Friday, May 29, 2009

Update for 29 May 09

Unlike what was expected in this time of the year, the weather has so far been good here in Chandigarh. The mornings are pleasant enough to sit outside and enjoy the city beautiful. Many a times when I was small I used to wonder why all our cities cannot be like this – not that I have found out the answer till now. We, as a nation are built up fighting and living a crisis to crisis – and do not plan ahead as it should ideally be done, that is why perhaps number of planned cities in our country can be counted on the fingers of left hand of a person who has only three of them ;-):- Coming to the markets – the markets showed strength yesterday inspite of the likelyhood of the anticipated long unwinding that could / should have taken place yesterday. That strength stood the test of negative opening of markets in Europe. I would not be able to comment on Daily 28 May 09whether we are disconnected with the world markets as of now or not but to a layman (like me) it seems so as we are often forging our own paths.

Like I mentioned above the European markets closed with negative bias of around a percentage point. FTSE was down 0.65%, DAX down 1.36% and CAC was down 0.95%. The US markets opened flat and spent better part of the trading day seeking direction – often visiting red territories and bouncing back along the flat line. After the midsession – the markets firmed up and ended almost at the best levels for the day. DOW was up 1.25%, Nasdaq up 1.2% and S&P up 1.54%. This rally or upswing has been attributed to the smooth auction of the 7 year Treasury note.  The question of GM’s likely bankruptcy still haunts the investors there. The mortgage crisis seems to be spreading as reported there where in the stage has been reached – the borrowers with good credit ratings have started defaulting on the cards because of job losses and pay cuts.

On the technicals side we had a small white candle like I mentioned earlier against the expected cooling off of long build up during the month. That may happen today. We are on the upper edge of the Bollinger Band and all lower EMAs are comfortably trailing above the larger ones. This indicates a continuation of the uptrend. Day before 2 EMA had crossed below the 4 EMA and might have signalled a beginning of downtrend but this was corrected the next day when the made a 100 point plus candle. The volumes have been good, infact very good considering our past few months. MACD is bullish. RSI is back into the overbought zone. ADX is interesting. As of past few days the – DI had crossed above the +DI but it has reversed again giving positive undertones to ADX. Only trouble is that the ADX is at 22.97 and that shows that the trend is very weak – so I would expect either a trend reversal of settling down in a range bound market for some time. Slow Stochastic has turned bullish once again. TRIX is looking up. So here are all the indicators I follow.

FIIs bought a net of 1859 Cr worth yesterday and the DIIs sold 451 Cr worth. The Pivot data for all those interested.

R3 4454
R2 4415
R1 4376
Pivot 4315
S1 4276
S2 4215
S3 4176
Projected High Range 4345 to 4395
Projected Low Range 4312 to 4262

Fib Projected high 4318

Fib Projected low 4226

I will end here – I am not inserting the Options charts as the Options oracle is not playing up. This weekend I intend discussing how all the indications generated by ADX and its strengths and weaknesses.


Thursday, May 28, 2009

Update for 28 May 09…

On the onset let me apologise to you for being out of touch for so long. I had mentioned one of the days earlier that I was expected to go on leave. I am on leave, and having a ball of a time the only problem that I faced was -- there was no connectivity at all. Believe you me no GPRS, no broadband, no TV. In hearts of hearts I missed all these but then I believe it is wonderful to be unplugged from the world once a while. In fact I had beginning to enjoy it actually but then today I am online with a brand-new reliance broadband dongle. There was no way that I was going to be unplugged for so long.Daily 27 May 09


In the meanwhile the markets have been in a topsy-turvy, gaining as there was no more. The news has been good I do not hope it at all and as long as the smaller the EMA's are trailing above the larger EMA's there is no way that the markets are showing any weakness. But -- BUT remains – I often ask myself a single question – what I have to gain or loose by adjusting my forethoughts to suite the mood that is prevalent in the markets and ride with sentiments? See I too have no doubts that there is euphoria in the markets – the govt is much more stable than before etc etc – but even so the govt is unlikely to present a miracle drug to come out of the present situation – unless ofcourse there is a recovery all over the world I feel that we should remain range bound for perhaps a long time to come meanwhile the ride the good times.


Seeing the performance of Asia yesterday – Europe opened green and then slumped negative and then oscillated till the closing – closing mainly flat with FTSE up in green 0.1%, DAX green 0.3% and CAC green 0.76%. US opened flat and then after midsession took a hit where in it finished around the lowest point of the day – DOW ended at 2.05% red, Nasdaq down 1.11% and S&P down 1.9%. Asia has taken these cues for starting the day – Nikkei started in deep red but almost immediately recovered most of the losses – trailing just 0.05% down – Strait Times is down 1.51%.


The charts are the interesting part that agree with my line of thinking. They are as apprehensive as I am (;-D):-   The candle yesterday was a tall and white one and we are once again attempting to trail or rather come to atleast the middle of the Bollinger bands. The attempt may or may not be successful and the market might try to test the middle of Bollinger bands at around 4000 levels. The 3 EMA was trying to mesh with the running 15 EMA but the plans were cut short with the today’s white candle. Cut short or delayed is something that we will come to know at some later date. Volumes have been good. Now the ADX – it has been long and it has not been lending any support to this run up inspite of the good volumes that we see. No uncertainty about a negative divergence. MACD is bullish without a doubt. The slow Stochastic are bearish with an attempt to become bullish. RSI is overbought at 70.26.


