USDINR enters into the stage of positional longs on 4th May and till to date continues its sideways journey for the last 4 trading sessions with Quick-flip supports around 75.58.

Recent Island Gap reversal in USDINR closed on last friday trading session followed by an immediate rally towards 75.75 levels.

On 30th April , Trend Exhaustion on the downside with Extreme indication is seen on hourly timeframe which add to the positional bullishness.

On the upper-side price been struggling to cross around the psychological reference 76. Last three bullish attempt towards 76.0000 levels failed to cross the resistance levels.

However Fridays price action showed some positive setup. Any follow through rally on Mondays trading session is likely to be extended in short term towards 77.00 and 77.50 levels (May 2020 futures contract).

India has so far outlined a 17 lakh crore welfare package providing direct cash transfers and food security measures to give relief to millions of poor

Markets expecting second Economic stimulus package for Small and Medium level businesses this week and hence currencies could pick up more volatility if things are getting realized.

GOVT TO ANNOUNCE ECONOMIC PACKAGE NEXT WEEK; MSMES TO GET RELIEF, REFORMS TO DRAW FDI ON CARDS: BUSINESS TODAY

— Redbox India (@REDBOXINDIA) May 9, 2020

Last friday 10 Year India Bond Yield ended lowest since 2009.

The Reserve Bank of India (RBI) on Friday announced the cut-off yield on the new 10-year bond at 5.79%, the lowest since February 2009.

10 Year India Bond Yield – lowest since 2009https://t.co/SX0Xwfz4Ii pic.twitter.com/uIRvufO6El

— Marketcalls (@marketcalls_) May 8, 2020

Rating Agency Moodys said last friday , it expected India to see zero growth in financial year 2021 and bounce back to a 6.6% GDP growth in FY22, while the fiscal deficit is seen rising to 5.5% of GDP in FY21 versus the budgeted estimate of 3.5%

Overall momentum in USDINR could pick up if USDINR manages to trade above 75.85 levels and that could break the immediate hurdles around 76.00 levels targeting 77 and 77.5 in the short term.

Cone and Holder Pattern is technical chart pattern where that resembles the Cone ‘v’ shaped recovery followed by a downward drift in price which resembles the cone holder.

A cone and handle is considered a bullish signal extending an uptrend, and is used to spot opportunities to go long.

Looking for a Trend Reversal from the Handle with technical indicator turning positive can be used as single and the most recent swing low can be used as a stoploss.

For Example the above picture is from USDJPY where a trend reversal is witnessed with a cone and handle pattern. Earlier ‘v shape recovery (20th Feb – 24th Mar 2020) is part of the corona virus fear, lockdown & govt stimulus period followed by a downward drift from 24th Mar 2020 onward.

Width: Generally, cones with shorter width and more longer “v” shaped bottoms provide a stronger signal.

Depth: Ideally, the cone should be overly deeper. Avoid handles that are overly deep also, as handles should form in the top half of the cup pattern. Retracement of the handle from the peek should not 0.68% of retracement.

A profit target is determined by measuring the distance between the bottom of the cup and the pattern’s breakout level, and extending that distance upward from the breakout

In the Above USDJPY example the length of the cone bottom to the the holder breakout level works out to be 6.514 and hence from the entry point (breakout level) – 107.65 the target works out to be 107.65 + 6.51 = 113.16

Limitations Of The Cone And Handle

Like all technical indicators, the cone and handle should be used in concert with other signals and indicators before making a trading decision.

And the Pattern can be unreliable on penny and illiquid stocks.

Trading Psychology Behind the Cone and Holder Pattern

The sharp ‘v’ shaped recovery is more of an institutional drive getting into overbought situation followed by inventory correction from those inventory resulting in the price based correction and thus forming the holder.

After the holder formation a bullish price based breakout shows newer market participants showing interest in breakout trading.

There are a lot many bullish strategies out there where one can follow when Nifty is falling. However, one particular strategy makes me more interested from a risk-reward perspective. It is a three-legged strategy that can be executed if you know the clear support zones in Nifty.

As discussed in the Option Hydra Preview Session – Part 2. I explained the possibilities of Nifty showing a downtrend in the first half and have higher probability of testing 9120 and 9172 levels in the second week of May 2020 and chances are there second half could be bullish towards 9800+ levels. Just to mention current sentiment is negative with major support zone coming around 9045 levels as per market profile charts.

