In general, a logical stop loss varies from one situation to another.
Some of the logical stop losses can be: 1. Swing high/low 2. Low of the Hammer/Inverted hammer 3. High of the Shooting star/Hanging man 4. Low of the demand zone 5. High of the supply zone
If you are trading in options, broadly there are 2 ways to set a stop loss. There are: 1. Place the SL using the spot chart 2. Place the SL using the Options chart
Explanation: 1. If you place a stop loss using the spot chart, then you don't have to see the Options chart. But you won't be able to calculate exact loss beforehand because the movement of spot vs options is not linear and depends on Option Greeks. This is a simpler method since you just have to see a single chart. Just enter and exit the trade using the spot chart only.
2. If you place the stop loss using the Options chart, you will be able to calculate the exact loss beforehand. For checking the options chart, you will have to use your broker's terminal or use some paid third-party site. Tradingview doesn't provide option charts. This method is a bit difficult as compared to the first method. The steps that you need to follow are:
a> Check the spot chart. b> Execute your buy/sell order. c> Notice the logical stop loss in the spot chart d> Check the same SL in the options chart
4. Now open the options chart of the option that you bought/sold. 5. See the relative position of the stop loss in the options chart. (Whatever SL that you selected in the spot chart in step 3, select that same SL but now in options chart.) In the above case, suppose you Shorted Nifty. So, you can either buy a PUT option or sell a CALL option. The stop loss in both cases is as follows:
If you buy a PUT option:
If you sell a CALL option:
6. Now that you have chosen your stop loss, just place your stop-loss order. That's it, you are done.
Read the post a few times and you will be able to understand the process. Don't complicate things. I hope you find this post useful. Also, if anyone is interested in getting a PDF version of this thread, then you can message me, I'll provide it.
Disclaimer: This is NOT investment advice. This post is meant for learning purposes only. Invest your capital at your own risk.
We would like to know about VOLUME ANALYSIS. PLEASE HELP
Kirandeepc
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Buying Deep ITM option , If Price Stays in small range for 5 min Your premium will melt away. Try to Build Strategy on options always.
NMCapital
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For banknifty option if you want better return choose 250 - 300 rs option price. For expiry you can choose inbetween 150 to 250.
For nifty you can trade in 70 to 80 rs option.
shrikantgupta15
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Dear John plz advice on which side of strike price to choose if we buy ce and buy pe and which side to choose if sell ce and pe plz simplyfy it for all 4 conditions, it will be really helpful
NMCapital
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@shrikantgupta15, For banknifty option if you want better return choose 250 - 300 rs option price. For expiry you can choose inbetween 150 to 250.
For nifty you can trade in 70 to 80 rs option.
There is no exact calculation for selling ce and pe. But selling out of the money option will be beneficial when market is sideways. If you know market direction you can sell in the money option also.
mayur0408
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Hi Sir, how to select correct strike price for options. Can you help us with that.
Friday : +150 points CE, -150 Points PE can be bought from the Spot price ( Reason : Theta Decay will be low, as its the first day for next expiry)
Monday : +100 points CE, -100 Points PE can be bought from the Spot Price ( Reason : Theta decay will be low, but it will increase after 1:30 pm, so it plus minus 100 points can handle the theta)
Tuesday : +50 points or At the money CE (i.e index spot price), -50 points or At the money PE (i.e Index spot price ) can be bought ( Reason : theta decay will slightly higher, so plus minus 50 points can handle the decay)
Wednesday : At the money PE or Slightly in the money (+50 points PE For eg: if index is at 17000, u buy 17050 PE), and ATM CE or Slightly in the money CE ( if index 17000, buy -50 : 16950 CE) ( Reason : Theta decay is higher ATM and slightly ITM Ce/pe can handle theta decay )
Thursday : Expiry day : Either trade PE/ CE from next expiry or in the money PE / CE ( Reason: theta decay is much much higher, So In the money PE /CE is good, coz theta decay for ITM will be slightly lower as compared to ATM and OTM)
For Safe Traders on Expiry Day:
Due to high theta decay, Traders gets max loss on expiry day : So in my opinion,on expiry days always trade from next expiry CE / PE
Hope it helps :)
johntradingwick
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@mayur0408, The best and most logical thing is to buy Deep In-The-Money (ITM) options. It will provide good a Delta and less Theta.
Rohit2323
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@mayur0408, Always trade/choose strike price 100 points in the money.... ITM has a better risk reward and most systems work just fine... My experience....