So that is about all – from my side the deductions are yours but I am more certain perhaps of a downside than an upside. Best of luck to all. I will try to be regular but this holiday binging may not allow me to do so.


Monday, May 18, 2009

Where are we heading too? Update for 18 May 09

About a month back Jaggu made a mention to me about a phrase - ‘The Black Swan’ effect. I did a google and realised that it is one of the theories that is there on the unexpected. Anyway – later when I was in Mumbai I saw the book  written by Nassim Nicholas Taleb – The Black Swan. Going through it – it does has a point of view that is difficult to ignore – and then I see our markets and how we (the retail) behave – I see the book in the different light. We – the retail are always behind times to see the truth or the untruth. We are in a state of denial till the time it is already too late. Then too we really do not know how to react when the situation is there in front of us. Then our other habits or lack of the same always is against us – working to eat us slowly making us hollow. No – don’t get me wrong. I know of people who had a strategy which has worked – but it has worked not because it was foolproof – but it worked because the courage of conviction was just too much for it not to do otherwise.

Daily 15 May 09After the elections are over and there is a verdict that the Congress will make the next govt at the centre – that factor of uncertainty is out of our lives – even if temporarily. Now inspite of the result and all well on this front – the mind refuses to see this blindly and options stare us – the options that may or may not to be our liking.

 manmohan Frankly the present situation is the best anyone would have hoped for. A stable UPA with minimal outside support. So much so that even people like ‘Lalu’ have admitted that they have lost out by not supporting Congress and trying to break away. Now as far as the reaction in the markets is concerned there are two schools of thought. One says that the worst – atleast as far as India is concerned is over and now we should loo forward to a bull market. The second says that the worst is not over yet and we are still to see the worst.

Now where do I fit in all this? Well I frankly feel that we have a situation were we can see the mix of both the theories. We have a good upswing in the short term followed by a decent downturn. Well why do I feel like this? For one – there are a lot of people that were sitting on sidelines – the retail and likewise who can now see that a stable govt is it and start investing. That should help us a good 10-15% upswing – or the continuation of the rally upside. But then at the end of the day someone has to realise that there is now no uncertainty – where good news is one of the option. To say that the worst is over may be too premature. The jobless data, housing, projected global growth or what ever – they say that we have hit the bottom of the bad news – but that does not in any way mean that the good news is on its way. It will take a long time for the markets to recover to make any substantial highs – and we may enter a real consolidation phase where we remain in a narrow band for some time to come. All the same the Indian markets should ideally outperform and we should see good money flowing in now.

As far as the candles are concerned – we are firmly above all the EMAs and above the trend line that most of us would have drawn starting march 12th. We have not so far dropped below the middle of the Bollinger bands. The volumes seems to be okay. ADX is bullish but the ADX line as such continues to show negative divergence. MACD is still showing a beginning of a bearish mood. RSI is bullish with negative divergence. The TRIX is looking down. Slow stochastic was on its way down but has turned back and become bullish around the 50 marker.

Today’s trading – as far as input is concerned – everyone is expecting a 200+ opening on Nifty. I am at a loss of words and will not join the crowd even though it can be a reality as I feel the retail will be led to be bullish. Afterall someone has to be culled at the end of the day. The Pivot data goes something like this: -

R3 3775
R2 3740
R1 3705
Pivot 3651
S1 3616
S2 3562
S3 3527
Projected High Range 3678 to 3723
Projected Low Range 3649 to 3604

Fib Projected high 3710

Fib Projected low 3572

I will skip option data since it is today and subsequently that I am expecting to see a sea change so will see what happens today. Best of luck and May you make a lots of money.


Thursday, May 14, 2009

Turbulence ahead… Update for 14 May

The market stands awaiting the results of the elections. With each news – the hope and fear alternates and that is how the market is likely to react till the time the certainty of the Party that has to form govt is known. The news as of now shows no clarity on the issue. and the exit polls have the dubious reputation of being wrong by a margin at times. The global markets continue bleeding meanwhile as the news from the US retail sales and the foreclosures is not good and the hopes of an early recovery from this recession are dashed.

Daily 13 May 09 On the global front the Nikkei ended 41 points in green that is 0.45% up, Hang Seng was half a percent down and Strait times was 7 points or 0.33% in green. In Europe FTSE was a drop of 2.13%, Dax down 2.61% and CAC down 2.42%. US opened red and then closed at one of the worst levels for the day Dow down 2.18%, Nasdaq down 3.01% and S&P down 2.69%. No good news on this front either.

Coming on to the charts – I am sorry to say but the bad news continues. The candles had left the upper end of the Bollinger Bands a few days back and seems in no hurry to hug the upper band now.The volumes seem to be shade higher than yesterday. ADX continues to be  Bullish with negative divergence. MACD is bearish and the RSI is bullish with negative divergence. Slow Stochastic is bearish. TRIX is looking down. With all these indications topsy turvy the volatility is likely to continue.

