategy.
•
•
•
ONLY use H17, if nifty is in buying in A90 strategy and the trade is in -20,000 loss.
One Nifty to be bought and two Banknifty to be shorted of total Rs.100 premium.
In 30% cases, expect up to 7000 profits in intraday.
H17 with A90, Second Strategy.
•
•
•
This is to be used, when Nifty is in buying and BNF is sold, and the loss is at 20,000:
Some banks can be shorted: SBIN, Axis, HDFC and ICICI in options of Futures. A level 20 hedge can be
made or put buying (Buy one ITM PE and Sell one ATM PE) expected profit in 2-3 days.
H17 can be done as a standalone strategy as well:
o Buy monthly NF CE which is priced at 80-100 at the beginning of the month
▪ By 15th of the month, rollover this to next month’s expiry.
o Sell 2 lots of weekly CE or BNF 1700 points above the spot price.
11
•
▪ This to be priced around 70-90 each. If cheaper, than check following week.
o SL should be: if sold CEs price doubles, exit from 1 lot, and maintain the 2nd lot.
o Profit Booking: this to be per emotions.
Hedge 20:20 strategy details, this is for nifty only.
o Only to be planned in the expiry day.
o Observe the spot price beginning 10:30 am and initiate a trade of buying CE&PE
▪ CE&PE to be exactly 25 points from the spot.
o Important: the combined cost of the CE & PE should be between Rs. 20 – 23.
o Stoploss: The combined cost of CE&PE at Rs.10 (will not happen until 2:30)
o Target: Will be based on the market movement and above the combined cost.
o Risk of Rs.1000 and profit unlimited.
SECTION 3.6: What Does Arbitrage Indicates?
•
•
•
•
•
•
•
•
For Banknifty to fall the banking stock must fall as well.
Arbitrage is not a strategy only; it works as an indicator as well.
It works as a price; it tells us multiple things including taking right trade at the right time.
It behaves in a predictive manner and helps develop conviction and skills.
This has a trade cycle of 4-5 days and does the job.
Options selling of the opposite direction can be done to earn from the premium. It also helps reducing the
margin requirement.
The options buying saves us from wild moves.
When options are bought, it will give us profit twice every month.
SECTION 3.7: Some Repairs
•
•
•
•
When BNF is a sell and NF futures is a buy and getting loss of 20,000, add H17.
When NF is a sell and BNF futures is a buy, Stock futures can be bought.
Covered calls can be done in NF by buying NF futures and short sell ATM NF.
When BNF is a Sell and NF a buy and loss is at 20,000, H20 can be used or add one more lot of NF futures
sell.
SECTION 3.8: Arbitrage 90 Other Uses
•
•
•
•
Can take future trade
Short sell options
Options buying
In the last week, the premium of bought instrument will erode fast. To reduce it short selling of weekly
options some 500 points OTM to reduce the loss.
SECTION 3.9: Reference Document | A90 Hidden Secrets
Arbitration 90
Hidden Secret of indian index and How to Use.pdf
12
SECTION 3.10: A-90 and Covered Call
In arbitrage 100 treat one leg as investment and another let is like a trading. Many people book profit on
Rs. 5000 -12000 range per lot and not many wait for 17k to 22k per lot profit. Seeing any loss on screen
should not be the cause of the worry as it is a part of the process and there are ways to adjust at specific
stage.
When to do average in the investment leg?
•
•
•
•
•
•
•
Averaging should be done when the loss goes to 24-27 k zone.
At the time of averaging, we need to buy the monthly expiry option.
In this case must short weekly expiry option.
You must a get a selling premium of 70-80 points. If you do not get in this week sell next week option.
If you buy a put monthly expiry, put of 30000 then sell weekly expiry put of 30500.
The market will come back to profit from the loss situation whether it comes in a month or two or 15 days?
Shall we keep our money blocked for that period?
Shall we keep our funds blocked in arbitrage
•
•
•
•
•
Notional loss on the screen troubles retailers?
You can make every week 5000 to 10000 certain income in this case without extra margin.
Suppose you have a leg that you had bought bank nifty and sold nifty and this leg is giving you loss. Bank
nifty fell too much, and nifty did not fall in same proportion, and you are seeing loss on the screen.
Suppose you have bought bank nifty for 35000 then do aggressive short selling of call option of weekly
expiry above 35000, if not this week sell that of next week, wherever you get more premium.
There will be too situations here. Either bank nifty will stay here, or it will go up may be till 36000.
Covered call in arbitrage 90
•
•
•
•
•
•
If bank nifty goes up, then arbitrage will come in profit and if it stays lower than 35000 then option will
become zero.
You will make profit either way. You can do it opposite side in Nifty also.
By selling extra lot you can make more money provided you have extra margin.
It is possible that you shorted bank nifty and it may go up 2000 3000 points up. In this case we will sort put
option weekly and buy two monthly call option,
At this point our arbitrage will come in profit.
If the screen lost continues to show you can make more profit by option selling.
How to find the trend of market
•
•
•
•
Suppose bank nifty crashes a lot and nifty does not fall so much giving rise to a big gap/vacuum.
The day you find bank nifty is strong in technical chart on that day bank nifty will move much faster than
Nifty.
Or some other scenario when bank nifty is falling, and nifty is not falling in the same proportion it means
bank Nifty will go up next day and Nifty will stay in its place.
In this scenario we will buy call option, short put, or buy banking stocks. Or buy banking stock call and sell
banking stock put
13
SECTION 4: FUTURES BRIEF AND HEDGE
Futures and options are meant to be used as a hedging instrument. Trading them naked is risky. This
section explains how hedging can be used with futures and help in earning.
Whenever a future is bought/sold, an ITM CE/PE is bought to hedge the position. Some important steps
before taking the position.
SECTION 4.1: steps to plan the trade
•
•
•
•
When buying a future and ITM of same instrument should be bought to hedge. ITM that has 70% chips and
remaining Air.
Knowing the trend is important, chart reading is important to know the trend.
Risk assessment is important before entering. This is important to enter the trade with planned risk and
repair options available if trade goes against the expectation.
Only identify and trade in most liquid stocks or any stock that has a Bollinger band blast.
LIST OF MOST LIQUID STOCKS (as on March 28)
DLF
Hindalco
Bharti Airtel
LT
•
•
Tata Motors
HDFC Bank
TCS
Lupin
Wipro
HCL Tech
HDFC Life
SBI
ICICI Bank
Tata Steel
Biocon
Infosys
Sun Pharma
Maruti
Reliance
Kotak Bank
BPCL
Bajaj Finance
Note: Options price is corelated with Futures price and not with Spot price.
How to identify right strike price to hedge the position. Using BhartiARTL to explain.
o Buying Bharti April Futures and to hedge adding a PE
▪
o
o
Buying PE and not CE? Reason is that the behavior of both works differently. If Bharti price
goes down, CE premium has potential to drop faster and increase slower when compared
with PE. also, PE is easy to adjust than CE.
▪ In case the trade goes against our expectations, a higher price CE can be sold to repair. E.g.,
PE bought at the strike price is 560 than sell 570 CE or higher. Try to square-off the CE sell
position in intraday if trade is doing OK or carry it if market seems bearish.
Find a PE call option that has minimum 70% chips and rest air and closer to expiry Chips can be
80%.
▪ Calculate Chips Vs. Air: Strike Price – Future Price = air | Strike price premium – air =
Risk
Maintain more than Rs. 1,00,000 in trading account and when executing the trade, buy PE at limit
order first and then futures. this will reduce the margin. The margin shown in the screenshot
below, will be reversed to your account next day, most likely only 50,000 will be blocked as a
margin.
14
o
o
Note: in case of future, MTM will get adjusted daily, this means, in case of a loss or profit MTM
will change, credit/debit in the account.
Trade strategy based on the future view through chart reading.
VIEW
•
Bullish
Buy
Bearish
Short
CE to Hedge
PE to Hedge
ITM Short with 70% Chips
ITM Buy with 70% Chips
Repair strategy in case trend goes against the view.
o
Table below provides overview of repair strategy,
VIEW
o
•
FUTURE
FUTURE
Bullish
Buy
Bearish
Short
CE to Hedge
PE to Hedge
ITM buy with
70% or Chips
ITM Buy with
70% or Chips
To Repair
Short a Call with higher
premium than PE bought to
hedge
Short a Put with lower
premium than CE bought to
hedge
In case of the trade goes against the view and starts rising, book profit in bought CE or PE
respectively and buy another PE or CE. e.g., in case of bullish view PE was bought of strike price
520 with premium of 20 to hedge and trend becomes bearish, after the increase in the PE
premium or it is becoming profitable, book the profit and buy PE of higher strike price, let us say
futures price becomes 560, buy Pe of 550 strike prices. The new Pe bought should have 80% chips.
Use of covered call-in range bound market or trading in a narrow range in BBand. E.g.
o
Buy future and short same strike price CE ATM. Short futures and short same strike price PE.
▪ BhartiARTL:
• Futures 535
• CE short 530 strike
15
SECTION 5: INTRADAY TRADING RULES
This section shall help explain important rules for the intraday trading, understanding, and following
these can improve trading skills along with conviction and confidence.
•
•
•
Do not trade for the first 2 hours, this is not written on stone, recommended though. You can adjust this
based on your trades or day of the week.
Check Nifty and Banknifty for the trend or direction as this will suggest what to expect during the day.
If the market is rangebound then can wait for a breakout on the either side. Here rangebound means Nifty
is +/- 50 points, Sensex and Banknifty is below +100.
o Based on the market trend, if it is moving up - check top 3 gainers on NSE website, these can be
from Nifty 50, 100, 200 or Midcaps.
o Do similar action in case market is moving down, check for top losers.
o Add top 3 stocks in the watchlist and start tracking them in descending order.
o Check each stock on
▪ HM system
▪ Bollinger Band
▪ 9 SMA high
▪ VWAP
▪ Use 30 minutes timeframe on chart and start observing price on the chart
o Let us understand how and when to enter in the trade
o Uptrend Market – Rules for Entry
▪ Look for Bollinger Band – If the BB is Narrow canal like shape, then it’s recommended
not to trade till Bollinger Band blast occurs
▪ If Bollinger Band occurs upside, then go to HM system for confirmation
▪ If Bollinger Band is open wide and not narrow, in that case look for price
▪ When price breaks VWAP and comes closer to 20 SMA and closes above VWAP line then
verify the trade with the help of HM system
▪ Check HM system if it is a buy or not, in case it is yes then look for RSI, if RSI is above 60
or not, if yes then go to the next point
▪ Once all the above conditions are met then enter in the trade near 20 SMA line or just
above VWAP LINE. Recommended entry is 20 SMA LINE
▪ Stop Loss will be two candles close below 20 SMA line in 10 minutes time frame. Day low
will entered as stop loss in the system. If day low is far below then following two candles
close below 20 SMA line in a timeframe of 10 minutes as a stop loss
SECTION 5.1: Managing the Trade
After entering the trade, we need to change the time frame to 10 minutes and plot 9 SMA (High) on the chart We
will remain in the trade till the price trades above 9 SMA (High)
SECTION 5.2: When to Exit
In a 10-minute chart, when price gives two candles close below 9 SMA (HIGH) alternatively, when single candle
closes below 9 SMA (HIGH) line and 20 SMA line in 10 minutes time frame “Or” When the trade hits stoploss
16
SECTION 5.3: Berish Market | Rules of Entry
•
•
•
•
•
•
Check the Bollinger Band, in case it is a narrow canal like shape then do not enter the trade till the Bollinger
Blast occurs. If BB blast moves downwards then verify the trade from HM indicator
If Bollinger band is open widely and not narrow, then we need to check for price
In case price breaks VWAP and comes close to 20 SMA line of Bollinger Band and price bounces from 20
SMA and closes below the VWAP line then check the HM indicator
Check the HM indicator if it is a sell or not, if yes then check for RSI whether it is below 45 or not, If it stands
true then go the next point
When all the above conditions are met then enter the trade near 20 SMA line or just below the VWAP LINE.
