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- What are options and how I'm generating my Monthly Cheque with options strategies?
Hey Folks! I hope you are safe and healthy in this COVID-19 pandemic. This is our first weekly post of the Year 2022, and I wish you a pleased and prosperous New Year. I Started this weekly analysis 3 years back, and you guys gave so much love to this weekly newsletter.
Like our weekly analysis article, today, we will talk about something essential if you are trading with options in this stock market.
Any guess what is it is?
let me tell you, It’s Volatility. Volatility has a direct impact on the Options premium. When IV is high, the option premium will also be high, and the Option premium will be low if IV is low. You can use Volatility to choose a stock for your Option strategies.
A stock with high volatility means you will get a good premium from your credit spread, and if the premium you have received is high, that means your risk will also decrease. Little confusing? Don’t worry. Let me show you this with a simple calculation.
Let’s assume you want to create a credit spread with a strike difference of 200 points. For example, You are buying 17500 PE at 20₹ and selling 17700 PE at 80₹ to create a Bull Put Spread. Now how can we calculate the maximum profit and maximum loss with this spread? Use the below formulas:
- Maximum Profit = Net Premium Received * Lot Size = (80-20) * 75 = 60 *75 = 4500₹
- Maximum Loss = (Spread – Premium Received) * lot size = (200 – 60) * 75 = 140 * 75 = 10500₹
So the maximum loss with the above strategy is 10500₹, and the maximum profit is 4500₹. We need to keep in mind that spread is constant, and the only premium is the thing that can increase or decrease. Now let’s come to our initial question.
As we know that if volatility increase, the premium will also increase. that means you will receive a higher premium. Now let’s say you are receiving 70₹ as net premium so the net loss will be 9750₹ {(200 – 70) *75} and the maximum profit will be 5250₹ (70*75).
I hope now you have understood how volatility impacts Option premium. So the next time you are scanning stock for your options strategies always check its IV, i.e., implied volatility. If you don’t know how to compare IV and scan stocks based on it, you can come to our Mentorship Program, where I will share with you a simple trick you can use to scan stocks. Click on the below button for more details:
Nifty weekly analysis and Option strategies
After opening with a positive note, we saw a good rally in Nifty this week. We saw good upside movement in the first 3 days of the week that helps to manage a breakout from the 17500 – 17600 zone that was playing a major resistance. Now, what next?
If you look at the chart, you will find that Nifty is heading towards its crucial resistance level i.e. 18000. A breakout from 18000 will change its trend and initiate a fresh long signal.
One more thing you should keep in mind here is that slowly Market is moving from a sell-on-rise strategy to buy-on-dips because the chart looks positive. So I will not suggest you to trade with a short trade.
For now, 17000 – 18000 is the no-trade zone. If you want to go long or short, I suggest you should wait for a breakdown or breakout from the given range.
So instead of taking any random trade, you should wait for a clear indication from the Market. As I always say, “React based on the market movement instead of predicting it.”
Nifty Weekly Option Chain analysis
Based on option chain data, the highest Open interest stands at 18000 CE & 17500 PE, followed by 17900 CE & 17800 PE. PCR of all strikes is 0.86, which indicates a neutral market. PCR at 17500 stands at 10, which is acting as an immediate support level.
The Put-call ratio at 18000 stands at 0.08, which is acting as a resistance level. Equally, an important indicator, i.e., Option Pain, is at 17800, indicating weekly expiry at 17800. A shift in option pain will provide further levels.
Significant open interest buildup on the Call sides indicates that nifty is facing resistance from higher levels and expecting bullish activity in the coming week. Based on Option chain data, 17600 & 17500 are the support levels & 17900 & 18000 are the resistance levels for this expiry.
Keep tracking open interest to analyze market participants’ behavior if you don’t know how to analyze open interest. Just enroll for our Option Strategies – A Mentorship Program.
Nifty Weekly Option Strategy: Iron Condor
Possible adjustments:
Initially, you can keep a stop loss of 17450 & 18050 for this strategy. Means square off if you find nifty is giving a breakout or breakdown. Or you can do this adjustment too.
If you find that Nifty is giving a breakdown and sustaining below 17450, then square off call spread and bring it down to 400 points lower levels.
The same thing you can do with put spread means if you got a breakout from 18050. You can shift your put spread to 400 points up.
If you want to learn these strategies and their adjustments in more practical ways with live mentorship, You can enroll in our Option Strategies – A Mentorship Program(60% OFF).
Banknifty Weekly analysis with option strategy
We saw a decent rally in the last few trading session that helps to close above its resistance level i.e. 36700. Right now BankNifty is trading in a range of 36700 – 38400. 38400 is very crucial in terms of the short-term trends. A breakout will trigger a fresh BUY signal that leads to the higher levels till 39700 & 41000.
On the downside, 36700 – 35000 is a support zone and a breakdown from 35000 will again drag BankNifty in the grip of the bear.
Right now BankNifty is trading in a range with no clear sign of trend, so I suggest you should trade with range-bound strategies.
Bank Nifty option chain analysis
Based on option chain data, the highest Open interest stands at 38000 CE & 36000 PE, followed by 38500 CE & 37000 PE. PCR of all strikes is 0.72, which indicates a neutral market. PCR at 37000 stands at 6.45, which is acting as an immediate support level.
The Put-call ratio at 38500 stands at 0.05, which is acting as a resistance level. Equally, important indicator Option Pain is at 37700, indicating weekly expiry at 37700. A shift in option pain will provide further levels.
If you don’t know how to analyze open interest. Just enroll for our Option Strategies – A Mentorship Program.
Bank Nifty Weekly Option Strategy: Iron Condor
Possible adjustments:
If you find that BankNifty gives a breakdown and sustaining below 36850, then Shift your Call spread to 1000 points down.
The same thing you can do with put spread means if you got a breakout from 38550. You can shift your put spread to 1000 points up.
If you want to learn these Weekly expiry options strategies and their adjustments in more practical ways with live mentorship, You can enroll in our Option Strategies – A Mentorship Program(60% OFF).
Much Check this also– Performance of the Option strategies, Why the Lack of Risk Management is Dangerous for Trading, High probability CATIC options strategy in BHARTIARTL, Nifty Option Strategy for Budget Session, High probability Reverse Jade Lizard option strategy in ITC
Post your comments in the comment box if you have a query related to weekly analysis and options strategies. You can ask any question related to option trading in the comment box.
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*( Please avoid any questions like which Call or Put we should buy in the coming week).
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DISCLAIMER: – we are not a SEBI research analyst. Weekly analysis, Views, or options strategies are posted here 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 who are aware of the risk inherent in securities trading.
