Option strategy based on Open interest on Options

Which options to sell with less risk. What is the range people are expecting for market

In this blog I am going to explain which options should we be selling as per what people are perceiving the market. It is generally observed that people sell out of money options. they will sell an out of Money call option and out of money put option. At these positions open interest increases. We are trying to leverage this data at which open interest values are higher. I have developed an algorithm which will suggest which are suitable options to buy or sell. This is a short strangle strategy where it suggests which options to buy or sell. This has more accuracy with Index options because of high liquidity. In stock options, we have less liquidity in Indian market and stocks are more volatile than index. Bets on stock options can go wrong.

How to use Open Interest options functionality at optionstrategy.co.in

1. Go to URL- optionstrategy.co.in and click on "My Stratgey"  button.
2. Now select Index stock which you want to analyze and then select script name.

3. Now click on Open Interest options button at left side.

4. You can see calls and puts with their respective strike prices populated. These vakues are suggested based on open Interest in market. We generally go for 4-5 strike prices lower and check for open interest where it is maximum.

In this scenario it has suggested us to sell at strike price of 6600 and sell a put at strike price of 6200.  The suggestion shown here is based on EOD prices.
Please ignore the valuation date as we are showing graph for multiple valuation dates.

In case you think this is not suitable, you can change strike prices and valuation date and click on My strategy button. 

Note:- These strategies are just for illustrative purpose. Users are required to use their own judgement before entering in any strategy. We are not responsible for any loss.

Please email us your suggestions and feedback at info@optionstrategy.co.in

Happy Trading!!!!

Futures Open Interest Analysis

Predicting market direction based on Futures Open Interest

In this blog, I am going to explain how we can leverage with Open Interest Analysis of Futures present at optionstrategy.co.in. I have back tested this functionality and have observed that it is accurate around 68%.

Back testing strategy

I collected the nearest expiry futures open interest data for past 6 month. I observed the trend for futures and price. I took the difference between T and T-1 days' open interest and price , T and T-2 days, T and T-3 days' open interest and price. I gave maximum weightage to nearest day differences ie. T and T-1. I observed that if they were in same direction, the trend continued and if they were in opposite direction  the trend reversed. I assumed that we were buying at days end of price and next days close price was at which were selling. 
The success rate for this observation was approx 68%. 

How to analyze Open interest at your own

1. Go to URL optionstrategy.co.in and click on "Open Interest Futures" menu button at left.

2.Now select one of the available script. I have used specific scripts which are more liquid.

3. Default number of days shown is 3. You can change the number of days if you want to do analysis of more data. I prefer generally 3 days.
4. Click on OI indicator button.

5. A graph will appear below. Check out how the price and open indicator are varying.

 

In this graph you can see blue bars are showing % change in Open interest and red bars are showing % change in price. Orange bars just represent their multiplication to see what is their net effect. 

Generally, if open interest and price move in  same direction then this trend is expected to continue. I am representing them with bar in positive direction. This represents that current trend whether it is increase or decrease in price will continue. If this bar is in negative direction then it means the current trend is going to reverse soon. here is one sample graph based on DLF open interest  movement.

We also need to see how strong this impact is. open interest change should be greater than price change. If open interest change is minor, then we should ignore it. 

 

There could be chances that T and T-1 is showing positive direction and T and T-2 are showing negative direction.  In such scenario, I would advise not to use this indicator. Give maximum weightage to nearest date differences.

Mail us your queries at info@optionstrategy.co.in

Happy Trading!!!

Creating standard strategies at optionstrategy.co.in

View which option and futures combination should be used to create standard option strategies

In this blog I am going to explain how we can use the standard strategy feature in optionstrategy.co.in There are many strategies using options based on market  direction scenario. I have added few standard strategies here. They will give you an idea at which strike price and which options we should use to create standard strategy. You can see the pay off graph and decide accordingly whether it would be safe to go with this scenario. 

1. Go to url optionstrategy.co.in and click on Standard Strategies button.

Else if you are on "My Strategy" page, you can view a plus icon at left of "Standard Strategies" Menu

2. Select Index or stock with which you want to view the strategy. Suppose we are selecting Index in this example.
3. Select the script with which you want to view standard strategy. I would suggest to prefer a liquid script only.
4. Change the valuation date. This should be the one on which you want to view how your pay off graph will look like. We need not wait till expiry to see how our payoff graph will look like.

