Option Buying Final

OPTION BUYING SYSTEM
OUR TEAM
• Jitendra Jain – The Strategist
• Yogesh Nanda - Data crunching & Back-testing
• Yogeeswar Pal – Master Option Seller
• Jenil Dedhia – Unmatchable Executioner
• Manek Agicha – Disciplined Intern

OBSERVE FEW RULES
1. Keep you microphone on mute to avoid disturbance
2. Restrict questions to the topic under discussion only
3. Slot for Q & A is allotted separately so note down question ask during Q&A only – to avoid
disturbing the flow
4. Mean while you can post your questions in comment box

OBJECTIVE OF WEBINAR
• Take you in the mind of option buyer – his psychology and thought process
• Big plans for year 2021 in Trading as well as Market Education Space
• Developing executable strategies for retail traders
• Focusing more on Skill enhancement and Learning of Traders

WELCOME TO CASINO
Structure of today presentation:
1. Introduction
2. Technical Setup
3. Setup & Rules
4. Money Management & Risk Management
5. Examples
6. Compounding
7. Pitfalls
WHY OPTION TRADER
Why you Became Option trader?

1. Introduction
KNOW YOUR OPPONENT
You know who are you up against?
Option Sellers:
Its like playing against Australia on Australian pitches
Australian Team
Home ground advantage - For option sellers its weekly expiry
Strong bowling line - For option seller its theta
Strong Defense - For option seller its low delta [Straddle delta]
Lower batting order - For option seller its good Success Rate
STRADDLE SELLERS GREEKS
OPTION BUYERS GREEKS
*** Lets build our Team *****

VWAP
Vwap is Volume weighted average price for the day

RSI
The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of
recent price changes – above 60 upside momentum & below 40 downside momentum
VOLUME
Volume is quantity of instrument traded on exchanges. Higher the volume more reliable the move
OPEN INTEREST
Open interest is the total number of outstanding derivative contracts. They are the price movers.
Increase or decrease in open interest indicated Option sellers sentiment.
BEST TIME TO ATTACK
What is the best time to attack?

When Seller is vulnerable or trapped..
When normally sellers get trapped?

• Gap up in market and that gap is sustained
• Sudden breakout or breakdown in market with high volume..
• IV spike [generally happen with sudden fall in market]
How to identify he is trapped?

• When he starts exiting his position – which is show in open interest.
• Seen by declining Open Interest – preferably below 20SMA on open interest.
PLAY ON OUR PLAYERS STRENGTH
When are these indicators favorable for buyer?
• RSI > 60
• Price above Vwap
• Volumes > 1.5x of average volume
• Open-Interest – Declining & preferably below 20sma of OI

IT’S A JIGSAW PUZZLE
What to Buy /
When to book
Sell?
profit?
When to Buy? What will be

Stop loss?
How much to
Buy?
HOW TO DESIGN A STRATEGY
Before designing any strategy, we need to answer few questions:

1. Instrument? Nifty / Banknifty / stocks / options / futures
2. Buy or Sell?
3. Strategy Selection
4. Expiry Selection [ Weekly / Monthly]
5. Strike Selection
6. When to Enter?
7. What Quantity?
8. Stop Loss
9. Profit Target
10. How to Trail?
11. How to React in Black Swan Events.
You have to document all these Rules and they should suit your trading style...
2. Technical Setup
A. ZERODHA CHARTIQ SETUP
Step 1:
Step 2
B. OPENING CHART
C. INDICATOR SETUP
Setup indicators:
1. Vwap
2. RSI
3. Change overbought and oversold levels to 60 & 40
4. Open Interest
5. Adding 20SMA on Open Interest
6. Volume
7. Adding 20SMA on volumes

3. Strategy Setup
TRADING SETUP
Which chart to use?

Option charts
Timeframe:
5 min charts [you can test different time frames]
Rules for entry:

a) Price > Vwap
b) Price moving away from Vwap.
c) Rise in volume 1.5x to 2x of average volumes ( 20 sma on volume)
d) RSI > 60
e) OI is reducing & below 20 SMA on OI
Note: All Rules must be satisfied before taking entry

23 DEC 2020 – CALL BUY IN RECOVERY
STRIKE SELECTION
Which Strike to Choose?
a) Choose Any Strike that meets these conditions
b) Prefer to trade with ATM or 1st OTM
c) Works Best in Nifty and Banknifty

Monthly expiry – ATM or OTM [in delta terms 0.5 – 0.30]
Weekly Expiry – prefer ITM options – due to less theta [in delta terms 0.5 – 0.7]
d) Stock –
stocks works little differently – so need little different treatment.
Note:
These are based on our experience – please choose strikes as per your personality and experience
STOP LOSS & TARGET
Initial Stop loss:

