Why I am planning to by PUT Options on NIFTY
Context : August 31 was a the day when NIFTY broke it's normal routine of moving up slowly, which started in June. It also followed up by another leg of down move on Sep 4.
I was able to play both these moves because of sound strategies.
And
Now with these two successful attempts, I completely understand , shorting again may not be a good idea. **** THIS IS HIGH RISK TRADE. PLEASE DO NOT FOLLOW> JUST SHARING FOR INFORMATIONAL PURPOSE ****
the question arises, what is next? Are we done with correction or this time, something has changed?
Nobody knows the answer. But as a trader, it is my job to create a logical viewpoint and design a trade which rewards me if NIFTY indeed goes in the way I imagined. For creating this view, I can dig deeper in the recent corrections and see if there is anything I can build upon from the data.
Now I do not know if the current correction is over, but since 9 days have passed, I am willing to study the current move as well.
Study of corrections so far
====================================================================
Correction 1 (June 8 - 12)
Upswing Days : 8 (6G + 2R)
Upswing Chg : 14.71%
Upswing Angle : 68
---------------------------------------------
Correction onset : High Trap
Correction Days : 4 (1G + 3R)
Correction Chg : 7.59%
Correction Angle : -71
Correction end : Large Candle + News
---------------------------------------------
VIX Jump ~ 17%
% Stocks above 20 SMA (Chg) ~ -3% (90.51%)
No. of days to regain the top - 7
Note : No deeper close below 15 day EMA
Sharp surprise emerged at climax low
*****************************************************************
Correction 2 (June 24 - 29)
Upswing Days : 8 (5G + 3R)
Upswing Chg : 10.57%
Upswing Angle : 62
---------------------------------------------
Correction onset : High Engulfing
Correction Days : 4 (3G + 1R)
Correction Chg : 3.12%
Correction Angle : -59
Correction end : Indecision + Spring
---------------------------------------------
VIX Jump ~ -2.25%
% Stocks above 20 SMA (Chg) ~ -12.6% (75.36%)
No. of days to regain the top - 3
Note : Stayed above 15 day EMA
*******************************************************************
Correction 3 (July 13 - 16)
Upswing Days : 10 (7G + 3R)
Upswing Chg : 6.56%
Upswing Angle : 44
---------------------------------------------
Correction onset : False Breakout
Correction Days : 4 (1G + 3R)
Correction Chg : 2.79%
Correction Angle : -60
Correction end : Hammer
---------------------------------------------
VIX Jump ~ 0%
% Stocks above 20 SMA (Chg) ~ -16.49% (35.84%)
No. of days to regain the top - 2
Note : Just touched 15 day EMA, did not close
*******************************************************************
Correction 4 (July 29 - August 3)
Upswing Days : 9 (7G + 2R)
Upswing Chg : 6.97%
Upswing Angle : 54
---------------------------------------------
Correction onset : Silent, No pattern
Correction Days : 4 (4R)
Correction Chg : 4%
Correction Angle : -69
Correction end : Climax Exhaustion
---------------------------------------------
VIX Jump ~ 4.4%
% Stocks above 20 SMA (Chg) ~ -2.2% (36.1%)
No. of days to regain the top - 6
Note : Closed below 15 day EMA, strong negative close.
*******************************************************************
Correction 5 (August 11 - 14)
Upswing Days : 5 (4G + 1R)
Upswing Chg : 4.32%
Upswing Angle : 53
---------------------------------------------
Correction onset : Dragonfly doji Top
Correction Days : 4 (2R + 2G)
Correction Chg : 4%
Correction Angle : -55
Correction end : Climax Exhaustion
---------------------------------------------
VIX Jump ~ 0%
% Stocks above 20 SMA (Chg) ~ -2.5% (71.69%)
No. of days to regain the top - 2
Note : Just touched 15 day EMA, did not close
*******************************************************************
Correction 6 (Or Trend Change) (August 31 - ?)
Upswing Days : 10 (8G + 2R)
Upswing Chg : 5.83%
Upswing Angle : 47
---------------------------------------------
Correction onset : Large Bearish Engulfing
Correction Days : 8 (5R + 3G) ...
Correction Chg : 5.19% ...
Correction Angle : -59 ...
Correction end : Gap Reversal (?)
---------------------------------------------
VIX Jump ~ 25%
% Stocks above 20 SMA (Chg) ~ -25.65% (27.66%)
No. of days to regain the top - 9 days has not regained the top
Note : Stayed below 15 day EMA for 4 candles.