The recommended and the best entry is near 20 SMA line
Stop Loss will be two candles close above 20 SMA line in a 10-minute time frame. We will enter the day
high as stoploss. In case day high is far above then strictly follow 2 candles close above 20 SMA line in a 10minute timeframe
How to manage the trade
•
•
▪
After entering the trade, select the time frame as 10 minutes and plot 9 SMA (High) on the
chart
We will remain in the trade till the prices trades below 9 SMA (High) Line
When to Exit the trade
•
•
•
In case the price gives two candles close above 9 SMA (High) line in a time minutes timeframe
on the chart, alternatively
When single candle closes above both 9 SMA (High) line and 20 SMA line in a period of 10
minutes chart, ‘Or’
When it hits the stoploss
17
SECTION 6: OPTIONS BEHAVIOR
This section explains Options behavior and uses. It will cover various topics that will help learn options
behavior and how it should be used for trading.
SECTION 6.1: Understanding Chips and Air
•
•
With max Chips and minimum Air. This is explained hereunder: the analogy used here is to denote that
chip have a value and air has no value, but we pay for it. It is important to identify premiums or strike prices
which have max Chips to increase our profits.
o Deep ITM means more chips less air
o Near ITM lesser chips
o ATM and Deep OTM is only Air
o More IV means higher premiums but more Air
o Less IV means lower premiums less Air
o Far expiry more Air in the premium
How to calculate Chips and Air:
TYPE
ATM
STRIKE PRICE
14350
LAST TRADED PRICE
108.85
CHIPS
0
AIR
108.85
ITM
14300
138
88
50
ITM
14250
169.05
100
59.05
ITM
14200
208
150
58
ITM
13500
853
850
3
Calculation1: ATM – ITM = Result1 | ITM premium – Result1 = Chips.
Calculate Chips Vs. Air: Strike Price – Future Price = air | Strike price premium – air = Risk
Note: Definition of ATM and calculation of chips and hawa is based on the future price. It is calculated after 11:00
AM on expiry day based on spot price.
•
•
•
For Call options; Future price – Strike price = Intrinsic value (Chips)
For put Option; Strike price – future price = Intrinsic value (Chips)
For both options; Premium paid - Intrinsic value (Chips) = Time value (Hawa)
For Example: Please refer above the price of nifty and its options
• Call Option: Chips = 14608.5 – 14400 = 208.5 Hawa = 223.9 – 208.5 = 71.2
• Put Option: Chips = 14800 – 14608.5 = 191.5 Hawa = 304.45 – 191.5= 112.95
18
SECTION 6.2: Types of Stop Loss
There are few types of stop loss (SL). This section explains few important SLs.
1.
2.
Spot-wise SL
1.1. What: This SL is linked with selecting a spot price for SL, this means, from the level trade has been
executed, a spot on either direction based on buy/sell of the options is selected as a SL. This helps in
limiting the losses.
1.2. When: this SL is important during volatile market. Reason to use Spot wise SL during Volatile market is
that VIX changes very rapidly and impacts the price. Using SL in this scenario shall help minimize the
losses.
VIX-Wise SL
2.1. What: Using VIX high and low point to trade, e.g., when VIX is at the lower point, buying is initiated and
when VIX at the high point selling is initiated. The high/low is identified through BB indicator/AVWAP.
2.2. How: Apply AVWAP and use daily timeframe on chart from the date analysis is required. And line on the
VIX chart shall work as the SL. And, when the price touched the AVWAP, only Options selling should be
done as the premium is very high and the return expected is very high, e.g., a call shorted for Rs.600 can
give a 300 point return the same day.
2.3. Important:
•
When VIX candle is touching the AVWAP and does not cross the line, only options selling to be done
and not buying. Returns are high due to high premium and nature of losing its premium fast.
•
if two consecutive daily candles close above the AVWAP, only focus on Options buying and not
shorting.
•
Use Bollinger band (BB) indicator to track low and high trend, set the timeframe at weekly.
o
When VIX hits the lower band of the BB, Options buying to be initiated of opposite direction.
▪ e.g., if BNF and NF was falling while VIX is also falling on the BB and hits the lower band,
consider market reversal from this point and initiate Options buying only.
▪ And if, VIX hits the upper band of the BB, consider buying options of the opposite
direction, best if to sell options since the premiums would be high.
•
When VIX is down or lower than the trend or in support zone, do not Sell options. Premium received
will be very less due to IV.
•
When VIX is at the support or the lower band of the BB, buying must be done. We must hedge the
buying and if doing naked buying than remember to follow below listed.
o For Nifty: Only use the monthly expiry of options which has premium of less than 50
o For Banknifty: Only use monthly expiry and Options premium of less than 200.
▪ Why Nifty option of less than Rs. 50 and BNF less than Rs.200? When any option of
monthly expiry is trading below the above-mentioned price, it is in the “Stone age”,
this means any options trading under stone age, the premium shall not go down easily
or rapidly if the instrument (e.g., Nifty) goes down. However, if market goes up, the
premium will increase faster.
o Another advantage of buying Stone age options is a lot of buying is done to hedge, smart money
buys these options to hedge since the premium is low. Due to the supply and demand disbalance,
the premium increases of stone age options.
o
•
o
When VIX is in a downtrend, never buy CE and PE together, thinking that capital is
protected or either side market moves, money will be made. Instead, short CE and PE
based on the trend. Use SL if trade in intraday during VIX downward trend
▪ Price Wise SL
▪ One-side SL based on market trend.
Some Important points:
OTM has max % wise profit and loss.
19
o
o
o
o
During the downtrend VOX: When any ITM is shorted, options behavior suggests that the Options
premium is lost faster. So, the chances of loss are minimum. Due to the gap between both ITM
shorted.
Short Call and Put, when VIX is in downtrend in intraday.
When VIX is in Uptrend: Buy and short a call each or buy and short a put each.
When buying Options OTM has maximum % wise return and loss.
SECTION 6.3: Taking Options Trade with Indicator
This section explains taking options trade using indicators and some other analysis. This is useful for
Intraday trades. This will help incase naked options buying is done. These are: Three-Steps, BB-Trap and
Open=High and Hilega-Milega is giving signal for buy or sell.
o
o
o
o
o
o
o
after market opens, wait for first 30 minutes candle to form, if the next candle does not break first candles
high or low, do not trade, it is most likely be a range bound market. Do not Trade naked in range bound
market.
Never buy OTM on Wednesday for next day’s expiry, buy only ITM. E.g., market is at 33600, buy 33000.
Do not buy any option which is trading below VWAP and sell any which is trading above VWAP. except
for expiry day.
Use Hegde strategy in intraday, like a spread. Here it is explained in detail. Consider, the Open=high
analysis, this mean instrument which has Open=high price same. Trend suggests, 95% of times, any
instrument with open=High as same price, the high will not be broken and the price will drop.
Do check the open=high or open=low on 30 minutes candle, and it the 30 minutes low and high is not
broken, the trend is not confirmed. I some cases it can be a range bound market.
• Open=High or Open=Low is found in any strike of index, Shares in Cash or Future or in the options
strike of shares can work as a lottery.
In range bound market do not trade naked.
Trade setup for range bound market: Half hedge trade: Consider that market seems to be bullish, and
we wanted to initiate the Call. option buying with following conditions:
• VIX – 18-22
o
o
Bank nifty – Buy 300 points up OTM CE and sell 600 points up OTM CE
Nifty – Buy 100 points up OTM CE and sell 200 points up OTM CE.
• VIX – below 18
o
o
BNF Buy 200 points up OTM CE and sell 400 points up OTM CE
Nifty – Buy 50 points up OTM CE and sell 100 points up OTM CE.
Above set up is act as rule of thumb. One can change as per the risk appetite.
20
Initiated trade shall look like below:
•
•
•
•
If market close below 14700, Both options will be zero and your loss will be 28.85
If market close at and above 14800, Then in 14700CE call will be at 100 Point,
Profit will be 100-28.85 = 71.15 will be your profit. This will be maximum profit no
matter how much market goes above 14800.
If market close between 14700-14800. 14700+28.85= 14728 will be breakeven point.
If Stop loss hits (VWAP is Stop Loss) hold it to Next Day. Market further falls sell 1 lot Extra of same
strike sold already or 100 points above, and trade again move upward; exit at cost.
21
Trading strategy for expiry day as an Options buyer. Details are mentioned below.
•
Buy option of or closer to market price and sell 200 points below strike.
SECTION 6.4: Understanding Option Selling
Option Selling is considered for stable income and most times Sellers win. To understand Option selling
consider this example “If an option of a particular strike is sold and price of the Index or the underlaying
instrument does not reach that level, the option price becomes zero”.
Let us understand options selling in detail with more examples.
•
•
•
•
•
Here, the price of a 35000 CE is at Rs. 150
General perception is that the max profit will be of Rs. 150 and Loss shall be unlimited.
Basis above mentioned reason traders stay away from Options selling, though most steady income is
generated via Selling.
Strike value and demand plays an important role.
o Consider latest BNF is at 32448.05.
o And BNF goes to 34000 and the strike value becomes 450
Are we losing money in above mentioned scenario?
o
Answer is, no, we are not losing, the actual loss shall begin after it crosses Premium paid
+ the strike price, which was sold, once the underlying instruments prices crosses the sum of this,
the loss shall begin. What we shall continue to see as loss is the premium that was paid.
SECTION 6.5: Understanding Loss in Call Options Selling
This section explains from which point sold Call Options enters the loss zone.
•
•
•
Consider this, you have sold BNF 35000 CE for Rs. 150 premiums.
The actual loss shall begin from 35000 + 150 = 35150 or to be precise from 35151.
The loss on screen is not the actual loss until the underlying asset crosses 35150. The loss shown before
the underlying asset crosses 35150 is the loss of premium received by shorting the strike price.
22
SECTION 6.6: Understanding Loss in Call / Put Options Selling
This section explains the loss zone when both Call and Put are sold.
•
•
•
•
When you sell both call and put you get a premium of 150 + 181= 331
This increases the range of profitability.
The loss zone shall be above 35000 + 331 or below 30000 - 331.
Range in between is the profit zone.
SECTION 6.7: Understanding Loss in Put Options Selling
This section explains from which point sold Put Options enters the loss zone.
•
•
•
•
Suppose you sell option of April 30000 PE for 181 Rupees
Present market price is 32615
Now if market goes below 30000 - 181 = 29819 only then you will lose money.
If market goes to 30010 and premium goes till 400 you will still not lose any money until 29819
SECTION 6.8: Options Buying Types
Option is bought in 4-5 different ways:
•
•
•
Buy ITM and Short ATM –In the beginning of the month.
Buy ATM and Short OTM-In the middle of the month.
Buy OTM one Strike away and Short Far OTM one strike further than the bought-In the month end.
All this depends on the possible price movement of the underlying asset based on chart reading.
23
SECTION 7: UNDERSTANDING VIX
This section shall explain VIX, which is a Volatility Index. This must remain added to the watchlist, and
tracking is regularly will help in Index related trades. VIX plays an important role in deciding when and
which direction the trades can be taken. In case of VIX is increasing and on higher side then market feels
that it is too volatile to decide the direction of the market and premium addition to the option is very
high. When VIX is decreasing leading to decrease in the premium added to the options. These concepts
will help to decide the trading strategy of the options. VIX effect only applicable to the Index options e.g.,
nifty and bank nifty.