The Pivot data is as given below…

R3 3808 against 3848
R2 3750
R1 3692
Pivot 3651 against 3635
S1 3593
S2 3552
S3 3494 against 3422
Projected High Range 3672 to 3721
Projected Low Range 3696 to 3647

I guess that – this should be all – the markets are likely to to take more cues from the election results than anything else. So I will pen off now.


Wednesday, May 13, 2009

Trading RSI

I had a query raised by vasanihitesh on . Since I seem to have some time on my hands I will attempt to answer the question as well as I possibly can. The query was “Can we get buy/sell ideas from RSI data..?”

ICICI bank RSI oversoldRSI like MACD is and oscillator -- Meaning that it oscillates about a mean to two extremes. An oscillator is called a leading technical indicator which fluctuates above and below a centre line and normally has an upper band and a lower band that would ideally indicate overbought and oversold zones. 

The indicator indicates accomplishes this through a formula that compares – basically the size of recent gains for a particular stock or financial instrument  to the size of the recent losses. The results thus plotted fluctuate between 0 and 100. There are bands placed on the upper end above 70 and on the lower band below 30 that are related to extreme overbought and oversold conditions.

There are three ways how the RSI is used to trade on the markets. At this point please do remember that no one indication can tell you exactly how and when to trade. All indicators are to be taken with other indications and the markets themselves.

 The first way the RSI is used to trade is seeing extreme over bought or over sold zones. I have inserted an example of ICICI bank behaviour in this march. It was in oversold territory this march and then the recovery started. The recovery has been pretty smart till now. If you now observe the ICICI bank is flirting with the overbought territory and it would be interesting to see how the next few days/weeks pan out.centeline crossover LT

 The second way the Indicator is used for trading is Centreline crossover. That means that when the markets cross the centreline the positions are built – either bearish or bullish depending upon the direction of the crossover. In the example you see that as the RSI crosses over from below the 50 marker to above it – the stocks takes cue and then goes higher. This crossover happened in the third week of March for L&T.

The Third manner in which the RSI is used for trading is Trading RSI Divergences. Hey I have been shouting Divergence on our charts for quite some time if you have noticed. The divergence means that the Markets are making new highs and the RSI is not making new highs or Markets are making new lows and the RSI is not making new lows. I will give and example of this that I have given before – see the Nifty. It made new highs in Jan last year and the RSI was not moving in consonance with the markets – let us say in other words The RSI was not sharing the enthusiasm of the markets. That led to a fall. And very sharp one that is.

I would end now by trying to rub in the fact that no single indication can give you an indication and you can trade it. You have to perhaps take multitude of factors and keep them in the mind before you can trade. Out of the three conditions we have two of them in front of us at this very moment and it would be nice to test our trading by RSI. Nifty Negative divergence RSIThe second aspect is that RSI may generate a sell or a buy signal – but it may take a long time for the markets to follow it. Where we go wrong perhaps is that we want instant gratification. We go short thinking that the markets are overbought – well if we are in a bull run then the markets can remain overbought for a considerable period of time – disgusting us out of the markets and the trust of the indicators. So best is – do not trade time bound instruments from short term perspective using RSI – you can perhaps buy stock and sell stock using this indication and not futures and options. All the same the indications are a truth and the markets do tend to reward if we follow a methodology using whatever tool we have. In army we often say – it is not the machine that lets you down… most of the times it is the man behind the machine that is incapable.

Hope that this effort of mine will make someone of you a millionaire.

Cheers !!


Update for 13 May 09

We would be doing something right – or perhaps something wrong – the markets are unstoppable. Do the markets know something that we do not know? Like there is a party coming to power with absolute majority? Or perhaps that the Oil is about to go down to 10 bucks or something – after all there has to be something that we do not know. The market do know a lot of things perhaps – but what is my next big question. At a time when all the global markets are tumbling away to glory – we defy every rule in the book and continue touching new heights. Are the results already out? Well I will rely on some one else to give us a fundamental touch and will continue with the 12 May 09 Daily 12 May 09Just one thing before pouring the charts out – both the FIIs and DIIs bought 452 and 171 Cr worth respectively.

As far as the global cues were concerned that weakness is there. More than weakness perhaps the doubt to catch a trend is there – afterall the run up has been for quite some time now. In Asia Nikkei was in red – down 1.62% but Hang Seng after opening red, going green, dipping red again closed finally flat at 0.38% green. Strait Times too was green at 0.56% up. Europe opened red – went green and ended flat with negative bias. FTSE was red 0.22%, DAX red with 0.26% and CAC down 0.54%. US started its day in green but immediately slipped red on profit booking and now past mid session is still trailing red. DOW as of now is down 0.21%, Nasdaq down 1.54% and S&P down 0.9%. There is still some time to go before they close so really it would be difficult to take a call – but the markets are perhaps giving an indication of trying to recover.

