Following table gives an idea on interest rate and time required for money to double (100% return) and triple (200% return). The information can be used to benchmark the return from an stock market.
|Rate of Interest||Time (in Years) to DOUBLE when compunded||Time (in Years) to TRIPLE when compunded|
Following entries can be used to calculate delta for up to 5 strike prices for a given spot-price. The default values are: Rate of Interest (ROI) = 5.0% per annum, Implied Volatility = 20 [%] and Dividend Yield = 0 [%]. In order to omit calculation in any row, specify lot size = 0. As an option trader, most of the money is earned through time decay and hence one should try to be delta neutral with only small bias in the anticipated direction of price movement.
|Spot Price:||Days to Expiry (days):||ROI:|
|IV:||Option Type||Lot Size||Trade Type||Delta Values|
T-Bill is a money market instrument to finance the short term requirements of the Government of India (GOI). The returns on T-Bill instrument shall be difference between the par value and issue price / traded price. T-Bills are issued at discount in primary auction conducted by Reserve Bank of India (RBI). Negotiated Dealing System - Order Matching (NDS-OM) is a platform provided by RBI to trade T-Bills in secondary market. Yield is the income (return) on an investment usually expressed as a % annual return. Yield can be quoted as Yield to Maturity (YTM) = [Par Value - Market Price] / [Market Price] x 365/[Actual Days] or Discount Yield (DY) = [Par Value - Market Price] / [Par Value] x 360/[Actual Days].
FII-FPI trade data: refer to NSDL website www.fpi.nsdl.co.in/web/Reports/Latest.aspxSince FII and FPI may trade on both NSE and BSE, the turn-over data from NSE may not be sufficient to estimate what fraction of trading volume is contributed by FII/FPI. Refer to the following data for trades on 31-May-2019.
As reported, total trades value by FII/FPI is 7,552 + 5,480 = INR 13,032 Crores which is 33% of total traded value in equities on NSE.
The turnover data on NSE for stock futures is INR 59,013 Crores where the FII/FPI contribution is 24,387 + 23,362 = INR 47,749 Crores which is almost 80% of the total trades. Similarly, the turnover data on NSE for index futures is INR 32,151 Crores where the FII/FPI contribution is 8,208 + 5,986 = INR 14,194 Crores approximately 40% of total traded value.
|Candlestick Type||Next Verification Candle||Probability||Anticipated Move|
|Hammer||Gap-up opening next day ending in a Marubozu||High||Bullish Reversal after significant downtrend|
|Morning Star or Abandoned Baby (Evening Star)||Very potent as combination of > 2 candles||High||Reversal after significant trending market|
|Three White Soldier (3 Black Crow)||Doji or Bearish (Bullish) Engulfing||High||Early phase of trend reversal|
|Piercing Candle||1st bearish candle with large body, high EOD volume||High||Bullish Reversal after significant downtrend|
|Dark Cloud Cover||Heavy volume during opening of 2nd day||High||Reversal after significant uptrend|
|Long Marubozu / Belt-Hold||Short Marubozu or Spinning Top||Moderate||Trend Reversal / continuation|
|Harami or Petrifying pattern||Gap up near bottom or gap down near top||Moderate||Decrease in momentum|
|Doji||Gap-down opening or formed after long candle||Moderate||Trend interruption / slowing momentum|
|Shooting Star||Gap-down opening next day ending in a Marubozu||Moderate||Bearish Reversal after significant uptrend|
|Bullish (Bearish) Engulfing||Volume on 2nd day, more potent if left stick is a Doji||Moderate||Reversal in trading market|
The chart for consituents of BankNifty is as per post by NSE on Twitter date 01-May-2019.
Probability in trading: We all need to guess the market direction and the impact of news on stock prices. From technical analysis perspective, an "informed guess" is analogous of estimating the probability. A key caveat about 'probability' that it is not probability calculus. Instead, it is the ability to think of uncertainty as a thing that can be quantified at least in principle. This means that we can and should be able talk about uncertainty as if it were a number: numbers can be compared ("is this event more probable than that even") and they can often be measured. Measuring probabilities is difficult and not unique method exists: we usually need many observations about a phenomenon to draw conclusions. However, by systematically collecting data, we can critically evaluate probabilistic statements, and our numbers can sometimes be found to be right or wrong. In other words, the key lesson is that uncertainty is not beyond the scope of rational thinking and discussion, and probability provides a systematic way of doing just that.
Elaboration by example:A pattern analysis forecasts that the price is is going to increase by 2% with 75% probability tomorrow but the day turns out to be drop in price by 1%. Can it be concluded that the forecasting capability of this particular method is not good?
We can't conclude that the forecast was wrong based on only single event. The forecast said stock price is going to increase with 70% probability, which means price may drop or increase by lesser percentage with 25% probability or in one out of 4 days. It is reasonable to accept that the day in question was the 1 in 4 event. Concluding that the probability 75% was correct would also be wrong because by the same argument, we could then conclude that 50% chance of price increase by 2% was also correct and both cannot be correct at the same time.
The dialemma of long term investing is clearly visible from following chart.
Historical data of NIFTY50 stocks and description of some MS-Excel based tools are summarized below.