• Lower VIX = low volatility.
• Higher VIX = High Volatility
• Never sell an option when volatility is high.
• The Hawa Component of Option keeps changing based on the VIX Movement.
Another way to look at this is:
•
•
Rising VIX adds premium and beneficial for buyers
Dropping VIX reduced premium ad beneficial for sellers.
SECTION 7.1: VIX Behavior
•
•
•
•
•
•
When VIX is in downtrend, monthly premium will erode faster than weekly.
Stable VIX will erode monthly premium faster than weekly
Rising VIX will add premium to weekly and not monthly
Options with less hawa, moves faster than with more hawa.
Any options that become ATM or deep ITM has no effect of VIX.
Corelate following points with picture below.
o Market rises + VIX rises, Index options with same strikes, one with lowest premium will rise
faster in terms of % increase, #2 in below table. And strikes with higher premium will rise slower
in terms of %.
o Why? When any option moves towards its direction, it first works to reduce the hawa and make
effort to become ITM. Once entire hawa is gone and becomes ITM, it reaches the stable zone
and speed of increasing becomes faster.
24
SECTION 7.2: VIX Behavior and Options pricing
Change in VIX is directly proportional to Option Pricing
• Rising VIX shall make Options price increase.
• Falling VIX shall make options price fall.
See Example below:
• If BNF Spot & FUT = 33000 & VIX = 20 & CE is bought. Next day BNF falls to 32000 but VIX rises to 29
–30. Still, no LOSS.
• Similarly, BNF Spot & FUT = 33000 & VIX = 25 & CE is bought @ 500. Next day the BNF rises to 33300
& VIX falls to 18. Here the part of the premium as a hawa would have been lost still it would be Cost to
Cost or minimum LOSS.
In above mentioned examples, the VIX played a major role in options pricing.
• When VIX in near support, its favorable to Buy Options.
• When VIX is near resistance, it is favorable to Sell Options.
SECTION 7.3: VIX and VWAP
Using VWAP to track VIX movement is essential to understand the maximum fear in the market, fear average
gives us the idea about volatility average.
If we know this, we can find the highest premium area of option. With highest premium area we can also conclude
whether to short or buy the option.
It is important to follow this method as there is no other way to find out.
25
SECTION 7.4: LOW VIX Strategy
Understanding low VIX situation, it is important to know during low VIX only sell no, buying. Simply, use
BB on 10 minutes timeframe and whenever VIX hits the 20 SMA, moving from downward to 20 SMA, sell
CE and PE and exit the trade once VIX reaches the lower band of the BB.
SL must be VIX wise, this means, VIX rises and crosses 20 SMA while moving upward.
For positional trade, consider AVWAP as SL, however this could be risky as AVWAP can be far from
current levels, best is to hedge. If want to go with AVWAP then make an entry when VIX is around
AVWAP, check this on 10 minutes and 1 hour’s timeframe.
If VIX drops 11, do not sell as it this level any rise in VIX will bring huge loses in selling. If want to sell, do it
in far OTMs.
26
SECTION 7: CHART READING
This section explains chart reading with right indicators and how to read the trend before initiating the
trade. This section will strengthen and add awareness which will help in increasing the probability of
taking right trades or make timely entry/exit or repairs. Some of the documents also suggest trade plan
based on certain patterns. Most are hedging techniques.
Important about the price:
• Price always follows its average price as average is also a price.
• On chart when the price is around its average price, it is a zone where trend can move on any direction.
It requires utmost caution.
• Prices previous support becomes next support and previous resistance becomes next resistance.
• If previous support is broken than it acts as a resistance and if previous resistance is broken than it acts as
a support.
• Previous resistance and support are broken with Gap-up or Gap-down.
• For positional trade: Price always follows higher time frame and to trade check the trend in higher
timeframe and then on smaller timeframe and trade accordingly.
• Note: Previous support and resistance does not work in case of Bollinger band blast.
SECTION 7.1: Chart Reading | Positional
If any stock has a BB Blast in Monthly, Weekly and Daily timeframe, apply 5 SMA as a SL on the stock to
take positional trade. Use monthly timeframe chart to initiate the trade, this timeframe is best for
positional trade as price follows higher timeframe.
The take entry, wait for price to come closer to 5 SMA and SL, if one candle closes below 5 SMA. However,
there is a less possibility of hitting the SL as in BB Blast price reversal is unlikely.
27
SECTION 8: BOLLINGER BAND (BB)
Bollinger Bands® consist of a centerline and two price channels (bands) above and below it. The
centerline is an exponential moving average; the price channels are the standard deviations of the stock
being studied. The bands will expand and contract as the price action of an issue becomes volatile
(expansion) or becomes bound into a tight trading pattern (contraction).
The BB shows the range and the band contracts or remain contracted. And each line works as support
and resistance. Please notice that price reacts after touching each of three support and resistance lines.
BB blast happens after a contracted band for a period and with gap-up and continues the trend for
minimum 3 or 5 days.
How to trade if blast is upward: Buy futures, buy cash and Buy Call Options or Short the Put. Or any
hedge strategy
How to trade if blast is downward: Sell futures, Buy Put Options or Short the calls.
SECTION 8.1: Knowing Bollinger Band
This trend is identified with gap-up or gap-down opening. In this the band gets trapped. If BBT is formed
on higher timeframe, it gives better returns. For intraday, use 10 minutes chart to identify BBT.
The 10 minutes candle should close below the VWAP, and entry must be near VWAP. The exit should be,
if on 10 minutes, then lower band of the BB or put the chart on 30 minutes and exit around the middle
band of BB.
If with the gap up, the opening is open=low, this means the gap-up opening price is the start and then
price moves up for first few minutes, then the price will reverse while going down, keep the target low.
Same in case of gap-down.
Let us understand BB with the help of an example, we shall be using 1 hour timeframe.
See image below to understand BB chart and its use.
•
•
•
Use Bollinger band, upper band-resistance, lower bank-support.
Go long or short depending on in which direction Bollinger band blasts.
On an hourly chart if you get Bollinger band blast after a consolidation it will give you big money. In this
scenario you can take Naked option
28
•
If the red line is above the black line and with a gap price will not go up at any cost. For price to go up the
red line must go below the RSI Black line as shown in the enclosed chart
•
Never take a sell trade until the RSI has gone below 50 (blue, water) or buy trade unless RSI has gone above
50 RSI.
We will use 20 SMA and take the trade on either side of 20 SMA.
One Hourly candle must close above or below the 20 SMA for us to exit the trade.
Above 20 SMA it is a buy and below 20 SMA it is a sell.
•
•
•
29
•
We will be in the trade if the 20 SMA is not breached, and 50 RSI does not cross.
•
In situations like shown in the image below where the 20 SMA is breached many times we will take the
help of Bollinger band.
30
SECTION 8.2: Bollinger Band | No Trade Zone
If candle does not close below or above the low or high of the previous candle, do not take any trade, wait
to confirmation. Best to see this patter on 15 or 30 or higher timeframe.
SECTION 8.3: Bollinger Band | Squeeze and Blast
Whenever band narrows in 10 – 15-minute interval and suddenly it blasts on either side, it will move fast
in that direction. Take the trade based on the movement and stay in the trade as long every new candle
is continuing to make new high or low.
31
SECTION 8.4: Bollinger Band | Trap Pattern
If the candle closes outside the upper or lower band, it will go in the opposite direction. Wait for some
time, consider taking a trade after third candle on higher timeframe.
32
SECTION 9: AVWAP INTRO AND APPLICATION
Anchor Volume weighted average price is an indicator that shows the previous levels or long-term
support for indexes or stocks. Simply put, AVWAP provides previous benchmark price on a chart that
quantifies the average price traded through the time on volume and price. Using this indicator can
provide a good visual into the nature of the trend and the average value of a stock from the selected date.
The logic behind AVWAP is that charts have memory based on past key levels. It is like, old resistance
becomes new support. It is an average of price derived from a particular time. Mostly, select anchor start
date from any past date when emotions led to a drop or rise in the stock or index. Looking into history,
the 2008 crash was the starting point until the Covid hit the marked and it crashed, going forward it is
logical to use lows market or a share made when Covid hit the market.
However, for plotting AVWAP, any significant price point can be used as an anchor, depending on chosen
time frame for trading. On the below chart, AVWAP is plotted from 2008 crash, it is evident that
whenever market fell It respected the AVWAP drawn from 2008 crash, it respected the average that was
formed.
SECTION 9.1: Importance of Average Price
Importance of average price line in the movement of an instrument.
•
•
•
•
•
Price of any instrument tends to react to its average price. If price moved far away from its average price
line, then it gets back to it before moving further away this may happen in following ways:
o Price will fall and reach to its average line known as price wise correction before going up.
o Price will start consolidating and average line will move up t reach to the price indue course of
time known as time wise correction.
Reverse is correct when price is moving in downtrend.
That is why average price line works as a dynamic support and resistance for the price of any instrument.
It also helps us in determining the trend of the instrument. If price are above the average and taking
support at the average line before moving further up.
If price is below its average and taking resistance at average line to move further downward then
instrument is in downtrend.
33
SECTION 9.2: Useful for Trade Decision
AVWAP has a potential to being special and most useful for trade decision.
•
•
AS AVWAP is generated by taking the anchor at the point of extreme market fear, so it works very good
support levels in the coming years. Considering 2008 crash, the AVWAP plotted taking it as an anchor has
not been broken and have been working very well as the support, latest example of 2020 Covid crash. Nifty
exactly returned from the AVWAP average.
AVWAP is an important indicator to predict market bottoms providing good opportunity for investment.
Using it on monthly time frame, it can double the money in a year.
SECTION 9.3: How to Trade using VWAP
How to trade using AVWAP for long term? Let us understand this with the help of an example below:
•
On monthly chart of nifty, plot AVWAP based on an anchor point of extreme fear, like, Covid crash of 2020
as it works very well as an anchor point for coming years. If Nifty reached the AVWAP levels on monthly
chart, invest in blue chip companies to double the money.
SECTION 9.4: Use It for Positional Tr ade
Hot use AVWP to take Positional trades? Let us see below example to understand:
•
•
•
Use daily chart of the respective stock etc. and plot AVWAP based on anchor point of any recent significant
price point, e.g., for Options contract it born date is the most important date to place the anchor.
Also, apply 20 SMA and any instrument trading above will rise and below will fall. Any instrument moving
around 20 SMA, avoid it as it does not confirm the trend.
After knowing the trend, a particular instrument can be traded in the direction of the movement by taking
the entry near AVWAP and using SL as 2 hourly close candle opposite to our direction.
SECTION 9.5: Intraday Trade Use
How to sue AVWAP for Intraday trade? Below explains the process:
•
•
•
Use hourly or 15 minutes chart of respective instrument, plot AVWAP based on anchor point of any recent
significant price point. E.g., for Options contract, born date is the anchor point.
Also, apply 20 SMA and any instrument trading above will rise and below will fall. Any instrument moving
around 20 SMA, avoid it as it does not confirm the trend.
After knowing the trend, a particular instrument can be traded in the direction of the movement by taking
the entry near AVWAP and using SL as 10 minutes close candle opposite to our direction.
34
SECTION 10: HILEGA – MILEGA TRADE INDICATOR
This is made with the help of RSI, weighted moving average over RSI and Exponential moving average
over RSI. All these come together to indicate possible momentum or trend. HM gives useful results in the
combination of VWAP and Moving average over price. This can be used for positional and intraday trades.
•
•
•
For Positional trade:
o For decision making use Day, Week, or month time frame on chart.
o For execution or taking entry use hourly or day timeframe on chart.
o If HM Is a sell on Monthly chart, price will fall and rise if it is a buy.