Okay before I begin with the charts. I would wander in the realm of unsurity. I will make a statement that may be wrong and would welcome if I am or can be corrected by anyone on this account. The Purist followers of 315 strategy would say that this is the third indication to pyramid their holdings – meaning build one more long. I had earlier on may 5th had said that there is an indication by the candle to exit longs (not equal to go short). If this is the third indication of Pyramid then obviously I was wrong on what I said about 5th. It would also follow – for the purists I mean that this is the last time they Pyramid and there will be no long build up till the Exit longs would figure out on the charts. The candle today was tall and white but still stood short of trailing the upper Bollinger bands. The volumes were also somewhat higher. We have as per the Trailing EMA lines a perfect run up. ADX negative divergence however continues unabated. Hey it is still bullish though. MACD some how shows a negative divergence inspite of the market ending so much up in green. RSI is bullish and I will not talk about the RSI divergence as neither is the market off to a new high – nor is the RSI to a low – but the Negative divergence as I drew yesterday is true and continues. Slow stochastic is still bearish. I really do not know what are we or what are the markets trying to prove. The TRIX too looks down. The fact is that the technicals are not supporting the bullish sentiment as the markets go forward. If I were you – I would be very, very, very cautious. This has the build up of washing away a lot of your hard earned money without giving you a reason. Today I have done something else – I have also pulled up the chart of reliance. I am posting the same. It is in some ways mirroring the Nifty chart – have a look.

Option Pain 12 May 09 Put call ratio 12 May 09 The Pivot data is something like this----

R3 3848 against 3786
R2 3792
R1 3736
Pivot 3635 against 3582
S1 3579
S2 3478
S3 3422 against 3379
Projected High Range 3686 to 3764
Projected Low Range 3617 to 3539

The Fib Numbers are High of 3733 and low of 3491.

The option pain and the Put call ratio is as in the charts. Hope we continue this path of the upswing – but be on your guard.


Tuesday, May 12, 2009

Red! Red! Update for 12 May 09

The colour of the markets have turned red after almost two complete months of run up. Now the moot question will be – where do the markets seek support and arrest the downfall. It will be important as that will signal in the real term – whether or not the recovery from the sustained bear market was real or we are still in the vicious cycle of bear hammering. However yesterday – even reliance – that had held on to its previous levels above 1900 cracked and was partly responsible for showing the way down.Daily 11 May 09

The Asia was red. The Europe too was red with FTSE down 0.6%, DAX down 0.96% and CAC down 1.93%. The US markets too ended in red. DOW and S&P did not attempt to go green but Nasdaq did try and skimped with the green for some time – though not far from the flat line. The DOW ended at 1.82% in red, Nasdaq 0.45% in red and S&P 2.15% in red. Believe me if it the down turn gets contained then this will be a very healthy time for the markets to consolidate and shed some weak hands now.

On the charts the weakness is evident with it being a second red candle and the candles leaving the upper Bollinger Bands. Now that the markets are showing signs of weakness the globe over it is important that we see some Fibonacci numbers yet again. The 32.8% retracement is to 3260 levels, 50% retracement to 3128 levels and 61.8% retracement rests at 2994 levels. I am sure that these levels will play very important role in the days to come. The 15 EMA is at 3502 and 3 EMA is at 3595. If the drop is substantial today then the 315 should generate a sell signal. The volumes were not good. Reliance too traded 74% of the last 50day average volumes. The ADX is bullish still but the –DI is fast moving down and likely that the ADX will have +DI going below –DI in a day or so. MACD shows negative divergence and is bearish. RSI looks down. TRIX looks down. The Slow Stochastic too looks down and is bearish.

The Pivot data is something like this----

R3 3786
R2 3708
R1 3631
Pivot 3582
S1 3505
S2 3456
S3 3379
Projected High Range 3607 to 3670
Projected Low Range 3650 to 3587

Put Call ratio 11 May 09

Fib Projected High 3694
Fib Projected Low 3499Optain Pain 11 May 09

Before I pen off – see the amount of faith the put writers have on the markets to go lower. Bearish in hearts of hearts? Like I said – it will be another interesting day today.



Monday, May 11, 2009

Whiff of a fresh new week… Update for 11 May 09

Another week – a new story waiting to unfold. My wife asked me what is so good about the markets and I replied – why do you like the Bollywood? Before she could answer – I said that like the good old Bolly talkies – there is romance, suspense, love, hate , fear, laughter…. and all the emotions that man could ever dream off – It is not red and green ticks that make the heart beat but the love of the life, love and passion of beating the unpredictable that draws most here other than an attempt to make money. I really do not know how many have really made big money but the statics say that there are more hopeful in this field than perhaps those aspiring for becoming an actor/actress in Bollywood. So here we are – people trying to put a leash and wishing the markets to do what they think it should do and the markets are as defiant as ever. So when there is no hope of the markets being moved by what we say then we become the proverbial dogs being wagged by the tail.Daily

I see everyone saying that we ought to go down – and when the markets do not agree then we switch sides and say – no there is a higher level and we are bullish about the short/mid/long term of India.

The Global cues till the closing of the US on friday signalled that we may open strong and wash away the day of losses we have. However with the Asia opening today I am not sure! The market is weak … Let me just start it the right way. On Friday the Europe was fairly okay – FTSE was up 1.44%, DAX up 2.29% and CAC up 1.88%. Infact the European markets had not shown weakness anytime during the day. US too was rocking. Dow was up 1.96%, Nasdaq up 1.33% and S&P up 2.41%. The Asia however does not share the enthusiasm of remaining green. Nikkei opened green and immediately dropped red – now trading 0.9% down. hang Seng is green and looking up. Strait Times is in red – down 0.57%.

The charts are bad and give out no good news. Infact that has been the case for pretty long time now and it would be a matter of time when the markets give up to touch lower levels. There are our elections results too that are about to stand around the corner. No one really knows for sure what is going to happen – so it would be best that we wait for the results and then the market reaction. I also believe that we have been too loud in saying that the hung parliament is expected – so I feel that if it happens so then to a large extent we have psychologically discounted it and if we do have a stable govt – then it would be too good to be true. The candles are near the top end of the Bollinger bands. All lower EMAs are above the higher ones except 50 EMA that is yet to move above 200 EMA. The volumes are average or perhaps little lower. There is a negative divergence on ADX and RSI. But as of now both are giving Bullish signal only. MACD is bullish but the divergence is playing dangerously close to the Blue line. Slow stochastic is bearish and overbought. We can expect a correction sooner than later.

I am as it is late in posting update – so I will not talk about anything else and press the post button.


Sunday, May 10, 2009

Art of buying options…

Hi I am back with sharing my thoughts with options. Like I mentioned before there were queries and suggestions regarding options – why this and why not this. Many of those questions asked were pretty basic. Basic is just one reason. The reasons and the conclusion I came to why those queries had cropped up were

  • Options are not traded/treated in India as there are abroad – especially in the US and European markets where LEAPS are offered, the volumes are much higher and options are by and large more liquid.
  • We have a mental block – I have been quoting this quote so many times - “A man will spend 1000/- Rs more on something that is useful… A women will spend Rs 100/- less on something that is totally useless.” Unfortunately when we think of buying options we men folk become women. (special apologies to ladies who will read this)
  • We think cheap – I will clarify it in the subsequent paragraphs.

Why would we want to buy options in the first place? Well it can be because of any of the following three reasons: -

  • Speculation – that involves making directional call on a underlying security or Index. This – I believe is the most popular category that is one on everybody’s mind – bloody gamblers we are!! Including me ofcourse.
  • Hedging – Logically this is the idea behind having this instrument in the first place. It is to protect an investment already in place.
  • Income producing – generating a cash flow.

I will tackle the first part only today – the most common desire to enter options ‘the speculation’. Let me help you recapitulate:-

  • We had earlier seen (in previous article) that the options have a real value and a premium.
  • We had also seen that DITM (Deep-In-The-Money Options) have lowest premium, ATM (At The Money Options) and OTM (Out - Of – Money Options) are basically only premium and has no real value to them.
  • There are two reasons for premium – One is volatility and second is Time to expiry.
  • The Option seller are selling the options for two reasons – technically there is only one chance in four that at the end of the expiry that he will have to pay up. (more of it a little later)

That would imply that as the time passes and we near expiry the options premium will reduce and eventually become nil – if the option does not go in money till then you are technically dead especially the options that are at the money or in money.(money invested is now zero – other words you have lost your investment).

If we know all of the above then why do we buy ATM or OTM? I will tell you why – as I said earlier we are misers when it come to investments. Let me tell you how with help of an example. Let us say that I am bearish for the near term. So what will I buy – Puts ofcourse.

  • Let me go a step further and see the pricing. Uhhh!!! Let us see – the market at 3620 on Friday so – DITM 4200 PUT for the month of May costs me 605/- Rs – I will have to pay Rs 605 X 50 = Rs 30,250/- Now that is a lot of money.
  • I will buy ATM (ATM can be taken as +/- 1% of the current price). So let us see 3600 Put for the month of May. That’s Rs 159/- (almost half the amount I would spend on DITM)
  • Better still let us see OTM – after all I expect the markets to let us say drop to 3200 – so how about 3200 put? Brilliant! just Rs 43/-

WOW ! that’s what life is all about 3200 Put for 43 costs me 43 X 50 = Rs 2,150/- -- and can you believe it that this idiot – Cheema does not want me to enter this trade? After all what do I loose? 2 thousand bucks for a chance to make what – unlimited amount – after all the reason to buy options are to make unlimited money with risking just 2 thousand.

Convinced that you prefer to buy a OTM for 2,150/-? Well now hear me out to tell you why you are a looser. Okay the principle on which you are betting is limited downside and unlimited upside. Why is the seller selling this when he knows that the profits are maximum of 2,150 and losses unlimited? Well you know why all the insurance companies are having a ball of a time – after all he takes just a thousand bucks and insures you for 1 lakh! Its because of law of probabilities – he knows by statics that if he insures 10,000/- people he will be giving out money to perhaps 1 or 2 people only. If he finds that you are now of 40 Plus age – he will increase the premium and so on and so forth. Ultimately they are making a killing selling us one thousand a year policies and we are doing what – just loosing one thousand every year – Got it?