Nifty Futures – Market Profile Charts

And as per the open interest levels. Put writers are currently defending around 9000 levels. So we need to design a strategy where we can handle risk even if nifty drop by 200-300 points to mitigate the downside risk.

And chances are higher that next two days nifty could continue with sideways to bearishness as the current sentiment is still holding negative.

Clearly in these scenarios the directional traders has to wait however traders who want to deploy strategies can think off margin optimized and risk control based strategies.

3-legged Hedged Bullish Option Strategies

2 lot of 8850 PE shorts at Rs 171 / Lot (Risk Control)
1 lots of 8350 PE longs at Rs94.55 / lot (Hedge to 8850PE shorts)
1 lot of 9350 CE longs at Rs146 / Lot (Bullish Position )

This three legged strategies we are collecting the credit by shorting 2 lots of 8850PE of 28th May expiry which provides the major risk control and reduces the breakeven for the strategy to 8800 levels. And Long in 8350PE which will act like a hedge to limit the downside risk to certain extent. And Long in 9350CE this is the major position and one can add more if nifty starts breaking above 9350 levels.

Margin Requirement

Approximately the Margin required to execute this strategy is 1.39 Lakh per set with margin benefit of Rs 42496 per set.

Risk / Reward Overview of this Strategy

What if Scenario if the Position is held till the end of Expiry

All of us at some point definitely have thought of investing in Tesla, Amazon, Google, Apple and many more of US tech giants, only to find out that the process was tedious with lots of rules and form fillings where most of the process happened offline. But no more! A startup Stockal, which is registered in New York, developed a platform that has simplified the process of overseas investment for all kinds of Indian investors, to a great extent.

How does Stockal do it?

Earlier the process was quite cumbersome where the Investor had to use the Liberalized Remittance Scheme (LRS) which allowed a transfer of funds from India up to $250000 a year. Mostly this amount would be used for travel and college fees. Although this could be used for investment purposes, very few did so. This is because the process required a form and declaration letter which most banks did not have it online. Stockal, with help from banks is taking this process online. Currently, it uses a courier to collect documents from a prospective investor, submit the forms at the required branch, and enable the remittance to the US brokerage account. After the deposit, the money can then be used to trade in US stocks.

How much you can invest?

As per Liberalised Remittance Scheme (LRS) of Reserve Bank of India, the current limit for investment outside India by Indian citizen in a year is capped at $250000.

What are the available subscription plans?

There are three subscription plans for investors.

The basic plan offers $2.99 per trade when the quantity of shares is below 299. Beyond 299 shares then $0.01 per share would be added to $2.99.

The silver plan costs ₹ 3999 per year. It offers $0.99 charge per trade up to 99 shares. Beyond 99 shares this plan also adds $0.01 per share to the base charger per trade, for every share. Investors choosing this plan have 24×7 support along with email support.

The Gold plan is the flagship plan for the investors. It costs ₹ 13999 per year. It offers flat 1 cent per share cost to the investors. Along with all the perks of the silver plan, investors also get a dedicated relationship manager from Stockal.

Why should you invest in US market?

Let’s look at the major advantages of investing in the US markets:

• Trade in US Dollar: History has shown us that the rupee is sliding against the US dollar. This impacts imports and exports if the country, which in turn impact Indian businesses. By investing in the country with the currency the world trades in, you are cutting the rupee depreciation risk.
• Access to global top stocks: You would have access to stocks of the future like Tesla, Amazon, Google, etc.
• Investment diversification: By investing in US markets, you can minimizing the India specific risk and can capitalize on US specific growth opportunities.
• Medical needs: Medical care abroad is expensive. Even on your vacation abroad, there could be a certain need for medical care. Having some out-of-pocket money at hand could come in handy during these times.

What would happen to your holdings if Stockal goes down?

Your global investing accounts are held by brokerage and clearing services providers. The custody of your account is managed by some of the largest banks and clearing firms in the world. If Stockal goes down, your account will still be safe and secure with them and you will be able to access it and/or move it to another brokerage firm as you please.

Additionally, you also have automatic insurance on your US investing account. The cover of insurance is $500,000, which includes a $250,000 limit for cash.

Along with US markets, Stockal also provides options for other markets as well. It also partnered with HDFC Securities one of the largest brokerage firms in of India.