For Intraday Trade:
o Consider 1 hour time frame on chart to know the trend.
o For entry use smaller time frame over chart, 10 to 30 minutes is fine.
o 20 SMA acts as a good support and resistance.
o On hourly chart, if price or candle crosses 20 SMA, consider taking the entry into the trade, this
movement can be on either side of the trend.
o For Index trading, VIX can affect accuracy of HM signal, VIX below 16, accuracy reduces and above
16 works perfectly well.
How to setup HM on TradeIQ chart system. This is not possible on Tradeview on Brokers terminal, however
the Tradeview site has indicator with this name. Following will explain
35
36
•
Identifying Uptrend:
•
Identifying Downtrend:
37
•
Trend identification on Higher Timeframe: Daily, Weekly and Monthly
Monthly TF
Weekly TF or Positional
38
Daily
Hourly for Intraday
39
No Trading Zone
Next section will provide some extra details on trading with HM, these are some important points to
remember and follow. Knowing trend is imporant in any trade and higher the accuracy of knowing the
trade is imporant in being successful.
40
Trend Indication
Change in Trend Indication 1
41
Change in Trend Indication 2
Change in Trend
Indication 3
42
Change in Trend Indication 4
Also
43
This last slide under HM explains using it with 50 moving averages, here 3 separate MA’s to be applied,
with Low, High, and Close in each separate 50 MA indicator. Once applied it will show 3 50 MA’s. these
are used for different purposes.
44
SECTION 11: SPECULATION RATIO TERRITORY
Speculation Ratio Territory, this is a useful way to identify or predict market’s Top or bottom, this can
help take decision regards to existing or planned position.
•
•
•
•
•
Used to find index near top or bottom
Example: As nifty trade arounds 248 days in a year, So 248/2=124.
Now use 124 DSMA on weekly chart.
Suppose Nifty 124 DSMA is @10700 & Current market price is 11100 than, SRT=11100/10700=1.037
Indication of levels:
o Top of Nifty 1.55(SRT)
o Bottom of nifty 0.55(SRT)
o Start Investing when SRT Value is between 0.55 to 0.70
o And exit when SRT value is between 1.30 to 1.55
•
Example:
45
SECTION 12: CONVERGENCE
This document shall help explain usefulness of Convergence, how to use it for Intraday or positional
trades. We shall understand use of moving averages and Bollinger band. For using this indicator or
method must consider using varied time frame, specific to the approach for investing or trading. We shall
use from a few minutes to a day to 15 years. The duration is based on what is the investment duration.
•
•
•
For intraday, check 3 – 15 minutes
For positional, check 1 hour
For investment, check Daily, Weekly
For setting up this method, we shall be using Exponential moving average (EMA). This is a weighted
average that gives greater importance to the price of a stock on more recent time frame. This makes it
an indicator that is more responsive to new formation. To setup this indicator, 20, 50, 100, 150, 200 period
will be added separately. When adding separate EMA’s chose different color for each average line.
VWAP shall be used along with this indicator.
When studying the trend with above mentioned indicators, specifically, EMAs, the sequencing for 4
separate averages should be:
•
For identifying uptrend stocks, it will be in ascending order, this means, lowest time frame is first and the
higher time frames come under the lowest ones. Like this: 20, 50, 100, 150, 200 EMA
46
•
For identifying downtrend stocks, it will be in descending order, starting with the highest. Like this: 200,
150, 100, 50, 20 EMAs
47
Now, let us understand buying rule with these indicators for uptrend stocks.
•
•
•
•
•
Ensure the correct sequence of the moving averages.
When price comes to the converge and starts moving up, has a potential to move up faster.
HM system must indicate a buy as well.
SL shall be the EMA where the price is taking support.
Exit shall be only when the price is below the EMA support.
48
Let us understand how to identify downtrend stocks with the help of these indicators.
•
•
•
•
•
Ensure sequence of EMAs highest to lowest.
When price come to converge at the point and reverses from that level, it will move down quickly.
HM system must indicate a sell.
SL shall be the EMA where the price hitting a resistance.
The exit shall be if price crosses the EMA where it is hitting the resistance.
49
Some more images to explain convergence and trade strategy.
50
Convergence on daily
timeframe
51
SECTION 12: PRE-MARKET ANALYSIS
To know expected market movement, a lot of experience is required along with tracking certain
parameters each day. This document shall help explain the parameters which must be looked at to be
prepared with some strategy for day trading in indexes of stocks. Let us understand how we can know
what to expect from the market during the day.
Market trend can be as follows:
•
•
•
•
Range Bound Market
Volatile market
Seller day
Buyer day
Check SGX nifty
•
•
It is trading in range of 25 – 20 points: expect NF to be range bound
o Day like this will be a Seller Day, till about 12:00 pm
o This day, short sell CE and PE @ 9:25 am and book profit by 10:00 am with the SL of 10 points, in
most cases SL will not hit.
If a major gap-up/down is seen in the SGX nifty similar can be expected in Nifty.
VIX Behavior
•
•
•
If VIX gone up by 8% - 10% on the previous trading day, today it will be a buyer’s market till 12:00 PM.
If VIX fell by 8% - 10% on the previous trading day, today it will be a seller day till 12:00 PM.
Generally, on expiry if the market stays rangebound for first 2 – 3 hours, a major move can be seen after
12:00 PM.
Identifying rangebound market
•
•
After market opening, wait for the first 30 minutes, and based on how the candle was formed, mark the
high and low of this candle, until this range of high and low is broken, market shall remain rangebound.
This 30-minute candle should be of 200 – 300 points, this is in reference to BNF.
Use CPR to know market movement, read CPR section to know how to determine market movement.
52
SECTION 13: VWAP
Price always moves as per average, on the chart, either the price goes near the average or average must
move near the price. VWAP provides the average of price and during the intraday trade, the entry must
be near the VWAP. If Price is above it, buy and if price is below, then sell. VWAP has an accuracy of 6070% in intraday
Images below shows VWAP movement and comments explain trade taking suggestions.
53
54
55
56
SECTION 14: CENTRAL PIVOT RANGE
CPR provides a view of upcoming trend of the market; it is important not to use emotions and spend time
in reading and understanding chart formation. CPR acts as a support and resistance.
Here pivot is a turnaround or reverse, it is purely derived by price, and it is a leading indicator which
suggests a clear support or resistance before a candle is formed.
It is not required to use CPR for the entire trading session, only at the beginning of the day to know
possible market movement.
CPR formed on smaller timeframe shall remain true for higher timeframe as well. It is success if around
60% - 70%.
CPR on different timeframe:
•
•
•
•
•
For intraday these timeframes shall provide same inputs, 5, 10 or 15 minutes. These timeframes should
only be used for intraday.
For weekly projection, use 30 minutes or 1 hour’s timeframe and this is formed once on Monday and
shall remain true for rest of the week.
To know the monthly movement, look at the day timeframe and this is formed once only on the first
day of the month.
For the prediction of a year, use week or monthly timeframe and this formed once only in January.
Images below provide examples of CPR on various timeframes and how to read chart along with other
indicators.
57
58
59
60
61
62
SECTION 15: ORB
This document shall help explain use of Opening range breakout. It is said that opening of the market is
done by retailers and closing by the smart money, hence closing price is important in max cases.
If opening range along with high or low on smaller to higher timeframe are marked for intraday on 5
minutes to 1 hours, this shall help:
•
•
•
•
•
•
Knowing the trend and trade decision to be taken after price breaks ORD range either on up or down.
If ORB sows step-up formation, this indicates upward and opposite in case it shows step-down.
Narrow range shows indicate trending market.
Wide range indicates sideways or rangebound market.
With ORB, use VWAP, 20 SMA and HM.
On tradingview there are multiple ORB indicators to select from, these 3 are recommended. Select any.
63
•
Image below explains how to use ORB along with other indicators.
64
SECTION 16: RSI BASED DEMAND SUPPLY
This indicator provides supply and demand indication, and it can be found in tradingview.
•
•
•
•
•
•
•
•
When the zone is above price, it acts as a supply zone
When the zone is below the price it acts as a demand.
Here as well, the support and resistance logic work.
o Previous support works as next support and similarly resistance.
o Once broken, support becomes resistance and vice-versa.
Buy decision to be taken after checking price above ORB and VWAP.
Sell decision to be taken after checking price is below ORB and VWAP.
In case a BB blast on weekly timeframe in NF, it generally moves 1200 – 2000 points.
This indicator helps to get a fair idea that from which level falling price will bounce back and vice-versa.
Image below explains how chart looks like after adding the indicator.
65
•
Below image shows Nifty on the verge os a BB blast on weekly timeframe.
66
SECTION 17: 3 STEPS CHART READING
After market opening, the hourly candle formed on the chart make a move in a step formation, it is
expected that market or share will make a big move on that direction. This is a powerful patter and it
make a big move between 1:15 pm to 3:00 pm.
•
•
•
•
•
Candles forming on upward direction, confirms bulling move and downwards, bearish.
If market is bearish and a stock has a 3-step formation, ignore this pattern.
The price in either direction must sustain either above or below VWAP.
Candles formed must be small on hourly timeframe.
SL is one candle close above or below VWAP
Image of a short trade or 3-step bearish formation
67
68
SECTION 17.1: BB Trap And 3 Steps
The chart below explains BB trap and 3 step formations when formed market makes a big move on one
direction.
•
•
•
Once of twice monthly, this is formed.
Always initiate trade on the opening 4th hourly candle.
HM will indicate this trend little late, but the candle formation will confirm the trend.
69
SECTION 17.2: 3 Steps Along with BB Band
Three steps touching either above or lower band is also a strong pattern. See images below.
70
SECTION 17.3: Not Getting Trapped in 3 Steps
In the image below, the 4th candle is not breaking the low of 3rd candle. If the closing is not below the 3rd
candle, then pattern may reverse and then we need to take the opposite direction trade. Always use the
hourly timeframe and entry can be taken on 15 minutes timeframe.
71
SECTION 18: IDENTIFYING MARKET TREND
This section explains market direction or trend based on certain parameter, this covers intraday and
positional trade.
SECTION 18.1: Intraday
On a weekly and daily chart, if 20 and 5 SMA are sloping downwards, this indicates downward trend and
if it is rising upwards, it is an uptrend market. In case of a flat then a rangebound market
Bollinger band also becomes narrow to indicate a range bound market.
Unless the 20 SMA is not broken on either side is not considered either in uptrend or downtrend. If it
forms a directional trend, then that will also reflect on smaller timeframe.
72
5 SMA can also be checked on daily timeframe to know the movement of the market.
When 20 SMA slopes down on weekly timeframe, it’s a downward trend.
73
SECTION 18.2: Intraday
If the first 30 minutes candle is big and unless the following candles have a proper closing below or high
of the first 30 minutes candle, the market is considered rangebound.
This is a good opportunity to short sell both call and out. By 11 am it becomes clear if the market is
range bound or not.
74
SECTION 19: RSI
RSI is relative strength index; this helps in knowing the strength of a price movement in either side of the
market. It is important to track this while entering in the trade of any type. When RSI is seen on monthly
timeframe it gives very strong indication on expected price movement. The RSI provides technical
traders with signals about bullish and bearish price momentum, and it is often plotted beneath the graph
of an asset’s price.
•
•
When RSI goes below 30 level, it falls faster.
When RSI crosses 70 it rises faster.
75
SECTION 20: A19
This section explains A19 trading setup, overview, and process. This trade is swing, positional, and
intraday, this can be done with CE and PE. This strategy works best when nifty is ins 400 – 500-point
range movement.
