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Rohit Katwal

@rohit_katwal

7 Nov

Part 4: Understanding #OptionsBasic for #Nifty #BankNifty
In previous threads, we understood Intrinsic/Extrinsic value of options, how to achieve greek neutrality, risk management and how to define cheap or expensive options. Now

What Is Historical Volatility (HV)?
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@rohit_katwal

@rohit_katwal Historical Volatility is a statistical measure of the dispersion of returns for a given security or index over a given period of time. This measure is calculated by determining the average deviation from the average price instrument in the given time period.

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@rohit_katwal

@rohit_katwal Using standard deviation is the most common, but not the only, way to calculate HV. The higher the historical volatility value, the riskier the security. However, that is not necessarily a bad result as risk works both ways - bullish and bearish.
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Read 12 tweets

Rohit Katwal

@rohit_katwal

28 Oct

Is it possible to predict probable Top and Bottom on #Nifty #Nifty50 using #INDIAVIX ?

Lets find out.

#INDIAVIX is a measure of market’s expectation of volatility over the near term. VIX is computed using the order book of the underlying index options i.e #NIFTY.
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@rohit_katwal

@rohit_katwal VIX is denoted as an annualized percentage. Higher the VIX, higher the expected volatility.

When Nifty goes up, VIX reduces. When Nifty goes down, VIX increases. Its an inverse relationship. Why?

In my past tweets, I mentioned IV is demand and supply.
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@rohit_katwal

@rohit_katwal Puts are bought as hedge. When fear is less in the market, demand of puts is less and hence prices are low and hence low IV which results in Low Vix. When fear sets in, market dips and demand for put increases with increase in IV, VIX increases.

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Read 13 tweets

Rohit Katwal

@rohit_katwal

25 Oct

#Nifty volumes were pretty low on current futures but COI buildup is 3 lakh contracts. Consolidation underway. 78 Lakh contracts added on calls vs 44 lakh on put side. Still level 4 bullish on option chain. Given monthly expiry, one needs to be cautious.
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@rohit_katwal

@rohit_katwal I am holding 12000 Iron Fly. Will hold it if we are sideways and by end of day will square it off. If no direction then will take directional view on Tuesday.

If we go below below spot 11908, I will exit Iron Fly and hold Bear Call Spread.
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@rohit_katwal

@rohit_katwal If worst case scenario of opening at 11850 or below, will square off the losing put side which by virtue of theta decay will not give adverse loss as bear call spread is also there. Looking at SGX closing, it might not happen.
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Read 5 tweets

Rohit Katwal

@rohit_katwal

23 Oct

As far as charts are considered, I do not look for Volume Interpretation when we are in a sideways channel. But once we are out of channel, I do give it importance.

Reason: Any symbol follows general rule of market. Trend>Accumulation/Distribution>Trend.
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Now, this may vary from time frame to time frame and may have different interpretation when combining lower and bigger time frames. Once I spot a channel, volume and its interpretation inside it is irrelevant. Only the breakout.
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Over period I have observed that a good sideways channel is with 50 to 60 plus bars with support and resistance break test of at least 3 times. Between that multiple tests will be done for a shakeout to either side. In rare cases we have V shaped or n-down movements.
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Read 4 tweets

Rohit Katwal

@rohit_katwal

22 Oct

Why do only small traders lose money in the stock market instead of big traders?
Because of following reasons:
1. Under Capitalized
2. Compounding Returns
3. Seeking Paid Tips
4. Search for a Holy Grail
5. Not Understanding Reward:Risk and Probabilities
#TradingQNA #Nifty
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@rohit_katwal

@rohit_katwal A good friend of mine wanted to trade in the markets for extra income. I am not against the idea. I tried putting him on the right track. I gave some basic trading books. I warned against leverage. I warned against paid advisory tips.
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@rohit_katwal

@rohit_katwal I warned against trading with little capital. I tried to make him understand that it is a game of probability & risk management.

He started with Rs. 20,000/-. His idea was to make Rs. 500+ per day to call it a day. After 1 month, he had lost complete sum.
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Read 11 tweets

Rohit Katwal

@rohit_katwal

17 Oct

Part 3: Thread on #OptionBasics for #Nifty #BankNifty or #Stocks for beginners
In Part 2 we understood how to determine what IV is high and when to buy and sell options. Now we need to understand when to exit, roll or take a stop-loss.
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@rohit_katwal

@rohit_katwal Lets take a credit spread today:
Sell 11800 PE at 118
Buy 11700 PE at 75
Max risk is 57 point & max reward is 43 points. As visible from the Greeks, delta is almost neutralized and position is theta positive. Does one need to always look at greeks to strategize
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@rohit_katwal

@rohit_katwal There is a quick way to remain delta and theta neutral i.e.
When doing credit spreads: Sell one strike ITM and buy one strike OTM.
When doing debit spreads: Buy one strike ITM and sell one strike OTM.

This is a quick and dirty way to remain greek neutral.
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Read 10 tweets

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