OPTION TRADING TIPS

Tuesday, 9 November 2021

METROPOLIS OPTION STRATEGY FOR NOVEMBER 2021

BUY 1 LOT METROPOLIS 3200 CALL @ 62-64

FOR LIVE CALLS FILL THE FORM GIVEN HERE>>>>

Monday, 8 November 2021

BENEFITS OF HEDGING STRATEGIES TO REDUCE RISK IN EQUITIES

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Hedging is a risk management strategy employed to offset the losses in your existing asset by taking an opposite position in a related asset.

For the Indian equity and equity futures and options participants, this is generally simplified into a single transaction:

Buy a Put Option against your Buy trade

As we all know Put option that costs premium has a characteristic that such premium rises in value if the stock or index that the option belongs to (underlying) falls. In case if its underlying rises Put option will fall.

This perfectly fits into the definition as a Buy trade will lose money if the underlying falls, the Put option will rise in value. One good thing about the Put option is that the maximum loss in any case is just the premium you pay to Buy the Put. This premium is just a tiny fraction of the value of underlying.

In other words, we can say the cost of this hedging is the Premium of Put option. If we are ok with the cost, the Put option will make sure that we will not have any further loss. Some numbers can explain this even more clearly.

Buy 1000 Reliance @ 100

Buy 1 lot Reliance (1000) 100 Put @ 5

Now if the Reliance goes down to 70, our loss on stock would be 30. However, since we have the Put, where its premium will rise in such case, we would have an offsetting profit of little less than 30, considering the cost we already paid.

On the other hand, if Reliance stock goes up to 130, our profit on the stock would be 30, but the loss on Put will be just 5, as that is the premium we paid, which would go in vain.

Now, let us see how hedging is practiced to manage risk.

#1 Initiate with Hedge:

Here the offsetting position is entered into right at the time of initiation of trade.

When: Situations when we are in two minds whether to take the trade in first place. Initiate with Hedge takes away the unknown downside so even with low conviction in the view one can execute the trade with confidence.

#2 Repairs with Hedge:

This is the most used practice hedge. Here, one has already Bought and is Buying Put so that existing position can be repaired, and no further loss occurs.

When: This is generally practiced when one is very close to the stoploss level, a point beyond which taking loss will be unbearable economically. To prevent further loss without having to exit out of the Buy trade one Buys a Put to stop further loss by paying a cost (Premium).

Lot of Investors also resort to this practice in times big events like results, policy decisions. Here the Put options are bought before the event and are sold after the event. In case of an unforeseen fall led by the event, those losses can be offset by the profit in Put.

#3 Lock Profits with Hedge:

In this practice also Put option is bought some time after the Buy trade but after the Buy trade is already in profit.

When: After the trade goes into Profit and one is in dilemma of booking profit or holding on for further gain. This is the time when one can Buy Put and lock profit. This is done so that in case of a reversal there is no loss in profit (except the premium cost). The trade remains active if after a small pull back the stock starts rising.

These are some of the hedging practices that are used to make sure that the risk is well managed. As a result, by paying a certain cost (premium) one keeps trading without a negative surprise.

Before we conclude, it is customary to mention that hedging can reduce/ remove further loss, but it cannot undo a loss already incurred.

lso, the example trade mentioned was of Buy stock and Buy Put. However, the same hedging practices apply to a bearish trade where there is Sell Stock (majorly done in Futures) and Buy Call.

Wednesday, 3 November 2021

SBIN STRANGLE STRATEGY ROCKSSS BOOKED PROFIT OF 14700

SBIN STRANGLE STRATEGY GIVEN IN 28 OCT 2021 POST TO CHECK VISIT http://optioncallputtradingtips.blogspot.com/2021/10/sbin-option-strategy-for-november-2021.html

SBIN PUT BOOKING WAS GIVEN ON 29 OCT 2021 POST TO CHECK VISIT http://optioncallputtradingtips.blogspot.com/2021/10/sbin-strangle-strategy-book-profit-in.html

SBIN NOV 480 PUT BOOKED PROFIT NEAR 22 BUY GIVEN @ 12 PPROFIT OF 15000 BOOK

SBIN NOV 580 CALL BOOKED @ 8.5 BUY GIVEN @ 9 LOSS OF 750

NET PROFIT 14700

Friday, 29 October 2021

INDEX PREDICTION FOR DIWALI WEEK 2021

Indian stock markets fell sharply today 29 October 2021 with Sensex slumping over 700 points to settle at 59306 while Nifty dropped nearly 200 points to 17670. Banking stocks led the decline with SBI, HDFC Bank, ICICI Bank, Axis Bank and Kotak Bank falling between 3% and 4% while ITC slumped over 5%. India's benchmark stock indexes have risen more than 25% this year, driven by massive liquidity and huge retail participation, raising concerns of overvaluations.

Relentless selling by FIIs is a key reason for this correction in the market. FIIs had sold over ₹10000 crore in Indian equities in past five sessions.

There is some exuberance in terms of valuations in certain pockets of the market. In some pockets, there is still money to be made, which will see some sectoral churn.

The broader markets too were under selling pressure with BSE midcap and smallcap indices down about 1.5%.

We are seeing the first meaningful correction in the market where Nifty has slipped below its 20-DMA that has opened the door for further downside where rising 50-DMA will be the next support level that may coincide with gap area around 17600 level while below this, 17400-17200 will be the next support zone. On the upside, 18100-18300 has become an immediate supply zone.

Inflation and slow down in global growth momentum are other concerns amid expensive valuations. The rise in fresh covid cases in some of the countries is also disturbing the mood of the investors. We are in a structural bull market where intermediate corrections will be a part of this journey and these kinds of corrections will provide good buying opportunities in quality stocks.

The banking sectoral index Nifty Bank today fell 400 points to 39443.

Banknifty is also showing signs of topping out from the 39000 level. On the downside, 38500 will be an immediate and important support level that may coincide with rising 20-DMA; below this, we can expect further weakness towards 38000-37000. On the upside, 40000-41000 will act as a strong supply zone.

Adani Ports is abandoning its plans to build a container terminal in Myanmar, pushing shares down about 7% today.

We expect the market to be volatile in the coming weeks and we expect selling pressure to continue in the broader market. We suggest investors be cautious on the market, look for profit booking and avoid buy on dip strategy. The global cues were also weak. Shares slipped today in Europe and Asia after a retreat on Wall Street pulled the S&P 500 and the Dow Jones Industrial Average back from their latest record highs. Globally investors are on the edge awaiting the US GDP data releasing later in the day along with the outcome of the Fed meeting scheduled for next week.