This strategy explains to buy an ATM price, corelate it with Future price of Nifty. Along with it, a weekly
expiry with same strike with minimum 60% premium difference is shorted. e.g., 15000 is monthly expiry
with the premium of 100 and 15000 of upcoming weekly expiry with the premium of 60. If 60% premium
in weekly expiry not available of same strike price, check following week(s), except the last week’s expiry.
•
Understanding the selection and behavior of strike prices
This is the Future Price
This is the Monthly Expiry
premium of ATM
Weekly Expiry premium at 60%
•
SYMBOL
EXPIRY
STRIKE
ACTION
Nifty
Monthly
ATM, correlate with Nifty Future
Buy
Nifty
Weekly
Same as Monthly expiry, with premium of
minimum 60% of monthly’s
Sell
MARKET MOVEMENT
15100
14600
SYMBOL
EXPIRY
STRIKE
ACTION
Nifty
Monthly
14900 CE
Buy
In Profit
No Loss
Nifty
Weekly
14900 CE
Sell
No Loss
No Loss
Trade trend:
o
o
o
o
o
Use range of SL of 400 points on both sides, in case of wild move, this trade can be exited cost-cost.
In range bound market it gives profit.
This trade setup offers peace of mind due to the nature of its not getting into the losses unless there
is a sudden movement in the market.
This trade can be initiated multiple times every month, 5 to 6 times. Sometime during intraday also.
Profit shall remain in range of 4000 – 5000 per lot. Exit when the trade is giving profit in this range and
re-enter again with same requirements.
76
o
When to take this trade:
▪ 17 or 18 of each month for next month expiry.
▪ 3rd week of each month
▪ First week of the month.
SECTION 8.1: Breakeven
This section explains breakeven of A19 trade.
77
SECTION 21: H 21| FIRE AND FORGET
This trade setup is considered the safest, with 5% - 8% return per trade, this can be done thrice every
month on a specific day with pre-defined condition. In this monthly and weekly nifty is traded.
This strategy created a situation where it has element of option buying, selling, hedging, and applying
mathematical condition. This can handle extreme range bound situation, including UC and LC
Impact of VIX in designing this trade: the strike is the future price of the month for which the trade is
taken.
VIX
> 18
> 24
> 35
> 40
CE Difference from Strike
400
600
800
1000
PE Difference from Strike
400
600
800
1000
SECTION 21.1 Designing of Hedge
Here is the rule sot design this hedge:
•
•
•
•
•
•
•
•
Both CE and PE of monthly expiry shall be bought.
Ensuring to buy at 300 points from the spot when the VIX is in range of 16-20.
If the VIX is more than 23-25 then the gap of buying shall be 400 -600 points.
If there is a bigger gap between spot and future take future price to design this hedge.
Premium decay is the biggest problem here as these being OTM strikes.
In buying option we can make money only when the market goes above the bought strike price range.
We must get 50% of the premium paid in the buying by selling options.
In this scenario the monthly options will not give any loss and option erosion and expansion rule gets
cancelled.
Let us now understand how this trade will be designed using Nifty Options.
•
•
•
•
•
•
•
Nifty Future us 14600
Present VIX is at 20, we shall use 300 – 400 points gaps.
Buying Position:
o Buy monthly options: 15000 CE and 14300 PE. (Considering that the expiry will be in this range)
Selling Option:
o Selling Weekly Expiry: Sell 100 points OTM as compared to buy.
o The sell position is for April 15 as 15100 CE and 14200 PE
Let us see the buy and sell premium difference:
o Sum of bought position : 215+173= 388
o Sum of Sold position
: 127+76.50=203.5
Sold premium is 52% of bought premium.
We require minimum 50% premium in selling for this strategy.
Image below show the premium used here.
78
SECTION 21.2: Options Mathematics – Max Risk
This section explains calculation and logic behind max risk that we might have to encounter in this
strategy.
•
•
•
•
•
•
•
Bought premium sum is 388 and sold is 203.5
The difference between buying – selling is 184.5.
The rule is the total risk is buying – selling, so, is 184.5 is the real risk? It is not, how?
o As the buying position is 100 points ITM as compared with Sell position. Now, the risk is 184.5-100
= 84.5.
o This risk is only if Upper or lower circuit is hit.
So, now we have a loss of 84.5 points, NO, we do not have this loss as well, as:
o One side of our monthly expiry options will not become Zero, it will still have a value of 25 – 30
points left till April 15th, please note that any monthly options strike price goes below 50, enters a
stone age and it does not lose it is premium, there will be minimum 20 points premium left.
Now, the maximum risk is 84.5 – 50 = 34.5 in case of lower or upper circuit only.
We are required to make the best estimate of the range that market will remain in on both sides.
Do not take the range where market is unlikely to reach.
79
SECTION 21.3: Possible Scenarios
Let us understand what the possible scenario are when this strategy is taken.
•
•
•
•
•
•
•
•
•
•
•
The maximum risk is of 35 points only, no matter how market behaves.
With that said, it is impossible o make any losses.
Scenario 1:
o If market remains in range, both sold premium will become zero and bought premium will be left
with 50% of it is bought premium.
o In above explained market levels, if market goes to 15000 then both sold options will become zero
and 15000 CE will become ATM so it will be in profit.
o If market drops and reaches 14300, the PE options will be in profit.
o The maximum profit will happen on the nick line and here, 15000 CE or 14300 PE are the nick line.
o Or double nick line at 15100 CE or 14200 PE, this is the maximum profit levels.
o The profit will be max if the expiry happens on one of the four strike prices.
If the expiry happens at 14200 then the value of this will become zero and 15100 CE becomes zero as well.
The sum of bought premium will be minimum 330 – 340 as it becomes ITM.
The loss here will be maximum 40 points in buying but you will get 200 points in selling and will make
minimum 160 points profit per lot.
Per lot investment needed is around 5000 – 60000.
This strategy can be taken 2 or 3 times each month with 5 weekly expiries, first on the 17th or 18th and at
the beginning of the expiry month.
This strategy gives minimum of 5% to 20% profit, on rare occasion can give 35% when VIX is on higher side.
We shall talk about subordinates later; this can increase the profitability.
Remember that getting 50% premium in weekly is a must, if you do not get that, move to following week.
SECTION 21.4: H 21 and Wild move
In the example shared above with strike price where we shorted 14200 PE with total premium received is
203.5.
•
•
•
•
•
•
we will not lose even a single point if market goes till 14000, this is on the downside.
On upside, no loss till 15300 (strike price + premium)
Is market reached 15300 then the bought premium will increase.
Never invest more than 60% – 70% of available capital, as remaining will be useful to make subordinate or
the sequence.
Square-off the position at 3:15 pm
When exiting, exit sell strikes first.
SECTION 21.5: Taking order in Zerodha
This trade will be taken through basket options in Zerodha, and section explains a few key notes while
making the basket order.
•
•
•
Add all 4 strikes in a sequence, starting with a buy then sell then buy and sell.
At times, due to the liquidity issue, the sell position might have to executed as limit and not market.
Image below provide the basic idea on how to create a basket. And sequencing of the strikes.
o
Square box is a mistake, it should have been 15 April expiry.
80
SECTION 21.6: Impact of VIX
VIX plays an important role in the movement of index options strike prices and here as well, it is important
that we consider VIX levels to plan this trade.
•
•
IF VIX rises after taking this trade, it will be good for us.
o Buying side premium will not reduce and selling side premium will keep reducing due to time
value.
Sometimes, we might get 400 points profits.
Suppose VIX was at 25 when this trade was taken, and it comes down to 17 – 18 range in next 3 days.
•
•
•
•
•
•
Here the monthly option premium will reduce faster.
It might show some loss, but the actual loss will not happen.
Here as well, we will make a subordinate for good profits.
With sudden reduction in VIX the profit probability reduces to 3.85% - 5%.
The gap in selling is 300 points when VIX is less than 20, it is 400 points for 20 – 23 range and 500 points for
23 and higher
Rising VIX will act as a lottery.
81
SECTION 21.7: Making a Sequence in 200-point range bound market
Consider in this strategy as explained above with the example, the strike of 15100 is where the market
has reached and the traded strategy is in profit, not what if market reverses from here, if this happens, a
new H21 will be created, called as a sequence. This will be done with 300 points range only and to be
done in the half the quantity when compared with original trade.
Let us understand how this trade will be taken.
•
If the market is trading in the range of 200 points, we shall buy same strike monthly expiry and sell same
strike price of weekly expiry.
•
With above example in the image, our loss in weekly sell here will only being after it has crossed 14857,
however, if this happened, the monthly will become ITM and strike price will increase from 355 to 500.
On the upside, there will not be a loss of more than 20 – 30 points till 15300.
On the downside we will not lose much even if the market goes down to 13700.
The position is created when h21 is working in a range bound market.
•
•
•
82
SECTION 21.8: Making a Subordinate in 300 - 400-point range bound market
•
•
•
•
This subordinate when market is trading in a range of 300 -400 points.
If monthly expiry is bought, then the weekly strike which will get shorted must have 60% - 70% premium.
ATM price shall be taken for buying and selling.
Number of lots here cannot be more than 50% when compared with the Original H21.
Let us understand on how to take this trade. The image provides strike details.
•
•
•
•
•
•
See strikes which are ticked.
Buying is 373.87 and selling Is 246.01 and it is 60%.
Till 14800 + 246 = 15046, no loss area and buying becomes ITM after reaching 15046 and its premium
becomes 500.
E.g., market falls from 14800 – 14440 even then it will be a nick line expiry and will give profit.
If market does not move much, then also we will have got minimum premium of 100 points in sold position
and some premium will be left in the monthly bought option.
With that, a 10% profit is expected.
83
SECTION 21.9: Making a Sequence in Range Breaks
In a situation when the subordinate is formed, Nifty makes a wild move of 500 points rise or fall. E.g.,
market goes to 15300 on the day 1 itself, here we will book the subordinate as it will be in small profit and
will make a new H21 sequence.
Squaring-off Subordinate and making a sequence.
•
•
•
•
This sequence will be 500 points up or down.
The original or old H21 will stay as is, we will not make any changes.
This sequence will have 50% quantity as compared with original h21.
After taking the new h21 sequence, we can expect market to rise or fall or remain sideways.
o If it stays around the current levels, the original H21 will give good profit.
o If market goes up the new hedge will go towards the nick line.
84
SECTION 21.10: Some Important Tips
Let us assume that this strategy was created in the range of 14000 – 15000. If market falls below 13900
then make a new H21 F2, currently in a half quantity with the selling range gap of 600 points.
•
•
It is important to buy and sell the same expiry as the original hedge 21.
Once the total MTM comes in profit, exit this trade, and make the next hedge 21 from present situation.
Timing the position in H21 F2 is important, when to initiate H21 can be tricky:
•
•
•
Sometimes it can be made on the beginning of next expiry.
Sometimes it is made after 3 days from the monthly expiry.
The decision here is based on the VIX.
o If VIX is in uptrend, make it on the day of expiry.
o If VIX is on downtrend, make it 3 to 4 days from monthly expiry.
o Check VIX on daily and hourly timeframe.
It is also important to know how many times this to be made in a month.
•
•
•
•
This can be made 2 or 3 times every month.
On the day, the expiry of running month or say beginning of next weekly expiry. Or 3 to 4 days ahead, if
VIX is not favoring.
Next to be done after the 15th of the month if 2nd weekly expiry was on or before 15.it can be around 15th of
every month as well.
Months with 4 weekly expiry we must make only twice and thrice in months with 5 weekly expiries.
SECTION 21.11: Intraday H21 F2
This can be made in intraday as well on every Thursdays.
•
•
•
•
•
Selling range to be of 400 points.
Must sell next to next weekly expiry.
Must buy monthly expiry.
It can give up to 5% profit by the next day from taking the trade.