Similarly a option seller know that the chances of you taking something from him are bleak as hell. Let us see why

  • In the first scenario market does not go in our favour. It goes up (like it did for millions of aspirations last month) you will loose your 2,150/-
  • second scenario it remains more or less here only – like it generally does when it is in a non trending mode. Once again you loose 2,150/-
  • Third scenario It drops – Thank GOD! No? Let’s see: -
    • It drops to 3,200 and the series expire. I loose Rs 2,150/-
    • It drops to 3,167/- ( I just recover the money I paid (Rs 43 Premium)
    • Market goes to 3,100/- Thank GOD I have made money let me get out of the markets fast.

At this moment I will introduce you to a term called Delta it is one of the Greek terminology that is used in Options to convey a mathematical end. It is generally represented in form of a fraction starting from 0.000 to 1.000. I want to dwell on this in detail. It is a representation in percentage as to how much your Option will move for a unit move in the price of the underlying. for example my 4200 put has a Delta of 0.846 – that means in simple language that for every one point move of underlying asset the option pricing will move 84.6%. if nifty drops by 100 points the Put will gain by 84.6 Points. The 3600 Put has a Delta of 0.448 or in other words will move 44.8% of the move of nifty. The 3200 Put has a delta of 0.159 – means that the option price will move 15.9% of the underlying.

Two important things – Delta changes as the market moves. Delta of OTM and ATM will contimue reducing as the expiry comes nearer. DITM have higher deltas and ATM and OTM have low deltas. Eventually if the options do not come in money – they will expire worthless. This is the reason where in you find the market going in your direction and still the options not moving at all and your disgustion, desperation, hope and fear increases as the days pass by.

Then what the hell should I do? Well to my mind three things…

  • Have a entry and exit strategy if you have to buy options. That means that you should do technicals, fundamentals or something to get the trend right.
  • After you are certain of the trend then you buy a DITM Option. It will give you most bang for your buck. Like in the example above – If the markets move 100 point in my favour I gain 85% odd of the move.
  • As the market moves more and more in my favour Delta will keep increasing to as much as 100% where I get one point for one point move of underlying.

Now let us see 1. Market moves in the direction I thought it will – I gain. 2. Market does not move I loose just 25 points (almost half of OTM). 3. Markets move in opposite direction – Ideally I should have an exit policy or should hedge my position.

Just give it a cool thought – though technically you can make unlimited money on this Put of yours have I really made a killing? Now think over it what were and are your chances of making money buy OTM or ATM? chances are indeed bleak – but still it is so strongly imbedded in your head – limited risk and unlimited upside that you hope against hope and keep giving small amounts of money to strike it rich one of the days. Believe me it is a pure gamble – as it is buying options – of the three reasons I listed in beginning is speculation and I am sure you will think hard before someone give you a call – 2800 June call is just for 50 bucks – buy me 1 lot because you feel you will just loose 500? Hope I have conveyed my point… And if you still insist that you have to buy cheap ATM or OTM options then as soon as they give you a return pocket the profit. Do not let the decay kick in and eat your profits – other than we are strongly trending in your favour – but unfortunately the chances are indeed low.

One last thing – I would have loved to discuss another Greek for options called Theta – Please do a google and I am sure you will find the definition easy to understand. And as to how you can get to know all these values – go to site called and download OptionsOracle – it is a must have software and it supports Indian stocks – just change to NSE India.

Please feel free to comment – I will eagerly look forward to the response and plan the next session if required on options depending upon what you desire.


Friday, May 8, 2009

The noises… Update for 08 May 09

There were noises that were getting to hammer my head and suddenly I find that the entire trend – atleast verbally is changing. A week earlier – everyone was shouting – we are out of the woods – buy on dips. Then suddenly the mood was not so buyout – some heads were saying – this may turn out to be a typical bear market rally… and here we are today – the markets were firm but ?? no one was saying any to enter the markets. Afraid? perhaps. Uncertain? perhaps – but now suddenly the noises are saying that there may be a downside not expected earlier. Whom to trust – atleast I do not know. Infact so much so that I do no longer trust myself too. Seeing the US markets – atleast there is an immediate danger of some downside – 10% or 15% or 50% I do not know and I will not try to crystal graze and tell you but the threat of downside looms large. In any case we will have to wait and see where we head to. And it seems that the wait is not likely to be very long.daily 07 May 09

The global cues are what took us to higher levels – along with the manipulations of course. You could distinctly see the counters being jacked up to keep the markets up. It is besides the point that after some time the metals gave phenomenal support to the index. Asia was on the seventh heaven – Nikkei opened after a gap of a few days and was up 4.55%, Hang Seng was up 2.28% in green and Strait Times was up 2.87%.Europe opened well but could sense the US and closed red. FTSE was up 0.05% and that is all. DAX and CAC were in red 1.57% and 0.97% respectively. US was awaiting the results of the Bank stress tests when a small controversy cropped up. It had spoiled the markets as it is and then was the Govt Bond auction drawing a bad response and have pulled the US markets down – Dow is now 1.58% in red, Nasdaq down 2.9% and S&P down 1.74%. Another about an hour plus for the US markets to close – likely to close red only.