To get started with abroad investing, you can create an account either with Stockal or HDFC Securities.

Happy Trading!

Implied volatility (IV) is a very important measure if you are trading options. It helps traders to understand the overall market expectation. In mathematical terms Implied volatility explains the expected – annualized one standard deviation range where the stock is expected to trade in the future.

Here is a volatility webinar which explores how to understand and trade volatility. If you are beginner in options it helps you to improve your understanding about implied volatility.

Implied volatility talks about future volatility (expected volatility ). And implied volatility is calculated for each and every strike of option strike prices (Calls and Puts). At the Money strikes Implied volatility generally resembles stocks IV.

Implied volatility tends to increase whenever there is a huge jump in the market expectation due to fear or greed situation. For Example when there is a RBI Policy Announcement or Central Election Results, US Presidential election results or any other macro events are happening that brings lot more expectations among the market participants.

Implied volatility also tends to increase during the earning season. before the earnings announcements generally people have higher expectations about the stocks performance and its earnings hence the implied volatility increases.

Implied volatility tend to decline when the uncertainty is over especially when the negative news flow surrounding a particular stocks starts improving.

Any drastic change in implied volatility directly impacts the option pricing . If the Implied volatility increases then option premium increases and vice versa.

Most of the event announcements are considered as binary events as the outcome is uncertain and that motivates the big investors get into hedging their position until the event is over.

Hence most of the events until the announcement is made implied volatility is held up. Once the announcement is over the uncertainty surrounding the investors will be over and so they will be out of their investing hedges. This phenomenon is called volatility crush

On 12th May 2020, Vedanta India came up with a delisting offer priced at ₹87.5 per equity share. Ahead of the announcement, the company’s shares soared 9.45% on the NSE, crossing the proposed delisting price of ₹87.5.

What is Delisting of Shares?

Delisting is the permanent removal of the company’s shares trading in a public stock exchange and the company becomes a private company. It is also known as the “reverse book building process” since it’s a reverse procedure of listing.

Share holding of Vedanta

The promoter group, including Vedanta Resources, owns 50.13% of Vedanta Ltd, while the remaining 49.48% is held by public shareholders(General Public, Mutual Funds, Banks, Institutions, and GDRs).

Indicative offer price

Indicative offer price set by vedanta is Rs 87.5/- per share. Indicative offer price is to influence the public shareholders to make them accept the offer. However, no public shareholders has no obligation to accept the price.

Sebi regulations provide scope for only three kinds of price

Floor price – which acquirers at the minimum price are committed to accept under the reverse book-building process. The promoter needs to open an escrow account and deposit the amount of consideration based on floor price & a number of equity shares outstanding with public shareholders.

Discovered price – the price at which the maximum number of bids are received

Exit price and Final price – which the acquirer is willing to pay to shareholders for delisting a company. Exit Price and Final Price is not necessarily the indicative price from the promoters.

The company does not set the eventual delisting price. It is the investor who sets it. While investors can quote the price they want, the acquirer has the freedom to accept or reject it.

It is a high risk game to trade the delisting shares. If the promoter is not willing to accept the higher prices he/she might withdrew the offer and in such cases stock might end up collapsing.

What is the Motive of Delisting Vedanta?

Vedanta’s delisting, according to the group, aids its corporate simplification process and provides it with “enhanced operational and financial flexibility in a capital intensive business”.

Vedanta India parent Vedanta PLC was listed in London in 2000s . Went private in 2018 after many controversies.

Going forward it’s going to be extremely tough for promoters to delist as Domestic Institutions might disagree with the current indicative pricing offered by the promoters.

Bullish Diagonal Call spread is neutral to a bullish strategy which is executed by buying long-dated in the money call option and concurrently selling short-dated out of the money call option. It is a synthetic replication of a covered call strategy.

Diagonal spreads are preferred to execute when moderate volatility is prevailing and can yield better results compared to vertical spreads.

Nifty Futures is moving in a sideways mode making Fresh Monthly low on 12th may and Fresh monthly high on 13th May. This brings the 12th May low 9045 as important reference level.

Also from Market Profile charts holds immediate supports around 9045-9065 band. And Put writers are heavy around 9000PE – May series.

Hence it is worth playing a bullish Diagonal call spread here with a limited risk – limited rewards for the 3rd week of May 2020.