Make this position by 9:20 am
SECTION 21.12: Entry and Exit
•
•
•
•
•
While entering or exiting the potion, liquidity issue can be faced.
While entering, first make or add the buying position and then selling.
In case of liquidity issue, check the bid and ask while making it.
When exiting, square-off sell position first and then bought position.
Always use limit order in case of liquidity issue.
85
SECTION 22: H22
This hedge strategy is specifically designed for Bank nifty. Let us understand how to take this trade and what to
expect when in the trade.
This trade if taken on Friday and Monday, use same week’s expiry for all other days it must be following or next
weekly strike.
•
•
•
•
Check BNF spot price
Buy CE + 500 points one lot
Buy PE – 500 points one lot
Short sell 2 lots meeting below listed conditions.
o For CE side
:
Work in progress…
86
SECTION 23: TIME TRACK
This section explains various time-track trading strategies that can be taken at the different times with
different scenarios. While reading and understanding this, use respective documents provided under
section “Chart Reading”, it will help understand these better.
Some brief is provided hereunder on these strategies.
What is time TRACK SELLING (TT)?
•
•
•
•
•
•
•
Option sellers trade the time, at right time and exit at right time and book the loss on time. That is why
option sellers are called time traders also. But there is one more important thing called time track. It is
selling the option at a specific time where chances of your earning increase a lot.
Any option with monthly expiry will loses its premium of 20 % in 3-7 trading session from the beginning of
expiry month. We will short sell the monthly option in two ways:
o Either ITM or far OTM
o Out of 100 you will make money 98 times.
o We will not sell ATM at any cost unless VIX comes in the range of 16
Important for months with 5 weekly expiries.
o Month with 5 weekly expiries, the TT starts from the second week and not from first week.
o Premium of monthly expiry strikes does not go down in the first week.
o Stock options begin to lose their premium after 15th of the month
Tips for Short Selling
o When short selling on Friday, Wednesday and Thursday do it in same weekly option.
o If you are doing it on Monday and Tuesday, do it in next week expiry.
o On Thursday do not short sell same week expiry after 12 noon. Till 12 noon from opening of
market its ok on intraday basis.
o But on Thursday when you short sell next week expiry buy current week’s far OTM.
o When selling option do that at 9.45 am, this is because after opening of the market premiums are
down and by 9:45 am, the premiums are added again.
Second week sell OTM of 3rd weeks expiry.
A19 days when VIX is high, and we are getting higher premium.
H21 on 17 or 18 of each month.
87
SECTION 23.1: BNF Weekly Expiry Day Trade
This trade to be taken on weekly expiry day at 9:30am in Banknifty. Here we will short CE and PE
together. Sell +100 CE and -100 PE from the spot. Keep SUM SL of 10 points, this means CE Shorted @
110 and PE shorted @ 210 total premium is 320, and there is change on 10 points on the opposite
direction, exit the trade. In 80% cases SL will not hit. This happens due to options behavior, on expiry day
each options tries to lose its premium. This has 80% success rate.
SECTION 23.2: Shorting BNF Monthly CE/PE | OTM
This strategy suggests to short CE and PE, there are various approaches to do this based on the time of
this trade is initiated. This uses options behavior, where a 1000-point movement will not affect the
premium in this strategy. This has 80% success rate.
1. Shorting on the day when new monthly expiry is beginning, 2500 points +/- from spot. A 1000point movement will not show losses.
2. If this is done earlier than the beginning of the next month’s expiry, the gap should be 4000 points
+/-.
3. Maintain 30 point SL.
Counter: this means, in the hedged trade, closing one part of the trade and enter another strike.
4. In this trade we booked and countered. profit booking in one option and shorted another option.
SECTION 23.3: Shorting BNF Monthly CE/PE | ITM
This trade is taken on the monthly expiry day at the closing time for the next month’s expiry. E.g.,
initiating the trade on Thursday or last Thursday of the month.
•
•
•
•
We will sell ITM with 1000-point gap.
ITM option trading in between the ranges loses its premium faster compared to ATM or OTM.
In this example spot price is 32615
o We have taken April expiry 31500 CE (about 1000-point ITM) and 33500 PE (about 1000 Point ITM)
o Total premium is 1595+ 1395.40=2990.40
o In this there is 2000 points of chips (1000 points ITM on each side) and 990 is Hawa which is
maximum profit.
When we will make a loss in this situation.
o When market moves in between 31500+2290=33790 and 33500-2290 =31210
o We get a range of 2580 points.
o You need to keep 100-point loss SL
Stop Loss
•
Understanding stop loss in ITM selling.
o
o
o
Maintain 100 point SL. This SL shall only hit if BNF has a 1000-point gap-up/down and VIX higher
by 4-5 % on Friday or next trading day.
In case the sold premium of both ITMs is at *** and the combined value of premiums becomes
**** +100, this means the total remains around 100 or higher, we will exit from the trade. Staying
in it will trap us in it.
Based on the TT rule, when this trade is taken on Thursday then at the opening on Friday or next
trading day, we shall see a profit of 70-100 points and for the remained of the day it will not regain
88
o
or reduce the point profit that we are getting. And by the closing of the trading day, we shall see
a profit of 150-200 points.
While initiating the trade, if VIX is above 20% maintain a gap of 2000 points and to hedge next
weekly expiry far OTM can be bought.
SECTION 23.4: Shorting BNF Monthly CE/PE | OTM
This trade shall be taken on the monthly expiry day for the next monthly expiry.
•
•
•
•
•
•
This to be initiated at 3 PM
Identify an OTM option strike with the value of Rs.200 or less, this should be at least 2000 points above
and below the future price.
On the next trading day or Friday, it will give a profit of 50-60 points.
No loss be seen if market moves 600-700 points on either side.
We shall maintain a 100 point SL.
Hitting SL in this strategy is very rare.
SECTION 23.5: Wednesday 1-2-ka-4
This strategy is initiated every Wednesday based on certain criteria and conditions. This to be done on
Wednesday morning, preferred time at 9:45 am.
•
•
•
•
•
Any far OTM strike of premium in range of Rs. 80, which is generally 600 points above the future strike
price to be shorted, 4 lots. This must be of same weeks expiry.
We also buy a single lot of far OTM with premium of Rs. 300 of next weekly expiry.
We must get 70% premium from selling.
The profit range is that if market moves 500 points in our direction or goes 1000 points in the opposite, we
will remain in profit.
Here the SL shall be Bollinger band wise, this means if on 10 minutes chart BNF blast and starts moving
up, we shall exit this trade.
89
SECTION 24: A19 EXTENSION
In this trade, a Nifty strike is bought (one lot), and another is sold (2 lots) of next month’s expiry. This
trade can be taken any time, expect VIX is above 23.
•
•
•
•
•
•
Decide running or next month based on the premium and time of the month.
Buy 200 points plus from Nifty futures, monthly expiry.
Look for a strike which has a half premium than bought strike and short 2 lots. This will bring the sold
premium close to bought premium.
To reduce the overall margin, keep buying weekly OTM calls, this will have a low premium.
When taking this trade, ensure there is always some debit in premium. Do not have credit, it will bring
losses.
With one lot profit range is Rs. 3500 or more. Keep booking profit
SECTION 24.1: Trade Range
This trade is safe in range of:
•
•
•
•
If nifty falls, this shall not give any loss, consider, 700 points drop will not give any loss.
If nifty moves 600 points plus, no loss zone
And if it expires between above mentioned range, will be in profit.
The loss area shall increase if market moves upwards, as the bought strike will add more premium.
SECTION 24.2: Intraday Use
Intraday trade in this strategy
•
•
•
Basis day’s market condition, short CE, or PE.
If market is dropping, short CE strike price 200 points above already sold strike.
If market is going up, short PE.
SECTION 24.3: Other Areas
Same strategy can be made in BNF and Stocks as well.
•
Stock trade: If SBIN spot is at 430
o Buy SBIN 440 CE with the premium of Rs. 8
o Short SBIN 2 lots of 460 strike with the premium of Rs. 3.10
o Max loss here will be 8 – 6.20 (3.10x2) = 1.80
•
Where adjustment is needed.
o If market increases quickly,
Work in progress
90
SECTION 25: CALENDAR STRATEGY FOR STOCKS
Here we shall buy a particular stock in a particular month and short for the next month or vice-versa. This
depends on the expected movement of the share.
•
How to take this trade?????
Work in progress
SECTION 26: ARBITRAGE MONTHLY EXPIRY
Here we shall understand how a trade on the monthly expiry day can be taken in futures. here buying and
selling shall be performed. On the monthly expiry day, future price and spot price becomes same, in most
cases future price is always higher than spot. In very rare cases spot becomes higher than futures. we
shall use this scenario to our advantage.
•
•
•
On the monthly expiry of June, Nifty future is higher than Spot and we know that this price will match with
the spot before the closing of the trading day. And July Nifty future us also higher than current spot price.
o In above scenario, we shall short sell June nifty futures and Buy July futures. the logic is the June
future price is expected to meet the Spot, which is lower than the future price and shorting will
give us the profit of total point difference. E.g., Nifty June Futures is at 15820 and spot is at 15800,
the difference of 20 points will be the profit. The July bought future shall not move much as it is in
a buy and its price will only meet Spot on July expiry day.
o We will reverse this strategy if present months spot is higher than futures, here we shall buy
present month and sell next month.
Ensure proper understanding of the market movement and price gap between future and spot. As the
brokerage on futures is much higher than other instruments.
Time for taking this trade on the expiry day is around 9:30 am, once there is a gap and exit around 11 am
as the gap gets filled by 11 am. The gap shall get create again around 11:50 am take another trade and the
gap gets sill by 3:15 pm.
Work in progress
91
SECTION 27: DAILY BNF +NF + STOCKS
Every day at 9:25 am and at 2:30 am this strategy can be taken, strangle or straddle can be taken. This
strategy can also be taken in stock options after the 15th of every month.
•
•
BNF/Nifty:
o Every day at 9:25 am or 2:30 pm, this gives profit only once every day, this means if morning trade
has given profit, afternoon trade will not be active and vice-versa.
Share Options
o The same can be done on stock options. This to be done after the 15th of every month, most useful
is the last weekly expiry of the month.
o Search for a range bound stock.
o This gives a 1 to 2 points profit.
o Stop loss will be one point. If CE was shorted at 3 and PE at 4 the combined premium is 7 and is
combined premium becomes 8, exit the trade. Maintain 1 point SL.
Work in progress
92
SECTION 28: KILLER WAVE PATTERN
KW is one of the patterns that gets formed in indexes and stocks. It is an interesting price action and
when it does get formed it makes the options price double. It can get formed as bearish or bulling pattern
and the trade that needs to be taken must in accordance with that.
This pattern can be get formed a few times in a month.
•
•
•
Banknifty
Nifty
Stocks
: Twice in a month
: Twice or Thrice in a month
: Once in a month
To identify the trend, BB, VWAP and HM is required on the chart. And the timeframe for its confirmation
is one hour. See the chart below:
•
•
•
•
•
On hourly chart, opening is either gap-up or down.
The 1st and 2nd candle closes either above or below the VWAP.
Either spinning top or inverted hammer candle is formed, closing of the candle will be either above or
below the VWAP. This is an important condition to be met for the confirmation of the KW formation.
Smaller candles formation on hourly is more effective that indicates strong trend.
VWAP slopes to approx. 45 degrees or represent decline of incline.
93
•
•
The entry should be on the 3rd or 4th candle.
Stay in the trade as the big move happens around 1:15 pm.
How to trade in KW formation in BNF and NF:
•
•
•
For BNF
o take 400 points OTM of current week’s expiry. This must base on the direction of the KW.
For NF
o 2 or 3 strikes far OTM, again, based on the direction of the KW.
