So people are excited to learn your strategies and especially when you have written buying strategies, people become more interested. So sir, what do you have today that will be very useful for people? So today’s two strategies are very simple. I am sure that these are people with minimum experience who have not taken much stock market experience or have not used many technical indicators tools.
They will also be able to do this strategy. So I am sure that people will like this a lot. But if we go into the strategy, we are going to discuss two strategies.
So before we go into the strategies, we have to understand why a lot of people are not earning money in option buying and why option buying is so risky or why there are not many chances of making money invite
So the most important thing we have to understand here is that 90% of the options expire worthless. If your arena option buyer and you have bought an option, there is a 90%chance that you will lose money in it.
So the success rate will be around 5-10% in option buying. So that is why itis very important for us to know that option buying is very different from long term investments or swing trading or positional trading.
Because if your direction is not right in buying, in fact, if you are out of the money and the market also closes in out of the money, then the money in your option will be zero. So if you can get a big gain, then the risk is also the same.
So that is why we understand through an example that why option buying is so difficult and to make money in it, you need a different thing or a different strategy. So buying options is like betting against the casino. So if you have ever been to casino or you will never hear that a casino has gone bankrupt. Generally, casinos never go bankrupt.
So the option buyer is like the person who goes to the casino and invests money. So he is always or probably on the losing side. Apart from this, casinos have statistical edge. So the money they make, they have a statistical tool or a statistical edge because of which they make money and keep making it. And success of casinos is directly proportional to the time you spend there.
So the more time you spend in the casino, the more chance you have that the capital you took there will be washed away. And thesis the same thing in option buying. So that is why option buying is like betting against the casino.
So you are going against the trend and you need some different strategies, some different thinking perspectives to make money by buying options. So what will we do? The first thing is that the option buyer is not a long-term investor.
So many times we hear that buy right, sit tight, whatever you have bought, sit, but this is not going to working options. So if your option is not making money, then you have to put a stop loss and leave. This is the first and foremost very important rule. Because many people take the wrong trade and then sit, no, it will come sometime, it will change, but if it is going against the trend, then you will lose money.
So let me tell you one thing that buying options is like holding on to a bucket with a hole. So you are thinking that the water will fill, but there is a hole in it already, which is theta decay and time value. So it keeps going down.
After this, what we will do is we will trade with a well-defined strategy which Hasan edge. So the strategies we will talk about are very old and statistically tested strategies that make money.
And last but not the least, as I said, we will try to keep our time in the option buying trade as less as possible. And if it is happening more or there are chances, then we will hedge it so that we can minimize the theta value or time value decay. So these are some of the very thumb rules that you do this strategy ordo some other strategy, it is very important for you to understand this.
And that is why I say that buying options is like buying vegetables. So buying vegetables, whenever you buy vegetables, you cannot keep it for more than 4 or 5 days. Even if you refrigerate, it will go bad in 4-5 days, it will not be edible. So buying options is also like that. You do not have to hold it for more than 4 days in any condition.
Because you will lose value in it, the premium will keep on decaying. So people do not understand this thing and that is why this theta decay chart becomes very important. Here we are assuming that thesis a monthly expiry. Sowed divide it into three phases. The first phase is of about 15days. Here the theta value decay is less.
So in this particular phase, you will implement different strategy. Even though if you are buying options, your strategy will be different. Then the next phase comes, phase 2, the middle phase, here the theta decay will be a little fast. Sphere a different strategy and after this, the last week near the last expiry, we will do different strategy there.
So what are we going to do? So when you are starting with the expiry, we can buy naked options because here the theta decays less. So we can buy simple call or put option. When we go a little further, we have to do debit spreads.
Debit spreads means bull call spreads or bear call spreads. So if you have bought a caller a put, then you sell one more call or put out of the money so that your theta decay will be a little set off. And there will be hedging. And the last phase, the one closest to the expiry, what we will do here is that we will do ratio spreads.
That is, if you buy one call, then you will sell two out of the money ones so that the theta decay is going to be very fast, you will get protection in front of i.e. hope you understood sir’s point that what sir has suggested to you.
The last phase, now it is said according to the monthly expiry because in most of the stocks, there is monthly expiry. If you trade weekly expiry, then you know that Friday will have less theta decay, Monday will be little more, Tuesday will be a little more and Wednesday and Thursday will be super-fast.
So at that time, if you are trading, then you have to pick the right strategies. Snow we talk about the strategy. So the two strategies that we have picked here are, one is open is equal to high or low along with open interest and the other is spring trade strategy. So we are going to discuss these two strategies.
So let’s talk about the first strategy. So what is this open is equal to high low plus open interest? So generally we see that when any stock is on the index, if the open and its low are the same, it means that the market has not gone down from where it is open. So thesis a very strong indication that buyers are aggressive.
So the market is in the control of the buyers and they are taking it up. So this is a very strong indication. Similarly, if we see its exact opposite, if the open and high are the same, it means that the market has not gone up from where it is open. It means that the seller is very aggressive, they are controlling the market.
So these two things are very much used in our technique. We will also show you this on the candle. If you see a candle, then from where the candle has opened, suppose it is a green candle and you see that its low or its wick is very small or it is exactly the same, it means that the market has not gone down from where it is open.
