Tuesday, 8 March 2016

Daily View On Nifty

18.03.16 / 12:50

Intraday huge support at 7400 and some resistance at 7650. Lot of writing in puts seen even at 7500 level indicating 7500 will also provide support to the market. Off late market is getting hugly manipulated and we are observing reversal of trends in the last one hour.

Long term range now shifting to 7400 - 7700 shows upside bias. But lets wait for todays close to see what is in store for this series expiry.

Next week is a short week with Thursday and Friday being holidays, and we can see build up for expiry trades in next week trading.

Monday, 7 March 2016

Basics of Derivatives Markets - Part 2


Let us try to understand call option from our day to day to transaction. We have taken a real estate example as it makes it much easier to understand.

Call Option

Lets say today is Ist January and there is a person Mr A , who wants to buy property.

-       Mr. A goes to builder on 1st January and paid  Rs 1 lakh.
-     Booked a house worth Rs 50 lakhs to be   purchased on 30 th March by making a balance payment.

There can be different scenarios on 30 the of March.

Scenario 1 on 30th March

-       On 30th March if property is worth Rs 30 lakhs only , what will Mr A do ?


1. Pay the balance amount & buy the house.
    - This means he is Exercising his right

2. Let his 1 lakh go and buy similar house at  Rs 30 lakhs.
- This means he is not exercising his right.

Obviously, Mr A will not exercise the option as it means that he will be buying a property worth 30 lakhs in 50 lakhs. And hence he will back out from the agreement and let his 1 lakh be forfeited.

Scenario 2 on 30th March – Price of house is  70 lakhs

Mr A will pay the balance amount & buy the house.
    - Means he is Exercising his right

- Made a profit of Rs 20 lakhs.

- Builder made a loss of Rs 20 lakhs. He cannot refuse to sell as A has purchased Right to Buy.

How builder is loosing 20 lakhs ? 

    Mr. A                                                 Builder
House                                            Buyer                                                 Seller
Right                                             Buyer                                                 Seller

-          Mr. A has purchased right to buy .

-          By accepting Rs 1 lakh, Builder has sold the right.

-          Mr. A may or may not exercise the right. If it is beneficial to exercise the right only then Mr A will exercise. Otherwise he will not exercise and choose to get his 1 lakh forfeited.

Hence -
A call option is an option granting the right to the buyer of the option to buy the underlying asset on a specific day at an agreed upon price, but not the obligation to do so.

Hence call option is RIGHT TO BUY.

A call option can be bought and it can be sold.

Seller has granted this right to the buyer of the option. 

The person who has the right to buy the underlying asset is known as the “buyer of the call option”.

The price at which the buyer has the right to buy the asset is agreed upon at the time of entering the contract- known as strike price.

Since the buyer of the call option has the right (but no obligation) to buy the underlying asset, he will exercise his right to buy the underlying asset if and only if the price of the underlying asset in the market is more than the strike price on or before the expiry date of the contract.

The buyer of the call option does not have an obligation to buy if he does not want to.

For daily view on nifty visit http://theoptionschool.blogspot.in/p/view-on-nifty.html

Can you create wealth doing intra day trading ? Part 2

We had asked this questions to our subscribers and got really interesting (and witty) answers from them. Not possible to reproduce everything here but would like to share the best .

"Just like in gambling, the HOUSE never looses, similarly in intra-day , the broker never looses as he gets his cut whether you win or loose."

Do not want to go into details but would like to caution all of us , who are trying to create some fortune through intra-day trading. Odds are really against you.

Another main reason why lot of people indulge in intra-day trading is they do not have sufficient funds.Here is the catch-with small funds they get leverage from brokers only for intra-day trading, and hence do not have any choice but day trading only. Also they will be getting lot of software for trading and using stop losses so that they do not loose everything and come back next day to trade.(Stop loss is also a loss).And this cycle goes on till they loose that small amount also.

And see what we are trying to do ?

With little money, say 10 k , we are trying to make 10 k every month and that means 100% monthly returns. Possible ?? Even 50% monthly return is impossible on consistent basis. That is why, it is gambling only.

If that would have been possible, all the big businessmen would not have toiled so hard, setting their businesses.

So, what is the solution ?

Solution is , if you do not have funds, do not loose whatever you have.
Invest this money wisely in instruments like NIFTY BEES(One unit costs you one tenth of Nifty value, so if Nifty is at 7500, one unit will cost you 750/-). This way you are pretty diversified and not in for any serious capital erosion.

Once you have decent funds (say Rs 2 lakhs) , start using options for monthly returns ranging from 2% to 5%.

If you are already that stage, learn the art of trading options from experts.

Visit the following website for latest schedule for one day workshop.


Sunday, 6 March 2016

Can you create wealth doing Intra-day trading ?

Somebody asked a really interesting question on one of the forums :-

Can you create wealth doing intra-day trading ?

I am into stock markets since last 10+ years and would have loved to give affirmative answer to the question.

But I could not.

Yet to see an intra-day trader who has created any meaningful wealth , even in fairly long span of time.

Then, why is it that so many people are involved in day trading only ?

Well, there are multiple reasons for this but the main reason is that the whole system is designed in a way to lure investors for day trading. This phenomenon is not only prevalent in India but is there, worldwide.

Who is benefited most from intra day trading and at whose cost ?

I am not going to give answer and would like you to answer this. If you are able to answer it, go to next post on the topic and see if you are able to decipher it.

We have got some interesting answers from our subscribers. Would share some of those answers also in the next post.