*******************************************************************
My observations about current correction
-----------------------------------------
1) Current downmove has made the NIFTY participants fearful. VIX jumped 25% during the period.
2) So far 9 days have passed and NIFTY has not been able to reclaim the 11800 level.
3) Market breadth has weakened considerably. There are only 27% stocks above 20 SMA
4) NIFTY broke 15 day EMA and stayed below it for some time, which none of previous corrections did.
My view
-------
1) All these observations mean, the buyers are not enthusiastic here to aggressively buy.
2) Buyers are fearful and only betting on few names (27% of the stocks)
3) If buyers are waiting for lower prices, NIFTY will drift down under selling pressure.
4) For now, intention to sell is also not very clear. 11800 and 11600 levels , there was selling, but it is not confirmed.
5) Sellers are scared that NIFTY may again move up and then buying will accelerate. They are comfortable selling once previous point is taken out.
Possibilities
------------
1) For now, I assume the possibility of NIFTY breaking down further , how much - lets assume 10%, that is the healthy correction even in bull market. That is roughly 10600-10700 level
2) Will NIFTY go and touch 11800 in between, yes may be. But for building my view, I assume it wont cross 11800 convincingly.
3) This move can be sharp or can form complex top - distribution pattern.
How to trade this?
------------------
1) I'll buy a October 29 11000 PUT , preferably when NIFTY is around 11400 - 11500. Current price for this is 162 rs
2) Anytime, this goes to 400 Rs or closed, I'll close the trade or hedge it to secure profits. (NIFTY 10700-10600 on SPOT)
3) My stop loss is NIFTY closing above 11900 for 2-3 days.
How I can further reduce my risk?
---------------------------------
1) Since I am buying the PUT , I can offset some of its cost by selling 10600/10700 PUT every week. But this is potentially restricting move, so need to be executed only when strong buying is seen on lower time frames.
How much loss I can see?
-------------------------
If NIFTY hits stop loss by Sept 30, PUT will be around 40 rs ~ that is 9000 rs loss per lot.
I was able to play both these moves because of sound strategies.
And
Now with these two successful attempts, I completely understand , shorting again may not be a good idea. **** THIS IS HIGH RISK TRADE. PLEASE DO NOT FOLLOW> JUST SHARING FOR INFORMATIONAL PURPOSE ****
the question arises, what is next? Are we done with correction or this time, something has changed?
Nobody knows the answer. But as a trader, it is my job to create a logical viewpoint and design a trade which rewards me if NIFTY indeed goes in the way I imagined. For creating this view, I can dig deeper in the recent corrections and see if there is anything I can build upon from the data.
Now I do not know if the current correction is over, but since 9 days have passed, I am willing to study the current move as well.
Study of corrections so far
====================================================================
Correction 1 (June 8 - 12)
Upswing Days : 8 (6G + 2R)
Upswing Chg : 14.71%
Upswing Angle : 68
---------------------------------------------
Correction onset : High Trap
Correction Days : 4 (1G + 3R)
Correction Chg : 7.59%
Correction Angle : -71
Correction end : Large Candle + News
---------------------------------------------
VIX Jump ~ 17%
% Stocks above 20 SMA (Chg) ~ -3% (90.51%)
No. of days to regain the top - 7
Note : No deeper close below 15 day EMA
Sharp surprise emerged at climax low
*****************************************************************
Correction 2 (June 24 - 29)
Upswing Days : 8 (5G + 3R)
Upswing Chg : 10.57%
Upswing Angle : 62
---------------------------------------------
Correction onset : High Engulfing
Correction Days : 4 (3G + 1R)
Correction Chg : 3.12%
Correction Angle : -59
Correction end : Indecision + Spring
---------------------------------------------
VIX Jump ~ -2.25%
% Stocks above 20 SMA (Chg) ~ -12.6% (75.36%)
No. of days to regain the top - 3
Note : Stayed above 15 day EMA
*******************************************************************
Correction 3 (July 13 - 16)
Upswing Days : 10 (7G + 3R)
Upswing Chg : 6.56%
Upswing Angle : 44
---------------------------------------------
Correction onset : False Breakout
Correction Days : 4 (1G + 3R)
Correction Chg : 2.79%
Correction Angle : -60
Correction end : Hammer
---------------------------------------------
VIX Jump ~ 0%
% Stocks above 20 SMA (Chg) ~ -16.49% (35.84%)
No. of days to regain the top - 2
Note : Just touched 15 day EMA, did not close
*******************************************************************
Correction 4 (July 29 - August 3)
Upswing Days : 9 (7G + 2R)
Upswing Chg : 6.97%
Upswing Angle : 54
---------------------------------------------
Correction onset : Silent, No pattern
Correction Days : 4 (4R)
Correction Chg : 4%
Correction Angle : -69
Correction end : Climax Exhaustion
---------------------------------------------
VIX Jump ~ 4.4%
% Stocks above 20 SMA (Chg) ~ -2.2% (36.1%)
No. of days to regain the top - 6
Note : Closed below 15 day EMA, strong negative close.