(Lower of these 2 )
• 20% of the premium [ this % is changeable depending your aggression and experience to say 15% / 10%]
• Previous swing low on option chart
Target
• In short covering move there is no way to find the targets..
• Just keep RR based targets and keep trailing..
• Can also keep index charts in front and exit at major support or resistances
TRAILING
How to trail:
Trailing entirely depend on trader’s individual risk appetite and trading style
Indicative rules:
a) when 1:1 Risk Reward reached trail to cost
b) when 1: 2 Risk Reward reached book 1/3 and trail balance to 1:1
c) When 1:3 Risk reward reached book another 1/3 and now trail balance candle to candle [aggressively]
another way to trail is once 1:0.5 or 1:1 RR reached from here on trail point to point… so for every 5Rs. Move trail
your SL by 5 Rs.
TRAILING
Back-test Results for Random Entry
At 26% Success Rate we are profitable
So, with little improvement in timing and being selective in entry – we can definitely be profitable
4. Money Management &
Risk Management
A. POSITION SIZING
Two Method
a) Fixed Size
• Here we decide Number of lots depending on capital [ say 1 lot for every 1 lac capital ]
• Position size remains constant always – irrespective of entry price and stop loss
b) Fixed Risk Method

• We keep our Risk per trade standard based on capital [say 1% on capital] &
• derive position size based on stop loss
A. POSITION SIZING
• Pre-defined stop loss

• System determined Position Sizing linked to capital and stop loss
• Objective Maximizing Risk Reward Ratio
Risk Parameters
Capital and Risk How each trade works
Capital 5,00,000 Entry 100 Stop loss 20
Stop 80 Profit 40
Per trade Risk (as % of capital) 1% Target 140 Risk reward 2.00
[Per trade risk / stop

Per trade Risk (Rs.) SL amount 5,000 Quantity 225 loss ] [i.e 5,000 / Rs. 20 ]
Max loss 5,000
Exp profit 10,000

B. RISK MANAGEMENT
Few Risk management Rules:

1. Never Risk more then 2% of capital on single Trade
2. Preferably play in monthly expiry – if in weekly be disciplined like a rock
3. Don’t force trade on you.. If don’t get signal don’t trade.
4. Don’t trade weekly OTMs [specially in Wednesdays and Thursdays]
5. New traders start with monthly options. Do weekly only after profitable track Record.
6. Stop loss has to be in system – mental stop losses don’t work

5. Examples
21ST DEC 2020 – PE BUY IN FALL
23 DEC 2020 – CALL BUY IN RECOVERY
9TH DEC 2020
9TH DEC 2020
9TH DEC 2020
Live examples 24.Dec in telegram group
6. Compounding
COMPOUNDING
For Fixed Risk method
- Keep adding Profits to your capital,
- this will increase your position size for future trades – gradually
For fixed size method
- Increase you position size for every X Rs. Profit [say 50,000 or 1,00,000]
7. Pit Falls
STEPPING IN SOMEONE ELSE'S SHOES
Do single strategy fit for all?

No
Is this strategy Holy Grail?

No
You need to work on few things:

• Going into depth of strategy [why and what's?]
• Temperament needed for that strategy [ settle for lower

success rate]
• Developing conviction by through back-test
• Tweaking few rules to suit your trading style

[entry/ stop loss / trailing]
PITFALLS
• Needs full Screen time
• Fastest figure first
• Have to train your mind to accept lower success Rate

Thank you
8. Q & A
Q &A
Restrict questions to option buying only & indicators discussed in presentation.

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OPTION BUYING SYSTEM

• Jitendra Jain – The Strategist

• Yogesh Nanda - Data crunching & Back-testing

• Yogeeswar Pal – Master Option Seller

• Jenil Dedhia – Unmatchable Executioner

• Manek Agicha – Disciplined Intern

1. Keep you microphone on mute to avoid disturbance

2. Restrict questions to the topic under discussion only

4. Mean while you can post your questions in comment box

• Developing executable strategies for retail traders

• Focusing more on Skill enhancement and Learning of Traders

Structure of today presentation:

3. Setup & Rules

4. Money Management & Risk Management

Why you Became Option trader?

You know who are you up against?

Its like playing against Australia on Australian pitches

Strong bowling line - For option seller its theta

*** Lets build our Team *****

Vwap is Volume weighted average price for the day

What is the best time to attack?

When normally sellers get trapped?

How to identify he is trapped?

When are these indicators favorable for buyer?

• Price above Vwap

• Volumes > 1.5x of average volume

• Open-Interest – Declining & preferably below 20sma of OI

When to Buy? What will be

Before designing any strategy, we need to answer few questions:

3. Change overbought and oversold levels to 60 & 40

5. Adding 20SMA on Open Interest

7. Adding 20SMA on volumes

Which chart to use?

Rules for entry:

Note: All Rules must be satisfied before taking entry

Which Strike to Choose?

a) Choose Any Strike that meets these conditions

b) Prefer to trade with ATM or 1st OTM

c) Works Best in Nifty and Banknifty

Initial Stop loss:

Back-test Results for Random Entry

At 26% Success Rate we are profitable

b) Fixed Risk Method

• Pre-defined stop loss

[Per trade risk / stop

Max loss 5,000

Exp profit 10,000

Few Risk management Rules:

2. Preferably play in monthly expiry – if in weekly be disciplined like a rock

3. Don’t force trade on you.. If don’t get signal don’t trade.

4. Don’t trade weekly OTMs [specially in Wednesdays and Thursdays]

6. Stop loss has to be in system – mental stop losses don’t work

For Fixed Risk method

- Keep adding Profits to your capital,

For fixed size method

Do single strategy fit for all?

Is this strategy Holy Grail?

You need to work on few things:

• Temperament needed for that strategy [ settle for lower

• Developing conviction by through back-test

• Tweaking few rules to suit your trading style

• Needs full Screen time

• Fastest figure first

* Lets build our Team ***