21st Aug

Expect bank rally to continue on the good news. TCS should form a low here. http://option-strategy-001.appspot.com/ has been updated.

Option Strategy Plotter

The earlier mentioned code for Option strategy plotter has been ported to Google app engine. Apologize for the bad UI. It takes in 3 strings as input with no validation. The format is the same as mentioned earlier. I will mention it here again.

Format:
The strategies are defined are strictly typed. For Stock the syntax is as follows.
<Long/Short> <Volume> Stock <Price>

and for option...
<Long/Short> <Volume> <Strike> <Call/Put> <Price>

link: http://option-strategy-001.appspot.com/

Couple of examples are given below to understand the possible options that are valid.

Long 250 1860 Call 11.05
Short 250 1960 Call 3.05
Long 1000 Stock 131.7
Short 800 Stock 134.7

16th Aug Review

NIFTY:

The stock broke all supports and freely slid downwards to 5500. Bad news spoiled the technical analysis. The stock slid 100 points in first hour and another 100 points in the last 2 hours. The fall should continue till 5400 level on Monday. 5416 also happens to be 200 week moving average. The market is bearish on the daily chart too.

TCS: 

Compared to NIFTY the stock performed really well. 1810 support was present.The next support of 1780 was also present. 1760 turned out to be good support and in spite of the market, TCS bounced back to 1780. TCS is a very good bet against the index.

ITC:

332 turned out to be a resistance after the fall in market. 320 levels are being held for now. At the max the stock will drop another 10 points to 200 day average.Stock should not breach 300 for the next few days.

CIPLA:

The morning was good. AT the stock was in a slumber for the evening. Interestingly, the stock fell the least out of the five. Stock has good support at 414 level.

BHARTI:

Bharti also held 335. There 11.3 points of movement on a bad day. A low was formed at 335. But with the bad market it might be broken a bit. Stock stayed below 347.

16th Aug

Nifty:
The stock touched the middle bollinger band at 5720, which could be a minor support. 5700 is the major support. Stock will stay above 5700. There could be resistance around 5780. As this is a bullish trend the prediction will only be for the support. Stock might not have a strong rally like 13th Aug.

TCS:
There was a low at 1805, high at 1828, followed by low at 1818 and then high at 1841. So 23 points up, 10 down,23 up. Expect a low at 1830. The trend should be bullish in the day.1860 is still a hard wall.

ITC:
Suport is formed at 332. The stock should come down to maybe 332 levels and continue a rally.

CIPLA:
If 420 is held then stock will take one more day before a rally upwards. There is strong resistance at 416 level. The current level should be considered as low volatility towards the low. Expect a good morning followed by a slumber mid day.

BHARTI:
The volatility has increased with bigger movements towards lows. There might be a low forming here at 340 level. Volatility should reduce to signal a low. Expect less than 10 points of movement and a minor support at 341. It might be broken but stock will stay above 338 and below 347.

14th Aug Review

Nifty:
5720 resistance was tested.The stock went above and formed a support at 5700 levels. The low formed at 5700 level.

TCS:
Support at 1800 was tested instead of 1810. The range was 1800-1855. 1810 was broken but 1800 support was present. This could be interpreted as 1810 being 1800 in reality.

ITC:
There was resistance at 336.5. Support formed at 330 levels. Resistance at 340 was never touched. Support was formed in the first 2 hours and then stock moved upwards.

CIPLA:
Resistance at 430 leveles was tested. The stock came down to 420 levels. There was negative bias. A support may have been formed. We will know if it is held.

BHARTI:
The stock remained above 340 but the stock moved downwards instead of said upwards.

5 Stocks on 14th Aug

NIFTY:
Nifty has strong resistance at 5720 levels. 5620 will be the new support from now. The trend might continue as the stock is between bollinger bands on the 30 min chart. A breach on the upper side followed by a touch to the lower band will signal a good support. The prediction is for index to remain above 5675 and move upwards.with a possible low forming towards 5700 levels.

TCS:
Support at 1810 is being tested today. The range is 1810-1840. If the stock remains in the range then the stock will be ready to move upwards. If 1810 breaks then 1780 is the next support. The prediction is that 1810 will hold and the stock will start a bullish turn now.

ITC:
There is very good support at 320 levels and 325 levels.335 seems to be another support forming. The volatility has dropped drastically. There is resistance at 340 levels. Even if it goes below 325 should be easily maintained. There might be support forming between 330 and 335 levels. The prediction is the stock will move upwards after forming a support in the first 2 hours.