Technical analysis works, but market does retreat to some levels governed by fundamentals specially earning ratios. Combined "price earning ratio" of the stocks comprising the index is one such variable. In very simple terms, if you get 5% interest on your fixed deposits (FD), the PE ratio of your FD is 100/5 = 20. Similarly, if a stock is trading at 1000 Rupees and it generates profit of 20 Rupees per share in a year, its PE ratio is 1000/20 = 50.NIFTY PE trading above previous year highs and a retracement is very likely.
There are only following 8 basic purposes of any option trade. One of these will be appropriate depending upon market conditions.
|Option Type||Trade Type||Purpose(s)|
|CALL||Buy|| Speculation: |
| Hedging: |
|CALL||Sell|| Speculation: |
| Hedging: |
|PUT||Buy|| Speculation: |
| Hedging: |
|PUT||Sell|| Speculation: |
| Hedging: |
|Option type||Position type||δ|
change in option premium = δ × change in stock price + 1/2 × Γ × (change in stock price)2
Application of greeks. In practice the interaction or trade-off between these parameters is required to correctly estimate the premium and take benefit of expected change in option price.
|Outlook||Description||Buy||Buy||Sell||Sell||Remark||L:Lim/U:Unlim, Time Erosion||Profit Probability||Vega Strategy, Desired IV Level||Debit / Credit|
|Bullish||Naked Short Put||-||-||Put||-||ITM / OTM||L / U ! ++||High: >90%||- Vega | High||Credit|
|Bull Put Spread||OTM Put||-||ITM Put||-||Put credit spread||L / L ! -||High: >90%||- Vega | High||Credit|
|Long Combo||OTM Call||-||OTM Put||-||U / U ! -||Med: ~50%||- Vega | High||-|
|Synthetic Long Call||Stock / FUTR||Put||-||-||Protective put||U / L ! -||Med: ~50%||+ Vega | Low||Debit|
|Synthetic Long||-||Call||Put||-||same strk/maturity||U / U ! -||Med: ~50%||+ Vega | Low||-|
|Bull Call Spread||(ITM) Call||-||(OTM) Call||-||Vert. Bull Spread||L / L ! +||Low: <10%||+ Vega | Low||Debit|
|Call Backspread||(Hi Strk) Call||(Hi Strk) Call||(Lo Strk) Call||-||Ratio Call Spread||U / L ! -||Low: <10%||+ Vega | Low||Debit|
|Naked Long Call||Call||-||-||-||ITM / OTM||U / L ! --||Low: <10%||+ Vega | Low||Debit|
|Bearish||Naked Short Call||-||-||Call||-||ITM / OTM||L / U ! ++||High: >90%||- Vega | High||Credit|
|Covered Put||-||-||Stock / FUTR||OTM Put||L / U ! -||High: >90%||- Vega | High||Credit|
|Synthetic Long Put||Call||-||Stock / FUTR||-||L / L ! -||Low: <10%||+ Vega | Low||Credit|
|Bear Call Spread||OTM Call||-||ITM Call||-||Call Credit Spread||L / L ! +||Low: <10%||- Vega | High||Credit|
|Bear Put Spread||ITM Put||-||OTM Put||-||Vert. Bear Spread||L / L ! -||Low: <10%||+ Vega | Low||Debit|
|Naked Long Put||Put||-||-||-||ITM / OTM||U / L ! --||Low: <10%||+ Vega | Low||Debit|
|Put Backspread||(Lo Strk) Put||(Lo Strk) Put||(Hi Strk) Put||-||Ratio Put Spread||U / L ! -||Low: <10%||+ Vega | Low||Debit|
|Neutral||Short Straddle||-||-||Call||Put||same strk/maturity||L / U ! ++||High: >90%||- Vega | High||Credit|
|Short Strangle||-||-||OTM Call||OTM Put||same strk/maturity||L / U ! ++||High: >90%||- Vega | High||Credit|
|Long Call Butterfly||ITM Call||OTM Call||ATM Call||ATM Call||L / L ! +||High: >90%||Neutral||Credit|
|Short Call Butterfly||ATM Call||ATM Call||ITM Call||OTM Call||L / L ! +||High: >90%||Neutral||Credit|
|Iron Condor||ITM Call||OTM Call||ITM Call||OTM Call||L / L ! +||High: >90%||Neutral||Credit|
|Covered Call||Stock||-||OTM Call||-||Covered Write||L / U ! +||High: >90%||- Vega | High||Debit|
|Long Straddle||Call||Put||-||-||same strk/maturity||U / L ! --||High: >90%||+ Vega | Low||Debit|
|Long Strangle||OTM Call||OTM Put||-||-||same strk/maturity||U / L ! --||Low: <10%||+ Vega | Low||Debit|
|Covered Strangle||Stock / FTR||-||Sell Call||Sell Put||Stock b/w call/put||L / U ! -||Low: <10%||+ Vega | Low||Debit|
|Collar||Stock / FUTR||Put||Call||-||L / L ! +||Low: <10%||+ Vega | Low||Debit|
The content on CFDyna.com is being constantly refined and improvised with on-the-job experience, testing, and training. Examples might be simplified to improve insight into the physics and basic understanding. Linked pages, articles, references, and examples are constantly reviewed to reduce errors, but we cannot warrant full correctness of all content.
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