On the candle sticks the candle was large and white. we are on the upper edge of the Bollinger band once again. The problem was that the volumes were poor. The ADX is bullish but loosing steam. MACD is bullish but over bought. RSI too is bullish but overbought. Slow Stochastic are with the %K line below the %D line and bearish and in overbought condition. The TRIX is looking down. So here we are.

Let us see the pivot data…Options pain 07 May 09

R3 3767 against 3826
R2 3739 against 3759
R1 3711 against3692
Pivot 3664 against 3650
S1 3636 against 3583
S2 3589 against 3541
S3 3561 against 3474
Projected High Range 3687 to 3725
Projected Low Range 3659 to 3621
Fib Projected High 3712
Fib Projected Low 3596

Put call ratio 07 May 09 I would have skipped the Options charts but thought that it may be interesting even though I am late like hell. Here you go..


Thursday, May 7, 2009

Beginning of an end?… Update for 07 May 09

Those of who used to look at the chart I post they would find a small and subtle difference in the chart I post. I have done away with the 5 and 20 EMA and introduced 3 and 15 EMA. Daily 06 May 09The reason was – perhaps I wanted to see how accurate the 315 trading strategy is. I came across many people who are all out swearing with this Strategy – so I said to myself – what goes out of my pocket to try it for some time. In any case before I decided to try and follow it – I went back almost two years plotting how well it worked and I must say that it did show a lot of promise. So for all who are interested the 3 EMA and 15 EMA will be part of the charts that I put forward every day.

On the Global cues front the Asia was mixed and Europe was perhaps cautiously  positive. FTSE started the day deep red and that was the lowest it reached. It kept recovering reaching the peak just about 2 hours before closing. Then it came down to close 1.37% in green. DAX and CAC followed almost the same trend to close 0.57% and 1.81% in green. In US the Tech related Nasdaq is lagging other indices and DOW closed the day after good amount of volatility 1.21% in green, Nasdaq up 0.28% and S&P up 1.74%. The fear of the bank ‘Stress Tests’ seems to be dying down. Now Nikkei and Strait Times have opened strong Nikkei up 4.18% and Strait Times 2.15%.

On the charts – once again referring to the 315 strategy yesterdays Doji said ‘book profits on longs’. In 315 – the sell longs does not necessarily say that you have to go short – so whenever that signal is generated I will announce it here. The candle has barely left the upper Bollinger band and unlike the earlier two times – this time the candles are not violating the bands. Se there is no clear signal as to where we are going. The volumes seem good. ADX is bullish – and the kind of doubts it was generating are over for the time being. MACD has given Bullish divergence again. RSI remains bullish  and is just a wee bit out of the  overbought zone. The slow Stochastic are bullish but in the overbought territory. Yesterday on Stockezy there was a remarks – watch out for 17th May and I have a couple of mails too posting the caution about the approaching 15/17 May – hey guys I know that the elections will be terminating and the horse trading may just begin in Indian political scene – but the threat to watch out for? let us see.

Let us see the Pivot data…

R3 3826
R2 3759
R1 3692
Pivot 3650
S1 3583
S2 3541
S3 3474
Projected High Range 3671 to 3725
Projected Low Range 3708 to 3654
Fib Projected High 3746
Fib Projected Low 3578

Optain Pain 06 May 09The Put call ratio is 1.385… meaning puts still are being written more than the calls – the ratio is not as high as it was last month but still in favour of the puts. Please see the graphs of Option pain and Put call ratio.Put call ratio 06 May 09

I am Trying hard to complete another Options lesson. I do not want to discuss any strategy before we are all at par at understand the basics. What has happened is that I have been posed some very basic questions regarding options on mail – all of which I have not been able to answer. So if you plan to touch the options – get your basics right.


Tuesday, May 5, 2009

Bulls – and the three Aces…. Update for 5th May 09

Wow what a day it was and like for so many days now the technicals did nothing to show the path. Infact they have become a joke with resistances being cut like a hot knife in butter. On the other hand each support stands put like the great wall of china… visible right from the moon. In any case if the stock market is to be a zero sum game then we have to loose for the other party to win. Each of our wins are just to keep us hungry with blood on our lips for more and the “operators” have their fill. Daily 04 May 09The markets will not fall till the time everyone of you is convinced that we are bullish and we are sitting on good enough positions to donate money to the operators. Infact so much so that I feel that it is not worth going through the rigmarole of seeing the charts and trying to read the mood of the markets. It is just not listening to the technicals at all. In one stroke the markets have broken through all the so called resistances and went up to the Upper Bollinger bands. Of course that is Bullish and ofcourse I am bearish. Sh*cks – I can almost write a book now as I see the markets from the other side of the hill.

The Global cues? Asia was in the seventh heaven. Except for Nikkie that gained just about 1.69% – rest were competing with each other to out pace the other in the climb. Our markets were too in the same rat race finally ending a good 6.41% in green on Sensex and 5.85% up on Nifty. The volumes were not out of the world but 121% last 50 day average. Europe was cautious with FTSE ending 0.01% in red – basically flat with DAX up 2.79% and CAC up 2.47% – the major gains coming basically in last two hours of to the closing for the day. The mood in US was buoyant to say the least .. Dow up 2.61%, Nasdaq up 2.58% and S&P up 3.39%. The S&P has as of now washed off all its losses for the year and has come to green for the year 2009. Quite an achievement so as to say. As of the morning the Nikkei is closed – Hang Seng and Strait Times opened as expected – strong and are some how now seems to be giving away their gains. Hang Seng is volatile with the index up 0.51% and Strait Times up 2.01%.