So from that candle you see that if the price is going up continuously, then open is equal to low is the concept that you will find out who is aggressive. So you will find out that the buyers are aggressive. So we will check this at 9.30. So those who want to take positions in the intraday or we want to see these open and high things, the sooner we can see it in the morning, the better.
So the first thing we will see is which stock or index is this happening. And after this, the second thing we will see is open interest. So is there along buildup in open interest or not? So if there is a stock where open and low are the same and along with that, if there is a buildup in open interest and a long buildup, what does long buildup mean? The price is going up and open interest is also increasing.
Increasing open interest means that a very strong conviction trader is investing money in it. And if he is investing money in futures, it means he has a lot of money and probably he is knowledgeable also.
So you are going with the flow that its open is strong and open interest is also increasing. So these two things, if we show you this, you will understand basically what is it that you have to check that there is a buildup in open interest. If we show you this specifically, then people will understand more. So let’s show you both these things.
So first of all, we see the screener that I have made, how you can easily identify the bullish and bearish trend stocks.
You can use this to identify these stocks. So now on my screen, we can see the long side stock and the short side stock where the open and low were the same. That is the stock of Crompton Greaves. So here you can see that the open and low were both of 330.
The previous day’s high was of 328.75. So I have added an additional filter here. The previous day’s If the stock is opening above the previous day’s high and the open and low are same means in comparison to the previous day today’s open is on the upper side and after that the stock didn’t come down means there is an aggression of the buyers So, let’s see this particular stock high was of 328.75.on the trading views made today
So, like we made a screener that the open is equal to low that how the candle of this chart should be same and the open should be above the previous day’s highs, here you can see both the conditions that today the open is with a gaps, there might be some positive news in the stock that’s why we can see a gap here and after that we can see that the stock is moving upwards till now So, this is the first condition that we have met.
Now, we will go through this condition with another filter that is the open interest is building up or not So, for this we will go to Saco’s trading terminal and we will see the two contracts because we are very close to the expiry but obviously in the January expiry the open interest positions will be less and in the February expiry it will increases, we have to do a combination of both to see that the net open interest long build ups are there or not So, as I click here can see that the open interests negative, it is minus 52%in the January expiry
So, here the open interest of 23 lakhs has decreased in the January expiry and what happened in the February expiry so, the positions of 10 lakhs have been added which is lesser compared to the open interest which is less than the previous position but which is fines, this will keep happening in the expiry ideally, the situation will be that the net open interest will be increased, so, it will be a very strong convections, after the expiry, you can take these trades
So, if these two conditions meet, that means your open and lowered same and after that the open interest also came, it means there is a very strong convection
Now, you can trade this particular thing in different ways, you can buy it in stocks you can buy it in futures you can buy it in its option contracts
So, if you want to buy its option contract now it is very close to the expiry so, you have to buy one at the money call and sell two out of the money strikes call options because the theta decay will be very fasts, you have to stay in this trade for 2-3 days and after that you have to wind up the expiry position and the stop loss of this will be the low that we can see on the spot basis if it goes below that, then we will leaves, that is one very hard stop and apart from this the most important stops in options trading are time stops, as we have seen earlier that we are not going to hold for more than 4-5 days
so, expiry is going to come in 3-2 days so, we have only that much of time before that we will cut the positions so, to explain to people the important thing thereof you will take it on trading views, here you will see sir has given you a scanner from charting you have picked a stock from scanner now, if you trade in options if you trade in options of prompt then you can understand one thing that open and low are almost same means, here it is somewhere the stock is open, it has not hit low buyers are highly aggressive and after that in fact, it has made its high after that, the candle is still going on here, the important thing is that if you will trade by seeing this you don’t have to see only the candle here,
sir has given you another filter and that is you check hereof it is built up or not so, after checking the buildup you are getting highly conviction trade that build up has happened open is equal to lows, you can enter into this trades, to check this, we have seen this on daily charts we will see the 15 minute candle that what was really happenings, this is the 15 minute charts, here we are seeing that what happened with the candle and we will check this around 9.30 peso, at 9.30 pm, the price was334 which was significantly above the previous days, in this particular trade because the move has already happened
so, we might not make the position here but in the case where open and low are very less, open and low are same and in the day the move has not come too big means, you can get a good potentials, those people will be very strong candidates for options buying or if you do buying in futures and in fact,
if you see a candle like this in Bank Nifty or Nifty that is open, we will see this on 15 minute time frames, on 15 minute time frame if you see the first candle of the day you will see that the open price did not go below that so, you will understand that this is highly aggressive market today and similarly, where open was not high, the price has gone below that means that it can be a bearish day for todays,
there was an example of Concourse, let’s see that so, this is the chart of container Corp, where we saw that open and high are same and it opened below with the gaps, there is a very strong selling pressure in this particular charting this candle, in this stocks, when we will going this, to check the open interest build up that what is the open interest build up on short sides, we will see the same thing in this also, because we are sonar to the expiry, we have to see both the things, both the contracts so, in January,
we are seeing that open interest of minus 8.65% has been reduced and in February how much open interest has been added so, net, it is82% added, means the position on short side is more and the number of open interests also good which means that there is a selling pressures, as soon as you get the opportunity during the day, so, this is our open is equal to high low plus open interest strategy .