understanding options further

astonishing observation

this morning nifty opens 100 points gap up.

a 160rupee put becomes 80 approx (fall of 50%)

whereas a 160rupee call goes up by a meagre 35points (just 20% instead of 100% rise which is reverse equivalent of 50% fall of put)

shocking, at the surface of it.

but, what does it mean?

does it mean

- that the call was very costly (super premium) which has just come down to realistic levels?

- does it mean that operators are bullish and going to take the market higher.

- they will eat put premiums big way and give nothing to the call buyers? eventually eating their premiums also as they reach sufficiently high?

- does it mean that if a pro trader was to guess the direction of the market rise, than selling/writing puts and calls of the boundaries of the estimated range can be a safe and lucrative bet?

one of the ways to trade in uncertain waters

as i said, markets are not deterministic, they are probabilistic.

we know, to a reasonable accuracy, what the counting outcome if 4 state elections is going to be.

but only operators know what they plan to do on monday and thereafter.

in such a situation (and such situations keep coming often) tactics is what comes handy instead of guesswork (guesswork will be wrong for the majority howsoever brilliant they are).

e.g. in current scenario, take any position, long or short. but keep stop loss.

but since the movement can be so sharp and overnight that stop losses may not be allowed to touch.

the best solution to this is = options.

buy either call or option (you can also write / sell them but that shouldn't be attempted by amateur shallow pocket traders, though that is less risky)

e.g. if u buy a call of 40 points, a hundred point pro move will take it to 80

a hundred point adverse move will take it to 20.

you gain 40, you lose 20.

a 2oo point pro move will take 40 to 150

and a 200 point adverse move will take 40 to under 10.

here, u gain 90-100, you lose 30.

trading's second big lesson i have learnt is that there is nothing called "profits only" market.

markets will always be made uncertain/unpredictable by the operators.

so, almost 50% loss (u can try and bring it down) is assured, but how u profit from the rest 50% is all that matters.

in the above example, if u gain, great!!!

but what if u lose?

no problem.

play again. do it again.

by law of probability, you will make good money in the medium to long term.

why?

because ur wins will be 50% in terms of total trades but always much larger than losses in terms of amount.

but u can do it only if u have stomach of steel and have well managed finances.

there are many other such tactics which can be used.

but even this seemingly easy money will sweat and squeeze the guts out of you. any gain will be well earned!!!

hunting with the wolves!!!

let me share a very interesting observation with you.

today the market is essentially moving in 15-20 points very narrow band.

who is ensuring that?

traders like u or me?

don't even think that.....

if markets were allowed to move and drift at the will of we people, we would have taken it to 10000 nifty or in minus long ago a hundred times!!!

there are computer terminals run by powerful programs which do the needful for their masters.

the masters tell (program) their loyal brilliant machines in the morning or whenever to do this or that.

e.g. today they would have "told" them to maintain the band till closing so that they can do what they want to do on monday after the election results of 4 states are out.

this the machines will do by controlling the sell or buy "valves" as and when some "stupid" retailers try to get adventurous.

and all this while we and the channels keep shrieking that we the people today this and that!!!

interesting....very interesting!

this gives me the confidence that one day in his career any professional trader can learn and master the art of hunting with these wolves despite being a sheep, provided he learns to think like one!!!

cheers again!!!

u have to kill "i" even in the market

see, among me and market, only market has the ego. 

i am a strict follower. wherever market goes, 7000 or 700, i will be after her, very faithfully. 

this is one big lesson i have learnt over the years among others.

i may not know the reason why market is doing in a particular moment what it does. 

i might come to know the reason later, or too late. 

so i never bother.

as osho says, u have to kill "i" even in the market. 

what market does, just do it, whether or not u know the reason behind it.

very often, there is no reason except the traps and tricks of operators.

operators have to beat the majority ALL of the time!!!

having said that, it amuses to keep a small third eye open while the 2 are glued to the market.

cheers.

don't believe nifty can shoot that much up?

what if modi comes to power and does a gujarat for india? remember, there are genius like dr.subramanian in bjp team.

what if second generation reforms are carried out?

entire world is just stuck up in a groove since many years now.

it appears we are at the historic peak of dec 2007. i dont agree. 21000sensex of 2007 (@7% rise pa compounded should be near 31515 today. where are we? 10000 below that.

and if all shackles are loosened, we will not stop at 31000 but overshoot it due to momentum and pendulum effect.

what u can't believe or see or think, that is exactly what market does. surprise is the no.1 weapon of operators.

markets always do what they are expected to do albeit in the least expected way.

expecting nifty to touch 9000 by 2016dec?

rising triangle pattern almost complete on 10 year chart.

"mother of all bull runs" to start very soon???

back of the envelop calculations hint at 50% rise from here. 

that makes it around 9000.

excellent time to be an investor, or spot bull trades.

self talk

5dec2013

========

- when u r losing and losing genuine and right, reversing the trades is an option that must be taken (provided singals endorse that).

- markets are probabilistic and not deterministic

- traders can never know what the operators are going to do. and that is ok.

- being on the minority side pays. always practice and increase success percentage of anticipating the move of operators.

- operators are always on the side of the surprise. lack of surprise is also a surprise. in short, what majority expect, rarely happens, atleast till they remember that.

- don't bet more money at nasty turns. but do reverse the trade.

- if signals/technicals don't change, withstand the quake.