First day of the New Year 2019 was positive for our markets. But there was no let up in the volatility. We saw a 50 point down move before the trend reversed. And the reversal was on the back of financials. Some things never cease to fascinate me about the markets. How come same set of people who brought down the banking stocks in the fist few hours suddenly become so fond of the same stocks in the afternoon that there is something like a buying frenzy. But then who can understand the markets?
A gain of 47.55 points. And this was how it happened.
Down for the most part of the day and then just running away as if people suddenly found lot of money for going on a buying binge.
Fortunately for us TATASTEEL and SUNPHARMA did not follow the up trend of the last one hour. Their behaviour was quite opposite.
Both these stocks closed much lower than their highs of the day. It is not that these PUTS are giving us some money right now, but we can have some hope from the trend. These stocks do not look like going up. Once that is established, then there is time for moving lower.
INFY moved up slightly and CALL 700 is in the green now.
New Trades :
MARUTI fits the criteria of 30 day and 7 day weakness. Everything else is fine but the IV is less than 30. But the stock is known to move well at times. In view of the lower IV, we do not go to far away strikes but stay near.
Current Price is Rs. 7476. We go for PUT 7200 at Rs. 90-100.
Lot Size is 75. Maximum risk in the trade is Rs. 7500. We are looking for a move below 7200 towards 7000.
Let us see how it works out.
Disclaimer: This post and examples are for teaching purpose only and are not meant as advice/suggestion to trade in these stocks. Trading in Futures and Options can lead to big losses and should be done with appropriate knowledge and advice only. Mentioning the stocks here does not imply that I have a trading position or likely to take a trade in these stocks.
Abhishek January 2, 2019 at 9:41 am
TATA Steel’s put are gaining now…Reply
vishal agarwal January 2, 2019 at 10:54 am
Hello Sir, could you please briefly describe the role of IV in your stock selection. Ex sometimes you reject a stock when IV is high and sometime when IV is lower. I have the background that we want to pick volatile stocks but do not want to overpay due to insane IV like in case of yesbank. What is the ideal IV range that you look for in case of Call and Put?Reply
Ravi kumar January 2, 2019 at 2:38 pm
IV of 30 to 50Reply
vishal agarwal January 2, 2019 at 3:58 pm
Thanks Ravi. Now it makes sense to me what Sir implied by his post on 28th Dec. As mentioned in that post that since M&M Call IV was less than 30, the trade was not selected.Reply
Chirag January 2, 2019 at 8:02 pm
As per my understanding of subject…selecting stocks with IV 30-40% are good for option buying….we usually select strike that are 8% OTM….so these stocks had fair chance of coming ITM (just a general idea) i.e it holds good probability…..If IV is less than 20….stock is less volatile in nature and it is more likely that option we buy will expire worthless….There are some stocks which belong to this category…slow movers (i.e. ITC, Hindunilvr, Indusindbk)….Also we do not want to overpay the premium so we do not go for stocks with high IV like 60-70%…..IV might revert to normal and expected movement might not come giving loss to buyer…..usually high IV is result of some event with particular stocks and subsequent expectation of marker participants……remember PC jewellers trading with IV of 100 few months back…Pramod sir updated the screenshots and advise us that we shd avoid such trades on the blog….Reply
Abdul Rehman January 4, 2019 at 9:04 am
Dear Ravi & Chiraj,Reply
Good morning.. Could anyone please clarify what is this “IV” mean and how can we check that. Whats its significance and importance in selection of CALL & PUT. I am new to this blog but following Pramod sir’s recommendations and blog regularly from past 1 month. Thanks in advance
Chirag January 4, 2019 at 9:16 pm
Iv is Implied Volatility of option….it isone of the component used to determine option prices by the market participants…Now pricing an option itself is a huge subject in itself and it involves complex mathematical formula…and some guys who developed this formula (model) got Nobel price…so you can understand….Now this is all theoretical….since we are trading is options we just look for the practical aspect….As an options buyer we don’t want IV too high as the premium would be expensive and if IV is too low it means stock is less volatile and would not move much….the option chain of NSE shows IV of stock and index…Here is the link: