January 2019— Options Buying Continued– Day 05

The first day of the year was positive. On second day market decided to get back to negative zone and it was done in a big way,

We are back to below 10800 once again. This tug of war between buyers and sellers will continue for a while. Ups and downs are part and parcel of life in the market and it is where opportunities are to be found.

INFY kept its head above water even in such a big fall. TATASTEEL came down to near Rs. 492 level and PUT 480 gained decently. SUNPHARMA looked to do well in the first few hours and then ran away from us.

MARUTI 7200 PUT never came to our price. So it is a missed trade. It moved in the right direction a little early and we could not get into the trade.

With all these moves happening yesterday, we come into profit zone.

I could shut shop right now and claim that January Expiry ended profitably and that will be a true statement. But that is not how trading is done. We have to keep looking for trades, see where the right trades take us and be active throughout the month. Not very active though.

On the first day of the January expiry we were looking at buying a CALL in M&M. Decided against it and went for INFY. Since then M&M has lost about 8%. Good escape.

Today, I am thinking of buying PUT 700 in M&M. It fits the 30 day and 7 day weakness criteria. IV is still on the lower side. But like I decided to go for MARUTI yesterday, M&M is a trade for me now.

M&M PUT 700 @ Rs. 7.00-8.00 is my selection for a trade for the day. If the stock opens higher, we may buy this option for up to Rs. 6.00 but not lower than Rs. 6.00 as that would indicate the reversal of weakness. This means that the price range is revised to Rs. 6.00-8.00.

Trade cautiously, trade profitably.

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.

Comments

Ankit singh bhatia January 3, 2019 at 1:33 pm

What about buying vedanta 185 put ?

admin January 3, 2019 at 2:59 pm

It meets all the requirements.
Cheers.
Reply
- Chethan January 3, 2019 at 4:16 pm
  
  Could you please help me with “ALL” requirements?
  Reply
  - admin January 3, 2019 at 4:23 pm
    
    For buying a Put
    Stock should be weak over 30 day period.
    Should be weak over 7 day period.
    Strike selected should have a volume of about 100 contracts or more.
    IV should be above 30.
    Reply
    - Anand Kumar January 3, 2019 at 9:43 pm
      
      Yes, I got it at ₹8
  - Suhas January 4, 2019 at 12:09 am
    
    when you say weak for 30 and 7 days, how do you determine it? what criteria do you use for weakness?
    Reply
    - admin January 4, 2019 at 7:01 am
      
      We compare 30 day movement of the stock price with Nifty movement in the same period and see whether the stock did better than Nifty or worse. This establishes 30 day strength or weakness.
      Then we check for last 7 calendar days.( generally 4-5 trading days) Here we just have a look whether the stock gained or lost in this period. If both the 30 day and 7 day moves are in same direction, we go with the trend and buy a put in a weak stock and a call in a strong stock.
      Cheers.
    - Suhas January 5, 2019 at 10:03 am
      
      Thanks a lot for the information sir. Is there an example which you have provided earlier with the explanation? if could please do re share or is it possible to write up something explaining how one should look for this criteria with a real example with charts and all.
      
      Looking forward for your reply.

Pranav Jaiswal January 3, 2019 at 5:30 pm

Were anyone able to get the M&M Trade @Rs.8.00? Pramod Sir?

admin January 3, 2019 at 5:35 pm

If one was looking to get it at Rs. 6.00, then it was not possible. Low of the day was Rs.7.40. Many readers got it for Rs. 8.00 and are happy for the trade.
Cheers.
Reply
- Andy Roid January 4, 2019 at 9:20 am
  
  This is a very good point raised by Vishal Agarwal. These approaches seem self contradicting. Awaiting clarifications from Mr.PK.
  
  Sir, your statement – “we may buy this option for up to Rs. 6.00 but not lower than Rs. 6.00 as that would indicate the reversal of weakness.” Could you please talk about this in context of Tata Steel trade? There we were willing to buy the closer strikes puts as the options become cheaper. There also we could have avoided the trade thinking that weakness has perhaps reversed?
  Thanks!
  Reply
  - admin January 4, 2019 at 11:02 am
    
    This is the reply to Vishal as well:
    Markets will keep on moving either way slightly even inside a trend. If we start worrying with every small move and start rethinking about entering s trade then we will not be able to do anything.
    When Tata Steel trade was suggested, we did not have other trades. It opened higher than previous day so that put was priced lower and some of the readers got higher strike at almost same price.I did not suggest the lower limit below which we should not enter because it was almost the first trade.
    M&M on the other hand was fourth trade for the month. I didn’t want to commit my funds if the trade was wrong.
    The prices suggested are mostly just that– suggestions. Do not read too much into it. Otherwise you will be only discussing and not trading.
    Even as I am typing, Nifty has moved up 35 points. It was down 40 points,now down 5 points only.
    Tata Steel was 482, now 484.50. Do we run away?
    Answer this yourself.
    Reply
    - vishal agarwal January 4, 2019 at 2:10 pm
      
      Thanks Sir. I am getting a feeling this a very subjective thing – to conclude a trade is wrong by looking at how it opens. We identify a trade by looking at monthly trend. Deciding whether to enter or not by looking at the prices on any particular day does not seem correct. If a stock opens up and if we have already decided to buy the put I feel we should make it a point that we still go with the plan. Else we will never be able to trade as prices will keep on moving.
      So this statement – if put price go below a certain level we should not enter into the trade and conclude that probably the trend has changed – this kind of mess with my conviction to enter a trade. How can we make this decision more objective? How can we overcome this dilema? Please guide Sir.
      
      Thanks!
    - admin January 4, 2019 at 2:39 pm
      
      We can not be too rule bound. Otherwise we shall be missing many good trades.
    - vishal agarwal January 4, 2019 at 3:40 pm
      
      Sir we are novices here in option buying. We want to understand how do you overcome the dilema when price of the option move away or in the intended direction while going for a trade. Probably now we understand the technical aspect to choosing a trade but still lack “art” aspect which helps in execution. Hope to get some insights on this based on your experience. How did you evaluate the situation whether to go ahead with the trade or wait. Beacuse we sometimes just keep on waiting and the opportunity comes and goes away.
    - admin January 4, 2019 at 3:50 pm
      
      Dear Vishal,
      It takes time and practice to learn the nuances of trading. Exits are more important than entry points. That is where profit or loss are made.
      I see so many traders trying to get the best entry price and then not getting the trade.
      For me it boils down to a very simple question—- Am I willing to lose this amount?
      Once that is answered any price is fine. I will make the difference during exit. And if the trade has to go wrong, well the loss is taken.
      When you are being hanged it does not matter whether the rope cost Rs. 50 or Rs. 100.
      Cheers.
    - vishal agarwal January 4, 2019 at 7:04 pm
      
      Ok thanks Sir.
- Viswanathan January 4, 2019 at 9:22 am
  
  + 1, same question sir
  Reply
  - admin January 4, 2019 at 11:02 am
    
    Answered in reply to Andy.
    Cheers.
    Reply

vishal agarwal January 3, 2019 at 6:45 pm

Sir, your statement – “we may buy this option for up to Rs. 6.00 but not lower than Rs. 6.00 as that would indicate the reversal of weakness.” Could you please talk about this in context of Tata Steel trade? There we were willing to buy the closer strikes puts as the options become cheaper. There also we could have avoided the trade thinking that weakness has perhaps reversed?
Thanks!

Suhas January 3, 2019 at 9:57 pm

Sir, Could you please explain to me what do you mean by 30 day and 7-day weakness criteria? what aspects you are looking for while picking the stock.

Ravi kumar January 4, 2019 at 6:54 am

30 days weakness is if a stock made lower lows in last 30 days. Same for 7 days- lower lows in last 7 days
Reply

Tarun Mirchandani January 5, 2019 at 11:37 pm

Wow..again a goggly- “When you are being hanged it does not matter whether the rope cost Rs. 50 or Rs. 100.”

Ankit singh bhatia January 3, 2019 at 1:33 pm

What about buying vedanta 185 put ?
- admin January 3, 2019 at 2:59 pm
  
  It meets all the requirements.
  Cheers.
  - Chethan January 3, 2019 at 4:16 pm
    
    Could you please help me with “ALL” requirements?
    - admin January 3, 2019 at 4:23 pm
      
      For buying a Put
      Stock should be weak over 30 day period.
      Should be weak over 7 day period.
      Strike selected should have a volume of about 100 contracts or more.
      IV should be above 30.
      - Anand Kumar January 3, 2019 at 9:43 pm
        
        Yes, I got it at ₹8
    - Suhas January 4, 2019 at 12:09 am
      
      when you say weak for 30 and 7 days, how do you determine it? what criteria do you use for weakness?
      - admin January 4, 2019 at 7:01 am
        
        We compare 30 day movement of the stock price with Nifty movement in the same period and see whether the stock did better than Nifty or worse. This establishes 30 day strength or weakness.
        Then we check for last 7 calendar days.( generally 4-5 trading days) Here we just have a look whether the stock gained or lost in this period. If both the 30 day and 7 day moves are in same direction, we go with the trend and buy a put in a weak stock and a call in a strong stock.
        Cheers.
      - Suhas January 5, 2019 at 10:03 am
        
        Thanks a lot for the information sir. Is there an example which you have provided earlier with the explanation? if could please do re share or is it possible to write up something explaining how one should look for this criteria with a real example with charts and all.
        
        Looking forward for your reply.
Pranav Jaiswal January 3, 2019 at 5:30 pm

Were anyone able to get the M&M Trade @Rs.8.00? Pramod Sir?
- admin January 3, 2019 at 5:35 pm
  
  If one was looking to get it at Rs. 6.00, then it was not possible. Low of the day was Rs.7.40. Many readers got it for Rs. 8.00 and are happy for the trade.
  Cheers.
  - Andy Roid January 4, 2019 at 9:20 am
    
    This is a very good point raised by Vishal Agarwal. These approaches seem self contradicting. Awaiting clarifications from Mr.PK.
    
    Sir, your statement – “we may buy this option for up to Rs. 6.00 but not lower than Rs. 6.00 as that would indicate the reversal of weakness.” Could you please talk about this in context of Tata Steel trade? There we were willing to buy the closer strikes puts as the options become cheaper. There also we could have avoided the trade thinking that weakness has perhaps reversed?
    Thanks!
    - admin January 4, 2019 at 11:02 am
      
      This is the reply to Vishal as well:
      Markets will keep on moving either way slightly even inside a trend. If we start worrying with every small move and start rethinking about entering s trade then we will not be able to do anything.
      When Tata Steel trade was suggested, we did not have other trades. It opened higher than previous day so that put was priced lower and some of the readers got higher strike at almost same price.I did not suggest the lower limit below which we should not enter because it was almost the first trade.
      M&M on the other hand was fourth trade for the month. I didn’t want to commit my funds if the trade was wrong.
      The prices suggested are mostly just that– suggestions. Do not read too much into it. Otherwise you will be only discussing and not trading.
      Even as I am typing, Nifty has moved up 35 points. It was down 40 points,now down 5 points only.
      Tata Steel was 482, now 484.50. Do we run away?
      Answer this yourself.
      - vishal agarwal January 4, 2019 at 2:10 pm
        
        Thanks Sir. I am getting a feeling this a very subjective thing – to conclude a trade is wrong by looking at how it opens. We identify a trade by looking at monthly trend. Deciding whether to enter or not by looking at the prices on any particular day does not seem correct. If a stock opens up and if we have already decided to buy the put I feel we should make it a point that we still go with the plan. Else we will never be able to trade as prices will keep on moving.
        So this statement – if put price go below a certain level we should not enter into the trade and conclude that probably the trend has changed – this kind of mess with my conviction to enter a trade. How can we make this decision more objective? How can we overcome this dilema? Please guide Sir.
        
        Thanks!
      - admin January 4, 2019 at 2:39 pm
        
        We can not be too rule bound. Otherwise we shall be missing many good trades.
      - vishal agarwal January 4, 2019 at 3:40 pm
        
        Sir we are novices here in option buying. We want to understand how do you overcome the dilema when price of the option move away or in the intended direction while going for a trade. Probably now we understand the technical aspect to choosing a trade but still lack “art” aspect which helps in execution. Hope to get some insights on this based on your experience. How did you evaluate the situation whether to go ahead with the trade or wait. Beacuse we sometimes just keep on waiting and the opportunity comes and goes away.
      - admin January 4, 2019 at 3:50 pm
        
        Dear Vishal,
        It takes time and practice to learn the nuances of trading. Exits are more important than entry points. That is where profit or loss are made.
        I see so many traders trying to get the best entry price and then not getting the trade.
        For me it boils down to a very simple question—- Am I willing to lose this amount?
        Once that is answered any price is fine. I will make the difference during exit. And if the trade has to go wrong, well the loss is taken.
        When you are being hanged it does not matter whether the rope cost Rs. 50 or Rs. 100.
        Cheers.
      - vishal agarwal January 4, 2019 at 7:04 pm
        
        Ok thanks Sir.
  - Viswanathan January 4, 2019 at 9:22 am
    
    + 1, same question sir
    - admin January 4, 2019 at 11:02 am
      
      Answered in reply to Andy.
      Cheers.
vishal agarwal January 3, 2019 at 6:45 pm

Sir, your statement – “we may buy this option for up to Rs. 6.00 but not lower than Rs. 6.00 as that would indicate the reversal of weakness.” Could you please talk about this in context of Tata Steel trade? There we were willing to buy the closer strikes puts as the options become cheaper. There also we could have avoided the trade thinking that weakness has perhaps reversed?
Thanks!
Suhas January 3, 2019 at 9:57 pm

Sir, Could you please explain to me what do you mean by 30 day and 7-day weakness criteria? what aspects you are looking for while picking the stock.
- Ravi kumar January 4, 2019 at 6:54 am
  
  30 days weakness is if a stock made lower lows in last 30 days. Same for 7 days- lower lows in last 7 days
Tarun Mirchandani January 5, 2019 at 11:37 pm

Wow..again a goggly- “When you are being hanged it does not matter whether the rope cost Rs. 50 or Rs. 100.”

M	T	W	T	F	S	S
		1	2	3	4	5
6	7	8	9	10	11	12
13	14	15	16	17	18	19
20	21	22	23	24	25	26
27	28

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