Setup

Execute 9100CE Long Call – 28th May 2020 Expiry at Rs 234/lot
Execute 9200CE Short Call – 21st May 2020 Expiry at 119.70/lot

Net Debit : 114.5

Breakeven levels : 8943 – 9810

Max Profit Potential : 9200 levels

Nifty futures – May Futures

What if Scenario on 21th May 2019 Expiry

In this tutorial you will be learning how to get live US Futures Data (Es-Mini, Nymex Crude Oil etc) in Ninjatrader 8 platform for further technical analysis.

Step 1:

Make sure you have NinjaTrader 8 installed on your computer. If you don’t have NT8 installed, you can download it from here.

Step 2:

Go to https://ninjatrader.com/FreeLiveData , enter your credentials, select Futures, verify the captcha and click on Submit.

Step 3:

Select your NinjaTrader version and wait for an email. You will get an email from CQGTrader with a demo account user name and password. You are going to need it to configure the demo data feed with your NinjaTrader.

Step 4:

Start your NinjaTrader 8 and go to Control Center. By default when you start NinjaTrader 8, Control Center is the first window to open. In Control Center, go to Connections and click on Configure.

Step 5:

From “Available” section, select CQG and click on add. In the properties section, set your data feed name in the Connection name field (you can put any text you want here). Enter your user name and password as provided by the CQG from the email that you will receive from them, in their respective fields. Check the Demo checkbox and click OK

Step 6:

Open the Control Center and click on Connections. Now, you will see the demo connection just created. Click on the connection name and you will see a yellow circle (yellow means connecting) at the bottom left corner of your Control Center. When it turns green, then your connection is successfully established and data is flowing to your NinjaTrader.

Step 7:

When the circle turns green in the Control Center, go to New andselect Chart.

You will be asked to select Data Series. Search for ES-Mini and select it and click OK.

Now, configure your chart properties in the next window that opens and click OK.

The chart will open and your data feed demo for US Futures market is set.

Happy Trading!

Market Investors always posses market expectations/anticipations. Not every time the market expectations are turning out to be the realized in any given month. But there are times the market expectations combined with market participation does develop accelerating long term maniac trends.

Deeper Economic Crisis

The bad news is something that is not new to the markets. Terrible pieces of economic information hit the newswire on a frequent basis. But a monstrous economic crisis combined with accelerating long term sellers brings long term volatility.

Economic Crisis is the key trigger for Long term volatility. Let it be the 2007-09 – Subprime crisis or the ongoing 2019-20 – Covid-19 economic crisis, it has a macro impact on the market returns. As the Markets & Economy are interconnected globally, any deeper impact on the economy, bigger its influence on the overall global market’s performance.

However, when the expectations gets materialized during the economic crisis it accelerates the market volatility. March 2020 is a classical example for accelerating volatility as the fears in the market gone to the extreme due to 66,000 crore of FPI selling.

Most of the time the market expectations are far away from what is getting realized in the market. It is primarily due to the intensity of the long term traders’ participation. Long term investors’ participation fluctuates and so the intensity of their participation too fluctuates.

During the month of Apr and May 2020 the intensity of selling declined however market expectations among the majority of the traders/investors remain elevated though the economic crisis getting penetrated globally deeper and deeper.

India VIX is yet another measure of volatility created by accelerating investor selling. India VIX during March 2020 reached 80+ alarming levels and the degree of uncertainty is at the peak, followed by a cooling-off period during Apr and May 2020 with a rapid decline in volatility.

Rapid Decline in the volatility is an indication that Investors are getting prepared for the Economic crisis and further anticipated bad news. This acts as a shock observer when investors are getting used to the market mayhem.

Greed Driven Maniac Markets

Greed Driven markets are double side sword. It brings long term volatility on both the sides. Classical example is 2017-18 Bitcoin Bubble where bitcoin reached 20,000 USD with a great acceleration in the price due to larger participation from the new set of investing crowd who never/little tasted the feeling of Investing. Always newbie investors have unrealistic market expectations on returns with higher hopes.

Bubbles are the result of piling long term newbie investors who believe in the projected economic story. Always such bubbles are cashed out by the intelligent investing community.

Thus most of the financial market bubbles are driven by long term volatility melting the prices up driven by long term newbie investors and cashed out by informed investors community before the nerves of newbie investors start cooling down which again results in accelerated volatility and this v-shaped market returns with volatility on both the sides.

Fear Driven Markets – Opportunistic Play

Though Covid-19 brings a deeper economic crisis. It also brought investing opportunities in selective counters like Reliance where a long term investor selling is completely absorbed by new investors seeing it as a sudden value buying opportunity which again brings accelerated volatility on both sides with a v shape reversal.

It is evident from most of the cases that it is not the market expectation that brings market volatility but the combination of market expectation with wider market participation brings a higher degree of volatility.

Here is a tutorial on Option Analysis Tool – Optionaction which helps options traders to Design, Create & Monitor Option Trading Strategies.

This Tutorial you will be learning

1)What is Option Action and How to use the Options Tool?

2)How to Create Option Strategies using Option Action?

3)How to Apply Margin & Position Adjustment Rules?

4)Volatility Skew and the Importance of it

5)Last Week Market Profile Activity and the Market Profile Strategies 

6)Market Outlook of Nifty based on Market Structure, Market Profile, and Proprietary Indicators.

In this tutorial, we covered detailed in-depth insights on the current market structure and the outlook for June 2020. Also, New Margin Framework which is likely to be implemented from June 1st, 2020 onwards is discussed and how the new margin framework benefits hedged strategies are explained in a detailed manner.

Topic Discussed in this Webinar

1) New Margin Trading Regulations that Option Traders should know
2) Simple Option Trading Strategies using Market Profile Structures
3) How to Analyze current Market Structure using Market Profile
4) Market Outlook for June Expiry. What to Anticipate in June 2020 series.

Thought of compiling the margin requirement for various Nifty Futures and Options Trading Strategies as New Margin Trading Framework for Futures and Options Trading is likely to be effective from 1st June 2020 onwards.

Finance Minister officially launched the instant PAN (Permanent Account Number) facility on 28th May which makes getting a new PAN card free of cost and in under 10 minutes.

Instant e-PAN facility:

The instant PAN facility is a real-time basis, paperless facility. According to the income tax department, the turn-around time for allotting the e-PAN facility is 10 minutes. The pre-requisite to use this facility to generate an e-PAN card is a valid Aadhar card number and a phone number registered with the Aadhar card. And this process is free of cost.

Steps to get a new e-PAN

Step 1: Go to https://www.incometaxindiaefiling.gov.in/home

Step 2:  Select “Get New PAN”

Step 3: Fill in the details

Step 4: OTP will be generated after step 3. Enter the OTP and validate your Aadhar card details.

Step 5: A 15-digit acknowledgment number will be generated and once the e-PAN number is allotted, the e-PAN will be available to download. Also, if your email is registered with Aadhar card, e-PAN will also be sent to your email.

Structurally June 2020 series is having a monthly gap and that is a bearish odds which brings the possibility of Nifty Futures testing sub 9600 levels to close the gap. The monthly gap is primarily created post the announcement of GDP data

In-Order to play for this Monthly Gap one can consider using ITM Puts hedged with x2 times of OTM Short calls. Thing could bring some cushion for traders to manage the theta decay in the Put Options.

Entry

Buy 1 lot of 10100PE (ATM Puts) – 25th June 2020 Expiry at 274.50/Lot

Hedge Protection

Sell 2 lot of 10500CE (OTM Calls) – 25th June 2020 Expiry at 105.60/Lot
Buy 2 lots of 11000CE (OTM Calls) – 25th June 2020 Expiry at Rs27.70/Lot

Total Margin Required for Hedged Position : 82,986/-

Nifty LTP : 10107

Strategy Breakeven Point : 9981
Exit on Nifty Closing the Monthly gap (i.e Nifty Futures testing 9557 levels)

Strategy Risk Level : Moderate Risk Level and Risk increases if Nifty starts moving above 10500 level.

What if Scenario on Expiry Closing

The strategy has downside protection up to 10500 levles. If Nifty goes beyond 10500 levels it requires exit on the hedge until then No strategy adjustment is required.

TradersKart offers One-Stop E-commerce Solution for all the traders, where traders will get access to their trading needs. Traderskart provides the necessary tools required for traders to enhance their analytical and research skills.

What are the Features of TradersKart?