SL shall be high of last 2 candles of 1 hr. close above VWAP.
94
SECTION 29: BB TRAP PATTERN
Whenever a price opens gap up or gap down and maximum retailers are trapped due to sharp movement.
After the gap up and gap down if the price comes back to the Bollinger band and starts trading below the
VWAP, in this case it is expected to give big moves on one direction. This situation is safe for naked call,
put, future and cash buying or selling.
Let us understand why price reverse after Gap-up or down?
•
•
•
•
When market opens, retailers jump and begin trading right from the first minute of the trading starting
time.
What smart money does is sell their position at the higher price and the retailer unaware of this get
trapped.
This pattern is very powerful for intraday trades, whenever formed has the potential to give a good return.
The SL here is system wise, in case of Gap-up, high of the first candle and opposite in case of Gap-down.
95
SECTION 29.1: Trap Rules
Here are the rules of BB Trap scenario:
•
•
•
•
•
•
15, 30 and 1-hour timeframe shall be used.
We need to only look at the script with good gap up/down opening.
Minimum one candle should close outside the band.
Then next candle be inside the band and the inside band candle must close below the low of the outside
the band candle.
The following candles must come below VWAP and sustain Then we can short after these confirmations.
Take a trade as hedged and may be naked after practice. Take the trade long or sort near the VWAP.
•
In case of option take ATM and This pattern stays for the full day.
SECTION 29.2: Planning a Trade
Taking Trade in this scenario, considering it is in Banknifty with a gap-up situation.
•
•
Options Trade: Using BNF futures 30 minutes chart. Now the BNF futures price is at 36200.
o Buy a Put of 200 points below, in this case 36000 as BNF Fut is 36200.
o Premium must be low.
o To get the lower premium, consider going further into OTM by another 100 or 200 points.
o The strike that is being bought – short strike 200 points in OTM. This will protect the trade.
o E.g., 36000 PE was bought, and 35800 PE was sold.
Future Hedge Trade: This can be done in two ways:
o Short BNF future and short the ATM Put as well.
o Short BNF future and buy a ATM call.
o Buy Call only when VIX is low, in case of high VIX sell a Put.
o Put shorting will be benefit of premium along with futures.
Here is an example of SBIN with Gap-up opening:
SBI has given closing below VWAP at about 398 so question is how do we hedge SBIN? It can be hedged it in two
ways:
1. ITM Vs ATM
: ITM-Buy and ATM Sell
2. OTM vs OTM
: OTM Buy – Far OTM Sell
96
ITM Vs ATM: ITM –Buy and ATM-Sell
• This is used in Intraday mostly and we expect smaller movement in the stock.
• ITM should have more chips 70 % and less hawa.
• If the SBIN future is 398 the ITM – buy 420 PE and short of 400 ATM.
• Risk will be Buying-Selling.
• In this hedge even if the market remains there, we will not lose but it will be in profit when it goes down.
• Its ITM so only if it goes back 20 points, we will lose but in this case we can short one more lot of ITM.
OTM vs OTM: We take this hedge when we conclude based on our chart reading that the price is ready
to move on one direction. If chart suggests that SBI can do down till 360 and current future price is 398.
•
•
•
•
Buy two strikes below SBIN 370 PE
Sell three strikes below PE 360 PE.
Maximum risk till expiry is buying – selling. that too only in case the SBIN does not move below 370, if
SBI comes down to 380 from 398 even then it will give you profit.
We should do this trade when we anticipate a big move in the Stock
Important Tips for Hedging of Option/Future:
•
•
•
•
•
•
Buying option do sell call or put of two strikes up or down.
Buying a call then sell two strikes above call.
Buying a put then sell two strikes below put.
Taking future then sell ATM Strike.
Suppose BB trap in SBI and it is expected to fall then:
o Short SBI and sell ATM Put Option of SBI
Do not forget to check that lower Band of Bollinger band act like a support and price may turn back from there
and similarly the upper band of BB works like a resistance price may turn from there also
97
SECTION 30: OPEN = HIGH AND OPEN = LOW
This section explains that if an instrument is Open=High than it is expected to fall that day and any
Open=high will rise that day. Though this does not happen 100% of the times but has a high success rate
and to identify this trade. This patter when formed allows us to get into the trade with a hedge strategy.
Explained below are some of the strategies that can be deployed. This kind of price action can happen in
Stocks, futures and even of options strikes, there behavior remains same as explained above.
In a month, this kind of formation is made up to 2 times in indices and stocks
After market opens and a stock is identified with O=H or O=L, we should wait for next 20 minutes or 1
hours to complete, as this will allow for price to settle and confirm the direction of that instrument. Any
day, this kind of formation is made in a stock and its options strike and future price, this could be a jackpot
instance.
Bank nifty Example of Open = High
• Open @ 32313 and High @ 32313
• On one hour chart, a difference of 1 or 2 points is okay, but if checking it on smaller timeframe it must be
exact.
• An ATM CE on intraday basis can be shorted.
o Along with the instrument, the strike price must also have similar condition. And in case, the trade
is not to be taken in futures, but in the stock, then looking at the Options price is not required. See
image below of 32200 CE with open=high
• Our entry into the naked trade based on below provided images, shall be around VWAP.
Work in progress
98
Open=1249.95 &High=1250
This meets the condition.
SL will be 5-10 points above
the Candle open.
•
Buying a PE is also an option of monthly expiry, the strike here would be 32000 PE.
Open=925.5 and High=925.5
This meets the condition.
SL will be 5-10 points above
the Candle open.
99
SECTION 30.1: Making A Hedge
Let us understand how a hedge strategy can be taken in this scenario, this will be safer than naked as if
the trend reverses the loss will be limited or we will have opportunity to adjust it.
•
•
Buy PE of 200 strike points below the future price.
And sell 200 points below PE.
This section explains Open=Low scenario in a stock, for understanding using SBIN.
• SBIN is open=low at 196.2 and we have these options:
o Buy a CE or short a PE
o Maintain system wise SL, this means it the price sustains below it average for 30 minutes, exit the
trade.
• Simple Options hedging rule in these situations for Intraday.
o Buy ATM CE of SBIN and short 2 strikes above OTM.
▪ E.g., if SBIN ATM is 300, this is to be bought and 320 is 2 strikes above ATM, this to be
shorted.
o If this trade goes against our views, then we will short one more lot of same strike already shorted.
o ATM is bought as it is an intraday trade, in case of positional we can buy ITM.
• Trade in similar situation using covered call.
o Buying futures and shorting ATM CE of same strike price.
▪ This is only good if done before the 10th of every month.
100
SECTION 31: TRADE USING VWAP
As explained in above section about AVWAP, this will explain how a trade can be taken using AVWAP.
Using AVWAP as a Seller
•
•
•
Use one hour chart or 3 hours, higher is considered best.
Whichever instrument is selected, look for their Options strike and here we will see the opposite of the
trend.
o If price is increasing, we will see PE
o If market is going down, we will see CE.
Consider below image of Nifty 15000 PE, on an hourly chart, it has given a closing below AVWAP at 741.
•
•
•
The anchor line is the SL and If candle closes above the anchor, this is considered SL hit.
Chances are, every time, the price comes near the anchor it is expected to fall further.
The help from HM system will be a good option.
101
SECTION 32: HEDGE 20 - 20
This trade strategy requires buying of Option on a intraday basis on the weekly expiry day in Nifty. This
trade to be taken after 11:30 am. Some background on this trade:
•
•
•
•
•
Opportunity hidden in Options and Market volatility is used to favor us.
Capital needed per trade is around 1800.
VIX plays an important role in the success of this trade.
The possibility of loss in this trade is rare and only if Nifty remains range bound within 25 points till expiry.
Based on historical trend, 3 trades hit the SL out of 13 trades taken.
SECTION 32.1: Plan A Trade
How to take this trade:
•
•
•
•
•
•
Track Nifty movement after 11:30 am.
Track Nifty CE 25 points above spot and PE 25 points below spot.
Trade must be taken within the 50 points range.
When price is in between 20 to 30 of options, enter in the trade.
SL shall be if Sum price comes down to Rs. 10.
Target shall be based on own conviction or decision.
Let us understand this with the help of an example.
•
•
•
Nifty spot price is at 13175, with this track CE of 13200 and PE 13150.
When sum price of both comes in range of Rs. 23, enter the trade.
SL and Target is explained in above section.
SECTION 32.2: Key Notes
•
•
•
•
•
•
•
This strategy is for low capital in case you have higher capital avoid this trade.
Do not put 100% of your capital, use half of it.
Practice and back test it.
India VIX plays an important role; it should be in range of 20.
If VIX goes up to 30, the sum value of options to enter will be Rs. 33 - 35 & SL will be 50% of sum value.
VIX comes down to 16, the entry will be sum of Rs. 18 – 19 and SL shall be 40% - 50% of sum value.
Chances are the price will not go below INR 17 and in most cases SL will not hit.
102
SECTION 33: HEDGE 17
This strategy has an options sequence design and uses correlation between nifty and BNF and their
behavior are matched. The behavior exists because of similar stocks in both the indices. It is observed
when Nifty goes up, BNF also follows it. In some cases, nifty becomes rangebound and BNF goes up.
Some key notes on this strategy.
•
•
•
•
•
•
Monthly and weekly expiry related behavior is used here to benefit.
This involves buying and selling of index options with being long and short.
This has monthly and weekly expiry of NF and BNF
All possible scenarios are considered here.
This trade is only for CE side.
This strategy has no impact of VIX.
SECTION 33.1: Plan A Trade
Let us understand how to take this trade
•
Buy one lot NF CE monthly expiry.
o
•
•
If this trade is taken after 15th of the month, buy next monthly expiry, as the premium of same months monthly
expiry will erode faster in the last week.
Specific strike price is not a concern.
The options price must be in range of Rs. 80 – 100.
o
If this trade is taken between 1 – 10 of the months, premium to be up to Rs. 115.
•
Sell 2 lots of BNF 155 – 1700 points OTM of weekly expiry.
•
Price not to be more than Rs. 70 – 90 per lot.
•
After taking the trade, if the premium becomes double within the intraday period, exit from one lot, and
carry the remaining lot.
•
Let us understand how price change in our trade will affect its outcome.
o Let say, BNF goes up by 1700 points when this happens, the NF CE will become 350+ points. This
will make Rs 90 CE 350+.
o BNF options will not give loss until it crosses the strike price. On the day of expiry, the BNF
premium becomes 0 as it has not reached or crossed the strike price, and we will earn via the
premium.
o We will leave nifty as is and keep selling BNF of next expiry.
o In case market goes down:
o
o
o
If selling on Friday or Monday sell current week or else next week.
If this premium is not available, then go to next weekly expiry.
In 85% cases price will not double within intraday.
▪
▪
o
Value of nifty mat become Rs. 60 and we will earn profit with BNF sold CE as it will become 0 on
expiry day.
When Nifty premium becomes Rs. 30 exit the position and enter a new position.
In positional trade an investment of up to Rs. 1.6 lacs can give 15% return.
103
SECTION 34: POSITIONAL TRADE WITH 20 & 50 MA
This section explains identifying positional trades based on certain indicators. Here positional trades are
for the period of 3 – 6 months, short term is 1 year, and long term is up to 5 years.
Price always follows the average, both corelate with each other. This means that average of the price is
most important factor, if prices rise or falls, it will either go and meet the average or average will come
to the price in all trades and the price always follows the higher timeframe, this means the accuracy of
the trend can be identified using the higher timeframe. it is important to read the average and make an
entry only when keeping the average in the mind. To identify a trend:
•
•
•
•
•
•
•
•
•
use 5 SMA and very simply, if the trend is above the SMA-Buy and below the SMA-Sell. The entry is
important, it must be once a candle closes above 20 SMA. To avoid false breakout, for entry check chart
on weekly TF as well, this will help avoid false breakout.
