Hello guys, I hope you are doing well. In this edition of our weekly market newsletter (Weekly Indian Market Outlook), I will cover the weekly Indian market outlook, weekly chart analysis of the Nifty and BankNifty, and weekly strategies for weekly income.
Before getting started on our weekly chart analysis and option trading strategies, let’s talk about one of the main uses of options that the majority of traders/investors don’t know and trade options in the wrong way.
The topic we discuss today is “Managing risk in option trading through diversification”
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Managing risk in options trading through diversification
Managing risk in options trading is crucial for any trader looking to make a profit in the long term. One of the most effective ways to do this is through diversification.
Diversification involves spreading your investments across a range of different strategies and setups that have different views and risk management.
Diversification is a widely accepted and practiced concept in the world of investing. The idea is to not put all your eggs in one basket and spread your investments across multiple assets. This way, if one investment does poorly, you will have others to cushion the blow.
When it comes to options trading, diversification can be achieved by spreading investments across different markets, sectors, and even different types of options strategies. For example, instead of only trading stock options, a trader could also trade options on indices, commodities, or currencies.
Similarly, in options trading, diversification can also be achieved by trading different types of options such as call options, put options, and even combinations of the two. This way, if the market moves against one type of option, the trader will have another to potentially offset the loss. This diversification can help to minimize the overall risk of the portfolio and increase the chances of a profitable outcome.
I use this diversification in a different way. I divide my capital into different groups where every group has different risk management rules and different trading setups. To understand it better, let’s look at the below picture:
If you look at the picture, you will find that I have divided my capital into 3 different sets of strategies. The first 60% in Monthly Income Strategies, 20% I’m keeping for rule-based option strategies for Intraday where I run an algo to execute my trades, and the last 20% I’m keeping for Manual trading through trend-following setup.
This diversification is done so that other setups can make up for losses caused by one setup. Like on Friday:
I was at a loss from manual trading but my rule-based strategies make it up and I end with ₹2000 profit. So diversification is important for continuous growth. You can’t rely on just one strategy. You can’t deploy your whole capital in just one strategy.
Because we are trading in a market where small news or data can bring big movement. So how you can invest whole capital in just one strategy and expect that the whole expiry market will remain at your levels?
Now, I hope now you have understood why diversification is important in options trading also. My suggestion to you is: learn different strategies for different market moods or trends and keep a balance of all the strategies to minimize drawdown and increase profitability.
In case you want to learn and trade then you can book your seat for the Mentorship program where we meet in the live market to analyze, optimize and execute trade together.
Weekly Strategies and Levels
This week, the Market opened flat and later we saw a sharp movement on Monday. But couldn’t sustain at a higher level and on Tuesday itself same back to its previous level. Overall sentiments were weak while nifty and bank nifty both are trading in a range.
Nifty IT and Nifty Metal are the top gainers, closed with a gain of 3.5% and 2.6% respectively. On the other hand, Consumer durables and FMCG are the top looser, closed with a loss of 2.5% and 1% respectively.
Now let us look at the weekly chart of Nifty and BankNifty to find the important levels. You can keep these important levels on radar for further levels in the coming week.
Weekly Chart Analysis of Nifty and BankNifty
Now let’s look at the weekly chart first to know the important levels:
If you look at the weekly charts of Nifty and BankNifty, you can easily find that from the last one year, both the indices are trading in a range. Although BankNifty has given a breakout, it looks like it is finding it difficult to sustain above the range and trying is fall again in the previous range i.e 32300 – 41800. But till banknifty is holding 41352, we can expect a range-bound activity between 41352 to 44151 in the coming sessions.
On the other hand, Nifty faced resistance near 18600 and we saw some profit booking from higher levels that helps to keep it in the range of 16000 – 18600. On the weekly chart, Nifty has given a breakdown from 18013 that triggered a short trade for the target of 17472 and 17035. You can keep a stop loss above 18600 on a closing basis.
Now let us look at the daily chart.
Daily Chart Analysis of Nifty and BankNifty
Let’s start with the Nifty chart first. In last week’s newsletter I shared that After making a high of 18887.60, We have seen a sharp decline in Nifty. Now based on the Fibonacci retracement tool, 17565 – 17817 (50% – 61.8%) is acting as the reversal zone. If Nifty Manage to sustain above this zone, then again we may see some higher levels else it would hit the downside levels of the 16500 – 17000 zone which is the reversal zone based on the weekly chart.
