"The final of 7 day continuous correction, cleaning of excesses of leveraged positions, brought the indices to the first 10% circuit filter within minutes of start of trading on both NSE and BSE. Nifty touched a low of 4448.50, which is exactly 30% retracement from the all time high of 6357.10 made on 08.01.2008; which completed the correction. The bounce from this level, in front line stocks brought indices to a level of 4900 on resumption of trading, but the trapped investors, brokers and margin calls brought volatility during rest of the session, at one time threatening the second ciruit filter at 15% also.
After several bouts of volatile movement between 4500 and 4900 nifty finally settled at 4899.30 which is 200DSMA. Sensex too finished the day recovering 1500 points from the low made at 15332.42, closed around 200DSMA finally. US Fed has announced a cut of 75 basis points each in the interest rate and discount rates in an emergency meeting a head of scheduled FOMC meeting on 29th & 30th, seeing the panic in US and global markets on the fears of recession of US economy, to calm the investors, and also to pump in liquidity, which brought some stability to US indices which have fallen more than 4% at the opening, in line with other markets, recovered from the lows, though closed in negative territory. European markets have turned positive at the end of the trading FTSE posting 3% gains, Australian markets and Japan indices posting 3 to 4% gains already, augurs postive opening for our markets, and stability or relief rally can be exepected today.
The behaviour of the indices around 200DSMA (Nifty 4894.14 & Sensex 16629.43) is to be watched very carefully, as if this level is broken in the next level of selling, if any, shall disturb the long term trend of the markets and our markets might go into bear phase, in the immediate short term.
Strategy for the Day: Accumulate Reliance Inds, SBI, HUL and ITC on every dip from now on with a one year time horizon for reaping minimum 30% returns. One should avoid small caps and momentum stocks, as they lack liquidity.
Wednesday, January 23, 2008
"Nifty corrects 30% from all time high"
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11 comments:
Dear Mr.Rao
Your strategy is excellent you trade with caution and have excellent returns, I dont know about options as I'm just learning, can you please tell me
1)The value of the nifty when you purchased your nifty 6000 call on 8th jan
2)Value of nifty when u purchased nifty 6400 put on 8th jan
3)If the nifty had gone up instead of down say it was 6600 on 21st jan what would be the value of the call and put you had purchased
Hope u answer and continue to write about ur great strategy and analysis
Dear Sir,
For your strategy of jan8th and jan21st both the put and call bought by you are in the money, can u please explain this? If you had bot both just out of the money or at the money would your risk have decreased as it would be cheaper but profit potential been the same.
Just would like to know why in the money options are chosen instead of atm or otm options?
Many thanks
Dear Mr.Ashok,
Glad to note that you are reading the blog and following it. The strategy is sugested generally taking the technical and fundamental analysis, based on the assumption, I have.. The table shows the purchase price, which is generally the previous day's closing price, which can be known from any financial news paper like Businessline, Economic Times etc.,
Thus, the initiation price is given in the "price" column. The CMP is updated on day to day basis or sometimes intra day to see how the strategy is moving, and suggestion is made to close the entire strategy or part of strategy to book the profits apart from recovering the capital too, since these are higly volatile times having large intra day/ week swings on nifty.
Hope I clarified your questions, and in case u need further clarity, u can feel free to write to me.
Thanks,
vrkrao
Dear Mr. Rao,
Thanks for the reply, yes I am following your analysis of the situation and look forward to your next article.
1) Could you tell me for your strategy of jan 8th if the nifty had gone up instead of down say it was 6600 on 21st jan what would be the value of the call and put you had purchased.
2)How does one calculate the value of the call and put at some future time, eg if it was a stock you bought at 6000 and to know the value at 6300 you just subtract 6000 from 6300 to get your profit of 300 but how does one do this in options.
Thanks and regards
Ashok
Hello,
As far as I can get it, he uses technical levels to guage the strategy. If you have realised the suggested strategy is a straddle. However, the levels for a straddle or a strangle come from his technical analysis. This is the norm in general.
1. Even if the market goes to 6600, you would have made a good 20% return
2. For options, the strike price is irrelevant for Profit or Loss calculations, it is the Premium that is important.
Vinay
Hi Vinay,
Thanks for the reply, are you a full time options trader? How do i get in touch with you? Actually I am a moderator for traderji.com this is a good site for Indian trading and investing please join we look forward to having members who are profecient in options.
Hey Ashok,
I am not a full time options trader. But, I work on investment models for my clients. These generally include equities and plain vanilla derivatives (as a hedge).
We are trying out arbitrage models, but there isnt much luck currently :)
I know about traderji, would join up. Thanks for the suggestion.
Vinay
Dear Ashok,
Just a suggestion. Do you think you could start collecting good posts from blogs like these and a few others (by voluntary submission or proper link backs) and post them on traderji.
For example, http://www.seekingalpha.com/sector/usmarket?source=sector This is a site I follow for a concise analysis on the US markets. They use the same methodology. Over a period of time, this would help people visit a site for knowledge updation too, other than just clear doubts.
Vinay
Dear Vinay,
Thanks for your suggestion in regard to collecting good posts from various resources on the internet it is indeed possible and a great idea.
In regard to your effort in trying out arbitrage models I wonder if this would be possible owing to the tendency of options adhering to Stoll's principle of put call parity, although practically put call disparity does exist to a very small degree even though there are many violations to the Put Call Parity theorem in practice, most of the option trading arbitrage opportunities result in a loss when transaction costs and delays in execution are accounted for. This was the conclusion Kamara and Miller's findings in 1995
I am assuming you are attempting arbitrage exclusively with options and not in combination with stocks and/or futures
Thanks again
Hello Ashok,
I should have much more clearer. We don't try out pure arbitrage models which rely on the power of trade execution than anything else. So, those milliseconds where your server is placed matters a lot than anything else.
So, most of the arbitrage models would be value arbitrage in equities. As I said, emphasis is on sound strategy than execution.
In the real world put-call parity does make you money, if you are a market maker on an IB trading desk. So, you can assume no transaction costs.
Vinay
Dear Vinay,
Thanks for the clarification, I was unaware whatever little put call disparity exists could be exploited for profit for practical purposes.
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