5. Once these parameters are selected, click on plus (+) icon on standard Strategy menu

6. This menu will expand. Click on One of the standard strategy. Lets say we are selecting Bull call spread for now.

7. In the above snapshot you can see it has populated Call with strike prices of 6500 and 6550. Nifty level when this snapshot was taken was 6526. It is suggesting to select one of the call at strike price just below current NIFTY level and another with strike price just above current level. It has populated the options based on end of day strike prices.

8. You can also change the price at which you can buy or sell the option and then click on My strategy button.

You can try with other strategies by clicking on strategy name at left.

You can also change strategy direction by just changing the buy or sell signal. Lets say if you have selected Long Call butterfly strategy.

You can see how its pay off graph will look like.

If you think market is not going to remain range bound and can jump much on either side, you want to go for short call butterfly strategy. Simply change the direction of  buy and sell for the call options.

After changing the buy and sell directions, click on My strategy button above the chart area. Now you can visualize the apy off graph for short call butterfly.

You can also try strategies using stocks by selecting Stock under Index/ stock combobox and select stock of you choice.

You can also add another options/ futures or stocks to add to your standard strategy.

Please mail us at info@optionstrategy.co.in for further queries.

We will be happy to help you.

Creating your own option strategies

Create and Analyze your own Option strategies - How to Use

In this blog I am going to explain how we can use this application to create your own option strategies.  Depending on market condition you can take a call which option to go for.

1. Go to optionstrategy.co.in and click on "My Strategy" button.
2. Under Index/ Stock, select one of the instruments that you want to play with.
3. Then select the script. The example that is demonstrated here is with NIFTY. The strike prices associated with it will be populated under Strike price combobox. 
4. Select the valuation date by clicking on the calendar icon button. This date should be less than or equal to the minimum expiry date that you are planning to use.

5.Now select one of the Option types. If you have selected Index, then you can select one of Call, Put or Futures. If you have selected stock, you have the option of selecting stock also.
6. Once instrument type (Call/ Put/ Futures/ Stocks) is selected, select one of the strike price. To get more reliable results, prefer liquid strike prices. Generally 3-4 strike price above and below spot price is liquid. For stocks, the criteria narrows further.

 

7. Select buy or sell.

8. You can change the expiry date if required

9.  Enter the price that you think you can buy or sell the instrument. Currently the prices are based on End of Day prices. You can also enter the price that you have entered in the strategy earlier.

10.  Select number of lots you want to trade with.

11.  You can select other call or put option, futures or stocks with different parameters in other lines.

 

12. Now click on My strategy button.

13. You can see a chart appearing below showing how the pay off graph will look like.

 

14. You can get an idea around which range your profit or loss will begin. 

You can create your other such strategies depending how you perceive the market. 

You can change valuation date and see how your pay off strategy will look like within short time frame.

Note- The values displayed are for approximation purpose only. they don't show accurate results because of market forces. With change in option moneyness, implied volatility will change and it will affect the option prices.. 

 Mail us your queries/ suggestions at info@optionstratgey.co.in

 We would be happy to help you.

Happy Trading!!!!

Options trading in Indian Market

Option trading is risky and has the potential to give good profits also with low investments. We were thinking of designing a tool where we can visualize our strategy based on few days and not keeping our strategy till expiry.

With a strategy we need entry and exit points or triggering other trades to hedge. We needed to visualize this graph and created an application in excel. This was fantastic stuff to learn various strategies and how they vary with time. Even those who are new to options trading and have basic knowledge of options can start playing with it.
We also got an idea where we should enter some other position.

We thought of sharing this stuff with other people and hence we brought it on web on optionstrategy.co.in. You can visit the My Strategy Link and create different strategies. No need to go for manual calculations. Just combine various options, futures and stocks and create your own strategies.

direct URL- http://optionstrategy.co.in/optionstrategy.html

You can also go through how to use this application at http://optionstrategy.co.in/howtouse1.html

Right now we have designed it based on EOD prices. You can also enter your prices manually at which you can buy or sell. You can enter your number of lots manually that you want to buy or sell.

It has been designed on Black Scholes approach and hence may not be accurate as volatility varies with time. Investors are required to trade cautiously. They should expect losses early than what is shown in graph.

I will be putting up other tips and strategies further.

Happy trading and learning.