Hurst Cycles Trading Software - Accurately Forecast Nifty and Stock Cycles

Sunday, January 18, 2009

Short NF 2833

Shorting NF(Feb) 2833...Size 1000...Starting position. Will add later.

Hedge with 3000 Calls(Feb)...Size 1500...

As I said before, if market goes up, I will roll up the options to 
higher strikes and also add onto shorts. We shall see how 
much energy this market has and decide accordingly.

EDIT - Let me just say here, even in the bearish case, there is a 
very good possibility for Nifty to rally upto the 2960-3040 area
and still remain bearish. For me, if this happens, I will continue
to add shorts. So far so good.

The 20day swing will be reversed only above 3150..So as you
can see, its quite a tough trade but lets not overthink this
and trade each day as it comes.

-> Short term is bullish but can turn very quickly.
-> Medium term and long term are bearish.

Best.

7 comments:

shaq said...

hi...in one of the previous posts..u mentioned "Watch the IV closely when taking the hedge".Could you please tell me the meaning of this.Does IV indicate the premium value?why is it denoted by IV?
and for the current trade since u have shorted 20 lots of nifty and longed 30 lots of nifty feb call...can we say the delta is 1.5?
I m still a novice..so please excuse me with these basic qs..
how do we determine how much to hedge ...

Prashanth said...

IV = Implied Volatility.

What is Implied Volatility? Well, its the volatility that the market assumes may be there in the near future. Premium for a large part is dependent upon 2 factors - Time & Volatility.

For Calculating Delta, just google Option Delta Calculator and you should get online Calculators which calculate the delta for any position.

As regards to determining as to how much to hedge, well it depends upon what your extreme short term view is. If you are short but bullish on extreme short term, a higher hedge can result in lower losses if market moves up. But, if you do not expect bullishness, you can have a lower hedge (say around 0.50 Delta) since you are hedging only to be on safe side and not trying to make money from the hedge itself.

Lee said...

Thanks Prashanth.

Shaq, hope you got your answer.

Delta is not 1.5 here.

Got to http://www.trader-soft.com/download.html and get the options calc. You can calculate delta of current posn as around 0.4

So if you want to make the posn delta neutral, you need to increase the option size accordingly...Right now the effective delta for this position is 0.6 I guess...Which is okay since my stance is bearish and the hedge is more of protection than anything else.

Prashanth, pls correct me if I am stating anything wrong here as I am also learning in this area.

Best.

Ranga said...

Lee, Just a Q, as you see the market is gonna be predominantly down, to be decided before Jan series closing?
and when you have decided to add more short on top?
why hedge for 1500 at 3k feb?

Dont you think 1000 feb 3k hedge+500 jan 3k Hedge +3300 feb 800 hedge was relatively strong hedge?( cash outlay maintained). If there is a bounce risk premium would shoot up.

Just trying to get your thought process,please comment
regards
ranga
ps: i find the following link is easy to track options being traded and can be easily downloaded in to excel. If IVs are calculated in excel gives a good way of finding cheaper options.
http://nseindia.com/marketinfo/fo/fomwatchsymbol.jsp?key=NIFTY

Lee said...

Hi Ranga,

I did not get most of your Qs...Let me try to clear...

"Lee, Just a Q, as you see the market is gonna be predominantly down, to be decided before Jan series closing?
and when you have decided to add more short on top?
why hedge for 1500 at 3k feb?"

This short is totally new position...1000 NF short and 1500 Option Hedge.

This is my thought process - I expect market to top in 2850-3050 area. Outside chance is there for 3120-3150 but very low probability. But since it entered my shorting range, I started to short...Today as you can see market might open below 2750 and if it goes below 2700 over next few days, then I totally miss my chance to short..Thats why I started yesterday...But since still risk of rally(obama rally) is there, the hedge is in...I did not think too much about the ratio but just trying for some protection.

"Dont you think 1000 feb 3k hedge+500 jan 3k Hedge +3300 feb 800 hedge was relatively strong hedge?( cash outlay maintained). If there is a bounce risk premium would shoot up"

- Did not understand what you mean...Do you mean to make the position delta neutral? Right now I only have 1500 hedge to a 1000 NF short position. Did you miss this?

Can you clarify on the Qs again please.

Best,
Lee

Ranga said...

Dear Lee,

instead of 1000 sell Nf 2833 + hedge by 1500 feb 3k call at aprrox 100


what i was asking is hedge by
1000 3k call feb,
500 3k call jan@25,
800 3.3k call feb @25
this would have same cash out lay and short positions would be better protected.

as the view was Obama Rally or no rally!
hope i made it clear
regards
Ranga

Lee said...

Ok Ranga..Understand now..However still need to research the pros and cons of this vs my first one...I will post any Qs I have on this later...

Best.