*******************************************************************
Correction 5 (August 11 - 14)
Upswing Days : 5 (4G + 1R)
Upswing Chg : 4.32%
Upswing Angle : 53
---------------------------------------------
Correction onset : Dragonfly doji Top
Correction Days : 4 (2R + 2G)
Correction Chg : 4%
Correction Angle : -55
Correction end : Climax Exhaustion
---------------------------------------------
VIX Jump ~ 0%
% Stocks above 20 SMA (Chg) ~ -2.5% (71.69%)
No. of days to regain the top - 2
Note : Just touched 15 day EMA, did not close
*******************************************************************
Correction 6 (Or Trend Change) (August 31 - ?)
Upswing Days : 10 (8G + 2R)
Upswing Chg : 5.83%
Upswing Angle : 47
---------------------------------------------
Correction onset : Large Bearish Engulfing
Correction Days : 8 (5R + 3G) ...
Correction Chg : 5.19% ...
Correction Angle : -59 ...
Correction end : Gap Reversal (?)
---------------------------------------------
VIX Jump ~ 25%
% Stocks above 20 SMA (Chg) ~ -25.65% (27.66%)
No. of days to regain the top - 9 days has not regained the top
Note : Stayed below 15 day EMA for 4 candles.
*******************************************************************
My observations about current correction
-----------------------------------------
1) Current downmove has made the NIFTY participants fearful. VIX jumped 25% during the period.
2) So far 9 days have passed and NIFTY has not been able to reclaim the 11800 level.
3) Market breadth has weakened considerably. There are only 27% stocks above 20 SMA
4) NIFTY broke 15 day EMA and stayed below it for some time, which none of previous corrections did.
My view
-------
1) All these observations mean, the buyers are not enthusiastic here to aggressively buy.
2) Buyers are fearful and only betting on few names (27% of the stocks)
3) If buyers are waiting for lower prices, NIFTY will drift down under selling pressure.
4) For now, intention to sell is also not very clear. 11800 and 11600 levels , there was selling, but it is not confirmed.
5) Sellers are scared that NIFTY may again move up and then buying will accelerate. They are comfortable selling once previous point is taken out.
Possibilities
------------
1) For now, I assume the possibility of NIFTY breaking down further , how much - lets assume 10%, that is the healthy correction even in bull market. That is roughly 10600-10700 level
2) Will NIFTY go and touch 11800 in between, yes may be. But for building my view, I assume it wont cross 11800 convincingly.
3) This move can be sharp or can form complex top - distribution pattern.
How to trade this?
------------------
1) I'll buy a October 29 11000 PUT , preferably when NIFTY is around 11400 - 11500. Current price for this is 162 rs
2) Anytime, this goes to 400 Rs or closed, I'll close the trade or hedge it to secure profits. (NIFTY 10700-10600 on SPOT)
3) My stop loss is NIFTY closing above 11900 for 2-3 days.
How I can further reduce my risk?
---------------------------------
1) Since I am buying the PUT , I can offset some of its cost by selling 10600/10700 PUT every week. But this is potentially restricting move, so need to be executed only when strong buying is seen on lower time frames.
How much loss I can see?
-------------------------
If NIFTY hits stop loss by Sept 30, PUT will be around 40 rs ~ that is 9000 rs loss per lot.
Trade active:
Bought 11000 PUT 29 Oct 2020 @ 130 Rs. I'll hedge the same if intermediate bottom found on low time frame charts
Trade active:
Still Active. Now more convinced.
Trade active:
Put is at 197 Rs. Will sell some Pus near term expiry to cover the pullback.
Trade active:
Trade Active @ 250 but Now hedging it with 11000 PUT Oct 1 Expiry.