If price moves above the SMAs and happens to return the average in a short TF, be careful, there could be
an issue here of false breakout.
The entry must be around 20 SMA, when the price has just crossed this level, check price movement on
daily and weekly timeframe.
Any stock trading below 200 days moving average, it should not be bought, and vice-versa. Any stock
trading above 200 DMA, increases very fast.
20-day MA is also important. Acts as a good support and resistance.
If price breaks 20 and 50 DMA on a daily chart, it gets into bear zone for a shorter time.
It is said, any stock remained below 20 and 50 MA for some time on daily timeframe, has a potential of
giving 30 to 35% profit once it crosses the respective MA’s, this is for the upward movement.
Consider using Bollinger Band along with above said averages, it will help make the decision.
When historical trend is seen on higher timeframe with these averages, you will notice that there is a
historical trend of a support or resistance, this means that when price fall or rise, it returns after hitting a
specific price area or zone. This will help knowing the expected behavior.
104
SECTION 34.1: Positional Trades
To identify positional trade:
•
See image below, use daily chart and apply 20 and 50 DMA. When price is above both averages, take entry.
20 MA is an entry point, and 50 MA shall act as a SL. Hilega-Milega can also be used.
•
For higher returns, check the movement on weekly timeframe, there will be rare occasion when you will
find stock in this category, but when you do, it will give quick return. In below example. When price
moves above the 20 and 50 MA, check is the MA line has a curve indicating upward movement, this is a
confirmation of upward movement.
105
SECTION 34.2: Scalping or Swing Trade
For scalping or a trade with 1 to 2 days view with. Use 1 hour timeframe along with 20 and 50 MA. Look
for candles forming a flat patter, naked options can be taken.
106
SECTION 35: FUTURE HEDGE
This section shall help explain future hedging, explaining when and how to do it.
•
•
•
•
Avoid naked future trade, instead take in cash as with future MTM will create confusion with the PnL.
Just as Index, futures options also have time track active during the first week of the month. Shorting far
OTM CE and PE will give profit. The logic is same as index time track.
When should future hedge be made:
o Avoid making future hedge in the first week of the month, considering the premiums are high
and not probability of profit is low, since high premium will decay.
o First week should only be used in case of:
▪ A band blast in stocks
▪ Stocks which are range bound, this to be done using covered call.
To understand how hedge can be created, let us use SBIN as an example, my view is that SBI will increase
in coming days or month, and I have 4 ways to hedge the position:
o Buy SBI Future and buy SBI ITM Put with 70% chips
o Buy SBI future and buy ATM Put
o Buy SBI future and buy OTM Put
o Covered call, buy SBI future and short SBI Call close to future price.
▪ Covered is mostly taken when VIX is very high as premiums are high.
▪ When the market or share is range bound.
▪ Profit is limited with covered call
Work in progress
107
SECTION 36: EXPIRY DAY SELLING
Unique thing about expiry day premium is that if both CE and PE are sold than one side will become zero.
The impact of VIX on expiry day is lowest on the options of same expiry.
In the morning of the expiry day, high premium on Call and Put indicates upcoming volatility and lower
premium indicates rangebound expiry day.
SECTION 36.1: Trade Example
Let us see an example of weekly expiry option selling.
•
Consider spot price, sell 100 points ITM CE and PE and after 1:30 pm convert is to hedge 12.
•
•
•
SL will be sum of premiums received from CE and PE.
Avoid OTM on expiry day as it can move very fast in case of a wild move.
ITM will not move that fast in case of a wild move.
WORK IN PRIGRESS
108
SECTION 37: SIMPLE HEDGE | LEVEL 2
Here whenever VIX bb blast happens on day chart, we can buy CE and PE. This is a level 2 hedge, yet
powerful.
•
•
•
Here, SL will be 50% sum of CE and PE premium paid.
When this trade is taken, consider it is taken on Zerodha, make a basket order, entry and exit must be
together, this means all Option types to be processed together.
Shorting index of next week / month, do check the Bid and Ask and wait for the gap to come down between
both.
This is regular or normal future hedge.
•
•
•
Buy futures and PE with 70% chips
Short futures and buy CE with 70% chips.
This to be done only when price is near VWAP or BB blast.
SECTION 37.1: Hedge with Covered Call
Hedge with Covered Call. To be done, excluding for weekly expiry and Wednesdays. The immediate
example is of BNF trade.
•
•
Buy BNF futures and short BNF ATM CE of monthly expiry (if made by 15th, same month expiry, if after 15th
then next months. BNF CE = Fut – 200 to 500).
Short BNF futures and Short BNF ATM PE of monthly expiry (if made by 15th, same month expiry, if after
15th then next months. BNF PE = Fut – 200 to 500).
SECTION 37.2: Hedge with Covered Call
This is for rangebound stocks and for trending ones.
•
•
Buy futures and short ATM CE (or 1 – 2 strike lower than ATM, i.e., ITM) of same month of next month
expiry.
Short futures and buy ATM PE (or 1 – 2 strike higher than ATM, i.e., ITM) of same or next monthly expiry.
SECTION 37.2: Covered Call Adjustments
Suppose we have taken a trade as a Buy BNF futures and short sell BNF ATM CE of monthly expiry. The
market moves in the opposite direction, 100 points.
•
•
•
•
For adjusting, we will immediately short another lot of BNF CE or same strike.
Cover Call can be used to ear good return in stocks which are generally trade in a range.
This can be done both as intraday and positional.
If we do this in NF, the in please of futures we can use deep ITM CE / PE (1000 points from futures), so that
we have limited risk and unlimited profit.
109
SECTION 37.3: Option Hedge
This can be done on Friday, Monday, and Tuesday, this should be done only upon knowing the trend. The
example below is of BNF trade.
•
•
BNF Future is 32500 and for downward trend:
o Buy 200 – 300 points lower PE strike from the futures price, i.e., 32200 weekly PE.
o Short 300 points lower than bought PE, i.e., 31900 weekly PE.
o If market reveres the direction, we can short another call of 31900 PE.
BNF future is 32500 and for Upward trend:
o Buy 200 – 300 points higher weekly CE, i.e., 32800 CE.
o Short 300 points higher that bought CE, i.e., 33100
110
SECTION 38: SIMPLE HEDGE PART 2
Explaining simple hedge concept to help understand and take trades with simple hedging methods. To
beginning with using BNF trade example to explain.
Position taken of 36300 BNF in the opposite direction. Buyers lose money when market goes against the
planned trend. In this trade, BNF was bought and sold and now, the market is at 35800, close to 500 points
down.
Now, with market moving against our planned trend, we shall adjust this trade to avoid losses, any trade
like this goes against our direction by 400 – 500 points, we must adjust them.
Here, we have shorted additional strike of 37000 CE as an adjustment.
In our original trade, we had shorted 36300 for 482.95 (36000 + 482.95) the loss area reached to 37800
and now we have shorted 200 points OTM from 37800 and taken a premium of 134.45.
Now, if market reveres and starts moving towards our original planned direction and reached 37000, the
bought call of 36300 CE will give profit and the sell shall too be in profit due to premium expansion or
erosion.
Premium expansion and erosion rule: if weekly expiry premium goes down due to market movement and reverses later,
it loses its premium.
SECTION 38.1: Possibilities
When this trade was taken, VIX was down, however after the trade was taken, VIX rose by 13%, now what
are the possibilities here:
•
•
•
•
With VIX rose by 13%, sell side premium will erode to zero and buy side premium will not go down.
If VIX had not gone up, the buy side premium would have eroded and sell side would have also gone down
and overall loss would have been little more.
This means, if the trade has gone and market moved the other direction by 500 points, it is possible to
adjust and exit the with profit.
This trade type can be done in NF, BNF and stocks.
111
SECTION 38.2: Higher Profit
Let us understand how this trade can offer high returns on investment. The VIX has increased by 13%
since we took this trade. Now, if the market rises to the point where this trade was taken which is 36300
CE and premium was 761, this will become 900. The premium will be added as the time of taking the
trade VIX was 22, however, it is at 24.35 which is 13% so the IV increased thus the premium got added.
The above logic will not be true for the sell side as it has lost its time value and it will stay in the same
range or situation.
To conclude, VIX plays an important role in option buying and selling.
SECTION 38.3: Example of Covered Call
The BNF is at 35522.50 and HM system indicates a buy.
•
•
Buy 35522.50 futures
Short monthly expiry strike of 35500
The BNF is at 35522.50 and HM system indicates a sell.
•
•
Short 35522.50 futures
Short 35500 PE monthly expiry.
Selling options near the VIX resistance area can give good money as from resistance, the VIX will reverse
the movement and when it does, it erodes the premium.
Here the SL is VIX wise and not price wise.
112
SECTION 39: INVESTMENT
This section shall explain how to plan investment in stocks, what is necessary to look for before taking a
decision to make an investment for a long term. Technical analysis is a must before investing. Only
monthly timeframe to be used for investment.
We are using Bollinger band here to identify shares for investment.
•
•
•
•
The trend is that any stock before becoming a multi bagger will form a squeeze patter on monthly
timeframe on BB, and this formation continues for around 7 months before it makes a move towards one
direction. This gives some indication that the price will move up, however it is not certain that which
direction it will go.
We shall also use envelop indicator to get a double confirmation here.
See image below with BB and Envelop indicator and where it gave a buy signal.
o Before moving above envelop and 20 SMA, the price consolidated in a range for months.
o If price remained in a range for years, then this pattern, once the price moves above the envelop
and BB is good to make an entry, however, if price without consolidating for years moves above
envelop and BB for 3 or 4 months, then wait for BB blast to make an entry.
Look at RSI, from downtrend, if it moves up and crosses 70, this stock will increase many folds.
o The stocks with smaller ticket price, will increase 3 to 4 times
o And stocks with big ticket price will become double.
113
•
•
•
E.g., If made an investment in a stock at the price of Rs.6 and price increases to 18, book 50% position,
carry remaining and book another 50% of remaining holding if this stock becomes 10 times from buy price
and rest, carry for future. This is an example, and real-world situation might be different, apply own
learning if faced with similar situation.
SL is important here, in case after entry the price reveres and closes below the envelop and 20 SMA, make
an exit.
Can use Convergence as well to identify SLs, however using it for entry might give the entry signal little
late.
SECTION 39.1: Intraday Trade
It is rare that any price moves above envelop indicator on shorter timeframe, however in case it does, it
moves faster. Check this on smaller timeframe. Apply Bollinger and other logics explained above to take
the trade.
SECTION 39.2: Investment Spread | Portfolio
Below is the suggested portfolio that can be made. The money is spread across sections to balance the
risk. The important factor is that, in case of a market crash like the Covid in 2020, the 50% invested in
index will NOT drop substantially as compared with stocks, and this portion of the investment will allow
to switch to good stocks for profit. The same can be seen between Covid crash and now.
114
SECTION 39.3: System 9
This system defines that any price if closed above 9 Days moving average (high) stays bullish and has a
very little chance of reversing. Combining it with BB can add additional confirmation for the trade. If
prices close above 9 and 20 SMA, become bulling for the move.
This works in all timeframes:
•
•
For intraday, use 5 minutes or 10 minutes.
For positional use weekly timeframe.
115
SECTION 39.4: 7 Steps
If any price drops rapidly, takes 5 or 7 months to reverse. The 7-step patter means that on monthly time frame, after
dropping, if price reverses and continues to make 7 monthly moves upwards, then the expectation is that the price
will move further. BB can also be used to track this movement. This only works on monthly timeframe for
investment.
116