1)Access to Datafeed for Various Popular Trading Softwares (Amibroker, Ninjatrader, Metastock.. etc)
2)Access to Algorithmic Trading Tools, Market Analysis tools (Market Profile, Orderflow, Options Trading and various software tools
3)Access to a proprietary suite of indicators & trading strategies
4)Access to short courses and live mentorship programs
5)Access to Free Technical analysis programs

Never in the trading world two trading days that are exactly alike. Realtime trading is completely different from textbook examples hence traders have to go build their skillset. Like a chess master, traders are always planning their next moves, calculating what they will do based on what their opponent (the market) does. Traderskart provides necessary course access to the traders to sharpen their trading skills.

Traderskart provides access to suite of proprietary indicators, strategies & Alerts. It helps traders to harness the power of momentum and capturing the trend till it lasts. It is expected that more popular tools will be available for traders very soon as the traderskart team is aggregating various software vendors across the globe to enable traders better platform for learning, analytics & research.

Hence, all these features of TradersKart make it the one-stop solution for all the traders who urge to evolve & upgrade themselves with cutting edge tools in ever-changing dynamic markets.

The New Margin Framework is in place from 1st June 2020 onwards. Now even small traders can start benefiting from the margin framework.

Most of the Option Spread based strategies margin got reduced by 60-70% in the new margin framework. This helps most of the option buyers and option sellers to move towards hedged spread strategies for high returns.

Which Strategies Benefit the Most?

Strategies like Vertical Spreads, Calendar Spread, and Diagonal Spread are the most benefited option strategies as the margin required to get as low as less than Rs35,000 for 1 set of execution.

How to Benefit from these Margin Rules If Iam a small account holder?

Most of the Spread based strategies has a option buying position and option selling position.

Lets consider a simple example here. Let say I want to execute Bearish Diagonal Puts Strategy where I want to execute both Short 9700PE (18th June Expiry) and Long 10000PE ( 25th June Expiry).

If you are a small account holder with a margin less than 50,000 then remember you have to execute the spread of the long option i.e Long 10000PE ( 25th June Expiry). first and once the execution is confirmed then one has to execute the short option position 9700PE in order to get a margin benefit as shown below.

Always executing the buy position followed by short position will bring reduced margin effect automatically.

Else If one try to execute the short option first will result in more margin requirement say 1.02 Lakh rupees and the placed order will be rejected if in case enough margin is not there in the system

And by shorting the option the trader will receive a premium credit of Rs 79.80 the very next day into his trading account.

So the effective investment is Margin Required – Premium Credit x Lots Size

= 35000 – 79.80 x 75 = Rs 29015/- is the effective investment for this Bearish Diagonal Put Strategy.

How to Close the Multi Legged Position

One can close the position by squaring off the position simultaneously using a square-off option from the broker terminal as shown below.

The other way to do is exiting the short option position first followed by long option position.

If in case if your broker provides multi-order execution then the order execution becomes even simpler to enjoy the reduced margin.

Last but not least with the new reduced margins not only the reward increases for the low-risk trading strategies. But also the risk and the probability of profits increases simultaneously.

Trade Responsibly!

Back in 2008 NSE started offering NSE NOW as a digital trading platform to all its members or brokers. NSE NOW has been a key factor in the establishment of new discount brokers as the cost of setting up a trading platform is quite high and NOW was already available to use free of cost for both old and new brokers.

Over the last 12 years, since the inception of the NOW platform, many brokers have moved on from NOW to offer their own trading platform solutions to the clients. Still, out of 800+ trading members of NSE, about a third of them are using NOW as their trading platform solution. NSE has given 90 days to the brokers dependant on NOW, to move on to other solutions for the platform.

NOW has been marred by severe technical glitches and the complaints over the years about it were piling up at NSE. There were severe incidents this year as well where trading for the retail brokers was halted. The brokers association even wrote to NSE alleging severe loss to its members due to the technical glitches.

As the NOW will be discontinued, NSE is providing APIs to its members for developing customized solutions for trading platforms as per each broker’s requirement. With the end of NOW, brokers can either choose to develop their own front-end trading solutions on top of the APIs provided by NSE or they can choose to go with other options such as Omnesys NEST, ODIN or BSE’s BOW to name a few. If you are not using NOW for your trading, then its shutdown would not affect you.

Happy Trading!