CIPLA:
Cipla has a weak support at 415 levels. It formed half an inverted bowl and then a flag pointing towards right. Better drawn as (_F. It has resistance at 430 levels. It should hit a wall and come down and spend a day at 420 levels. The reason for this is that the bollinger bands have contracted and need expansion. The most comfortable way seems downwards.The prediction is stock remains between 430 and 420 with negative bias as in forming a support.

BHARTI:
Bhart is on an upward move with support at 340. It should continue without much support, as it seems the major trend for the day is upwards. The prediction is stock remains above 340 and move upwards.

TCS and nifty - End of day

TCS:
TCS did not test a low of 1784. Instead it held the 1820 level. 1820 is the new support now. The volatility surely increased a lot, with the stock testing the upper bollinger band and the lower bollinger band too. TCS should move upwards from here. The day was overall bullish because of the opening.

Nifty:
Nifty had a third good day. 5675 was broken. buying 5500 call would have been a better idea. No lows were formed. An expected retracement never occurred, most likely because of the bullish sentiment. The volatility was the same as yesterday's. 

TCS and Nifty

TCS:
TCS has a support at 1750 on the daily chart. On the 30 min chart, for a bullish day we can observe that TCS expands in the morning session and normally stays in place for the rest of the day. TCS had tested a low of 1784 a day ago and this low could be tested again today. In a good scenario, today's low of 1808 is maintained and the stock stays above it. This would surely mean a bullish move from here.Below 1780 a lot of stop losses will trigger and the stock could move to 1760 levels too. The stock should be bullish for a below 1810 opening.The days volatility should be greater than today's. The stock should form a bottom today. So the day can be considered bullish.

Nifty:
Nifty has had very good 2 days. Aug 7th had 2 supports at 5500 levels. It is time for Nifty to make a low. But this low could still be higher than 5570.Most likely a low will form between 5570 and 5580 followed by another bullish day. Surely 5675 will not be broken.The volatility will be less than todays. Selling 5500 puts should be a good idea for this month.

The news is very bad for NIfty as it has been downgraded by a number of agencies. this should surely result in a much lower low than as expected earlier. It might even be a bearish day.

Natenberg Notes (1 of n)

I plan to start a series of notes from the book "Option Volatility and pricing" by Sheldon Natenberg. The book is considered very important for options traders. From this book, I would be noting down points relevant to trading. So here it begins.

Long Calls:

You expect

• The underlying contract to rise in price
• The underlying contract to move very swiftly.
• Volatility to rise.
• Time to decrease the value of your position.

Short Calls:

You expect

• The underlying contract to fall in price
• The underlying contract to move very slowly.
• Volatility to fall.
• Time to increase the value of your position.

Long Puts:

You expect

• The underlying contract to fall in price
• The underlying contract to move very swiftly.
• Volatility to rise.
• Time to decrease the value of your position.

Short Puts:

You expect

• The underlying contract to rise in price
• The underlying contract to move very slowly.
• Volatility to fall.
• Time to increase the value of your position.

Another Naked put

Earlier last month I had implemented a naked put on TCS. This position turned out to be very good. After a rally in TCS, the option lost 11 points, at which point i booked profit of 11 rs per share. For a total of Rs 2750. As the direction seemed right to me still I made another naked put on a 1760 put of TCS @ 16 rs. From what I observed that theta was meaningless and the position would change only if the stock moved. This nullifies the main reason to sell the put to collect theta gain. But we still get premium at a good rate of return. In the best scenario I stand to make another 4000 rs. The margin which is important was at  63, 000. So a return of 10% should be in order.

I do not have much idea about how to recover from a case where TCS falls drastically. That risk remains. So of the ways I could stop the fall is by buying an even more OTM put, or going aggressive and buying an ITM put. I prefer the aggressive route.

One observation regarding options is that the implied volatility seems to be high at all times. It is as though  the option market is in an constant state of fear. Volatility doesn't seem to change much. it just hovers around 30. It also appears that instead of changing a premium as multiple of days and volatility, a fixed amount is being charged all the time.Volatility seems to have a direction of its own. This makes delta very important. Also this gives some cushion to buying a call or put. A good idea could be to buy calls and put every time vol dropped below 30 and sell premium when it went to 35.

UPDATE: I found this link explaining a way to recover from failing naked puts.
http://www.optiontradingpedia.com/answers/repairing_losing_short_put_options.htm