This Week, Nifty gave a downside movement but again took support near 17817. Nifty is not ready to break this level. So we can say that the weekly support can be near to 17817.
On the upper side, 18070 to 18200 is the zone we can keep as resistance and until Nifty is holding this zone, we can trade with range-bound strategies.
Trade Plan for the coming week: If the Nifty manages to stay above 17800 this week, you can place a long bet above that level with a stoploss below 17800. Else trade with a range-bound strategy until Nifty is not giving a breakdown from 17500. I will share my Intraday trades and strategies in our telegram channel. Join through the below button.
BankNifty has given a breakdown from a 23.6% retracement level and heading toward the 38.2% level. Now 41567 is important for further downside. A Breakdown will lead to 40769 which is the 50% level based on the weekly chart.
Important levels to keep on the radar this week in BankNifty is 41567 on the downside and 42555 on the upside. You can initiate a short trade if BankNifty sustains below 42555 for the target of 41567. You can keep a stoploss above 42555.
Tip for the week: Initiate a short trade but keep your risk on the limited side. Don’t trade naked trades without any hedge.
If you are trading intraday and wanted to know how I’m catching 300 – 400 points in Nifty and 800 – 1000 points in BankNifty then check my small course where I have shared my Intrday Stragies with trend following sheet.
Weekly Strategies for January 12, 2023
In the above section. we have analyzed the chart and found the range based on the chart. Now before we create any strategy, let’s look at the open interest data to check the range for the coming week for our weekly strategies in Nifty and BankNifty.
- Nifty Open Interest Analysis:
- The highest OI is at 18000 PE & CE. The support is at 17800 & Resistance is at 18200 for the coming weekly expiry based on the PCR rule.
- Max pain is at 18000. Indicates expiry level.
- BankNifty Open Interest Analysis:
- The highest OI is at 42500 CE & 42000 PE. The support is at 41500 & Resistance is at 42500 for the coming weekly expiry.
- Max pain is at 42000.
- Although BankNifty is trading at 42500 but based on the PCR rule, 42500 is resistance so follow the change in OI on Monday for further levels.
- If on Monday PCR comes down, we can move our range to the next level i.e. 43000
Based on the OI data, the range is very wide and the trend looks bearish in both indices. An increase in IV is giving us a good opportunity to deploy some credit spreads. I’m sharing the strategies that I deployed in my account on Friday. You can follow the data on Monday and if it looks fine, can deploy these strategies.
Weekly Strategies for the Coming week
Weekly Strategies in Nifty
I have created this advanced strategy to make sure that range is big. I’m following the 17700 – 18300 range and I will adjust my strategy if there is any breakout or breakdown.
These adjustments we are doing in the live session in front of Mentorship program students. You can enroll in Mentorship program if you want to learn these advanced strategies and adjustments.
- Click here to book your seat: Option Strategies: A Mentorship program
Weekly Strategies in BankNifty
It’s a premium strategy that we are teaching in our course. You can see this strategy has a 65% probability of success. For risk management, you can keep a stop loss of ₹30000 as an MTM loss and we will do some adjustments if there is any breakout or breakdown from our range..
We teach this strategy in our course. You can enroll to learn the weekly strategies with predefined rules of entry and exit.
Much Check this also-
- Deploying short strangle by looking at profit/loss at the payoff chart? – A must-read for beginners!
- Why is psychology important in options trading?
- 3 Simple Options Strategies for High Volatility
Post your comments in the comment box if you have a query related to this weekly Indian Market Outlook. You can ask any question related to options trading in the comment box.
If you need more real-time assistance on the Nifty and Bank Nifty weekly strategies or want to deploy these hedging trading strategies for monthly Income, Can take our premium subscription and you will get real-time assistance every month on these Options trading strategies. You can contact us on WhatsApp.
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DISCLAIMER: We are not a SEBI research analysts. Views and trading strategies are posted in this weekly market newsletter only for educational purposes. There is no liability whatsoever for any loss arising from the use of this product or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods. This information should only be used by investors and traders aware of the risk inherent in securities trading.