While trading the debit strategies measuring the risk-reward ratio matters a lot for the options trader. Though you might have a bullish opinion about the market. However, the overall objective of the trader is to maximize the gain and minimize the losses.

Generally, debit strategies have a better risk-reward ratio compared to credit strategies. Let’s look into the bull call spread reliance example where the view is Reliance hitting an all-time high in the short term before this expiry. It is basically the view here is bullish from a positional point of view.

Though the view is bullish trading the direct call option hurts the option buyer as the IV Percentile values are relatively high and so the option premium is costlier.

Any timedecay could eatup the premium and hence to trade the view we need to mitigate the risk with the hedged position. Since the expectation is towards making a fresh All time high in a short term. The downside risk in reliance is still under-rated.

Reliance LTP : 1519 (Underlying Spot)

In order to trade this strategy one can initiate ATM Long call Option of 25th Jun expiry i.e 1525.55 CE at Rs 44.70

And to reduce the risk of premium erosion, adding a hedge around the prev swing high 1620 levels (Shorting 1620CE June Expiry at Rs 13.90) one can reduce the net debit cost of the call option and also the max expected returns too improved as we are shorting 1620CE which is the also the expected target level (breach of previous swing high).

Net Cost of Debit Spread = 44.70 – 13.90 = 30
Max Total Loss = 30 x 505 = Rs 15015 per lot

Total Gain Anticipated at 1620: 15,000 to 31,825
Max Possible Gain on Expiry: 31,825

Strategy Break even Levels : 1556.35

Max Possible Risk reward Ratio : 1:2.11

Total Margin Required to execute on set of spread Rs 26,828 (approx)

What if on Expiry Analysis

This is an Introductory webinar series for those who want to get their expertise in Market Profile and Price Action. It is a 4 part trading series webinar on Market Profile and Options Trading. If you are new to Market Profile and Options this series will help you to improve your trading decision-making skills better.

Session 1 : Know about Pending Institutional Orders, Supply and Demand Zone and Market Profile

1)Retail Orders Vs Institutional Orders
2)How the Institutional Orderflow happens
3)How the Orderbook execution happens
4)How we can relate the Institutional Orderflow with Supply and Demand Zone
5)Rally Base Rally, Drop Based Rally
6)Drop Base Drop, Rally Based Drop
7)How Market Profile is compared with Price Action
8)How Orderflow is compared with Price Action
9)Market Outlook using Market Profile and Nearest Supply and Demand Zones for Next week.

Session 2 : Top Down Approach in Price Action Vs Market Profile

1)Top Down Approach using Market Profile
2)Top Down Approach using Price Action
3)Market Outlook for Nifty Futures
4)Market Outlook for Bank Nifty Futures

Session 3 : Indicators for Price Action Vs Orderflow

1)Indicators and Scanners for Price Action Trading
2)Indicators for Orderflow Trading
3)Market Outlook for Nifty Futures
4)Market Outlook for Bank Nifty Futures

Session 4: Risk Management using Price Action Vs Orderflow

1)What is Risk Management?
2)Different Types of Stoploss
3)Zone Based Stop Loss
4)Structure Based Stoploss
5)Market Outlook for Nifty Futures
6)Market Outlook for Bank Nifty Futures

I thought of not writing about sideways markets because generally, traders hate sideways markets and most of the traders love to know where the fast price action happens.

Anyways here we go,

What is a Sideways Market?

The sideways market occurs when markets are not dominated by the large players and instead traders attempt to dominate the market and keeps the market in a stable range. These are the phases where breakout failures are very common.

If you are a trader out there then the real skill is not only identifying and trading successful breakouts but also the breakout failures. Frequent opportunities in the markets are breakout failures than the successful breakouts. Hence the reason why most of the trend following systems has a win rate between 35-50 in the lower time-frame.

Sideways markets are more of a highly competitive field among traders and it is the survival of the fittest and the big traders are clearly not active in these zones. such zones are more of a predatory setup zone where more of entry-level traders fall prey to the highly experienced traders.

There are zones where I had observed the sideways markets which goes more than three to four months is where the breakout traders lose everything back to sideways markets.

We are told that 70% of the time market goes sideways then why only fight for the 30% of the trend? Why not to develop skill to trade the sideways markets.

If your understanding of the sideways markets increases probably your knowledge about trend trading increases a lot.

…….To be continued in part 2