On the Candle sticks – The candle was a kind of  - not seen since long time. A handsomely tall and white. It went on to touch the upper Bollinger band and if we  are now to trail the upper edge once again then there would be another good run up. Needless to say that we are as of now safely above any moving average you can possibly think of or invent. The ADX is bullish and the +DI gets a new lease of life. MACD has ticked to bullish once again and RSI has become bullish – but in overbought territory. TRIX that looked down yesterday is non committal. Slow Stochastic is bullish but confused. And once again we are above the trend line that I drew and presented yesterday.

Though all the charts are showing a tall white candle – seeing the market run up yesterday we may decipher it as a gap. I will leave it at that as I do not have enough knowledge to substantiate it. The Put build up continues on the options – the ratio is not as bad as last month but all the same the Puts are out pacing the calls. Only time will tell how things will work out in days to come.

I will move on to the Pivot data now: -

R3 3850
R2 3784
R1 3719
Pivot 3598
S1 3533
S2 3412
S3 3347
Projected High Range 3659 to 3752
Projected Low Range 3756 to 3483
Fib Projected High 3714
Fib Projected Low 3427

I am sick of being against the market for so long so I will not say anything regarding how I feel about the markets. Cheers and may you be on the right side of the markets ;-)

PS: my night flying phase has commenced and I will be running on a very tight schedule so please pardon me if I miss an update or two.


Sunday, May 3, 2009

Of Bulls and Bears… Update for 04 May 09

There has been news over the weekend and there is important news to come in coming weeks – that ranges from our election results to the jobless data from the US. A lot has also happened while we were logged on to the bullish two straight months. There have been results coming in – mixed to say the least – as per expectations some and below expectations others. The technicals have been indicating the bullish makeover for a fairly long time. Now we are standing at another crossroads that can take us either way. All those retail investors who are yet to make up their minds and take positions in the markets would do well to wait some more time. These cross roads can show us new highs or new lows. We are trailing a very strong support on the bottom and fairly strong resistance on the top. The markets have to show the direction and whichever way it swings may show some strong move. The 30% or so correction we have had is purely bear rally and we are no way out of the woods now. So hold on to your horses while we decide where to head off next.

Okay before boring you more let me start with the global cues. Asia was positive with Nikkei gaining 1.69%, Hang Seng gaining a good 3.77%. Europe was mixed due to FTSE closing red 0.01% but Dax and CAC closed up 1.38% in green – both. And incidentally this was not the closing at the best levels for both of them. US opened flat and then went red – finally to make and attempt to recover good into green but finally finishing just above the flat line. DOW was in 0.54% in green, Nasdaq was 0.11% in green and S&P 0.54% in green. Internationally the Swine Flu has caused a lot of anxiety with US Homeland security secretary declaring a “Public Health Emergency”. The main industries coming under pressure because of this is Pork, Travel, Hotels, Airlines and Cruise operators.

On the candles front There seems to be a unsaid resistance at the present level that the markets may have to break forcefully to go any further up.Trend and resistance See the chart – we seem to have now tested this top multiple times. This top is at around 3500 + levels. The second is that if we draw a trend line and call it trend line No 1 (as shown in the chart) we will see that it did lend support to the market twice – then markets violated it once – bounced back above that – but unfortunately even with the white candle on Wednesday we are trailing below that trend line as of now. Second is if we take the Trend line 2 – then though we may be getting support here but the fact remains that this is the first time the line has tested this level so the trend cannot be substantiated. This is the reason that I say that the markets are in a confused state and we should wait a bit more before taking sides.

Now the rest of the candles. We seems to be static with the Bollinger bands moving up slowly so the mid point too seems to be moving up. As of now we are comfortably above any moving average we can think of. We are above 5,20,50,100,200… EMAs so the bullish trend cannot be challenged on this ground at all.Daily 01 May 09 The volumes are again petering out and that seems bad. The ADX is bullish but the strength has been reducing since last week or so. The MACD has a negative divergence – is bearish. RSI Bearish and Slow Stochastic is bearish. So as far as the technicals I read are concerned – the tilt seems to weigh towards the Bears. However as always the markets will decide and tell what they feel about the technicals. And – one of the forward looking indicator that I trust is TRIX and it is definitely looking down. So be very very cautious should you decide to be bullish.

Put call ratio 29 Apr 09

As the old month

has gone by I feel it is important that we see how the Options data shapes up. The put call ratio is >1 as seen from the chart and the Option smile show 3300 as of now. Check out the charts. Options Pain 29 Apr 09

That crazed Put build up has however finished and we are down to more saner levels so now if the markets go down we may see call build up with the ratio going in favour of calls and that should give bears a reason to rejoice. I have nothing left now. Best of luck for the day tomorrow.