When Option Buying should be avoided?

In the last trading session Bank Nifty moved almost 150 point from day's low of 21410. But weekly call option prices hardly move much! What is the reason? Option prices depends mainly on factors such as price movement of underlying instrument, time left for expiry and volatility. Also move was not impulsive but slow up move taking almost whole day for move.

In yesterday's session, India VIX index, measure of market volatility fall sharply by almost 7% due to lack of any global event and not much surprise expected from Monetary policy of RBI due on Thursday. Hence, call option prices did not move even when instrument(stock/index) prices moved favorably.

It is better to stay away from option buying during such scenario. From above chart you can see option prices (21800CE) continuously moved up and down and trading is difficult in this case.Time factor was also against option pricing as next day was trading holiday!

Some profit can be made only if you buy At-The-Money(ATM) 21500CE or next Out-Of-The-Money(OTM) 21600CE option.

If you sell OTM (in this case put)options (required higher margin) you can make good money in such event as option prices will fall due to fall in volatility and time decay even if there is not much price movement. You can see the price fall is steep(21200PE), so easy to trade using trailing stop loss(TSL).

Comments

Bank Nifty for Week Starting Jan 16, 2017

Last week Bank Nifty made big up move of 650 points. High made is 18966. It looks like it is ready for further up move. On hourly chart Middle BB line(RED color) is providing support and Index may again move up towards upper line of Blue Channel. The Best trading strategy is now to go Long when Index is bouncing from Middle BB line and Exit when it is near upper line of Blue Channel. Hourly RSI shows Resistance at 85 level and Support at 59 level. So Blue channel along with RSI levels are good indicators for trade. It is not good idea to go short as Up Momentum is strong. If Index breaks Middle BB line then only short positions should be taken. If Bank Nifty breaks 18850/18800 then we may see it reach quickly to 18650/18600. Also it may break RSI support level of 59 for major correction. We may see Index moving along Upper BB line (Blue color) on Daily chart. Index may face resistance at 19150/19200 level. If it crosses 19200 it can reach to 19500/197000. Daily RSI is

Bank Nifty EOD Update Feb 15

Bank Nifty today move down sharply after opening Gap up and making Top of 20368 just near Gann No 20364 and reversed sharply making Low at 20115 and closed at 20163. It seems wave B is completed at 20368 and wave C is started (confirmation only when Bank Nifty crosses 20000). We may see bank Nifty moving sharply to 19700/19500. Daily chart shows RSI crossing 70 level from top that shows possibility of down move. Also Bank Nifty broke lower channel lines (Blue as well as Red). So Bank Nifty may fall sharply in wave C.

BanknIfty Update for Jul-15, 2020

Banknifty opened Gap Down and continuously moved down. In the last 2 days, it almost falls more than 1200 points. We are able to capture this move from almost the top of 23000. The daily chart shows Banknifty took support at 30-EMA levels. MACD signal gave a bearish crossover signaling possibility of further fall in the coming days. RSI @ significant levels of 50. Break of 20900 could lead to a sharp fall towards 19700/19500. On the hourly chart, the MACD signal gave bearish crossover yesterday, and we saw a good fall in Banknifty. Gann Box: Weekly Gann Box shows Banknifty exactly changed the trend from the time factor zone. Also, the weekly opening was near the angle and it reversed after hitting angle and gave a good fall. It signaling a bearish trend for the coming weeks. On the daily Gann Box chart, we can see today Banknifty opened near angle, hit angle, and reversed sharply giving good down move. FNO Data: The future OI decreased by 7% signaling short covering with fall. The spot

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