Futures Trading Strategy

The topic heading describes the main ideas that we discuss today in this blog. This post is to reply to a number of comments received since Tuesday. Some replies are in this post. Others will follow soon.

On Options:
Dwarka asked:
Can you please write a post on how to trade delta neutral positions and how to make money out of the same?I know how to set up a delta neutral trade and take a position,but am not sure as to what criteria to apply to exit from the same.It will be very helpful if you can write an educative post on the same, with an illustrative example.

My Notes: Setting up a Delta Neutral Position is the easiest part of the trade. Getting out of it is like Abhimanu’s Chakravyuha – no exits. Delta Neutral positions require lot of time to become profitable. This means, you should take such positions when you have at least six or seven weeks till expiration. This restricts the positions to Nifty options which are the only liquid instrument.

Sano says:
But what I find here is that Nifty Options do not move about the same way it is written in most of the books on options. I mean there is no proper match between premium and the stike price. At times I see that both the prices are moving against me or for me. Can you guide me to any good books on options, Sir?

My Notes: Option theories and the actual trade are completely different. As an example, you buy a PUT when markets are falling dramatically. IV’s are very high. Now, market stops falling. You will find that your put may actual be losing money even if price has moved slightly in your favor. When IV’s start increasing, due to a sudden trending move, prices of calla as well as puts tend to increase even though the market has taken a trend. There are many such differences between theory and practice. Re: book, let me check up an appropriate book. I will write about it in the blog.

Oscillators

Shaq asks:
sir,which oscillator is shown in the graph…is it the RSI/MACD…any link from where we can get these live intraday mappings..thanks.

My Notes: The indicator is a smoothed CCI, with period = 20, then smoothed with a three period average. This means, you first craete a 20 period CCI, then create a 3 period average of the CCI. The average is used.
I do not know of any sites where such intra day charts are available.

men says:
After looking at the yearly chart on yahoo for the nifty, most of the indicators are showing a +ve divergence, could you please clarify and give your comments if it is a buy on declines, as usual it is a hindsight view only.

My Notes: My technical analysis software (trend mechanic and tradestation) does not have yearly charts as an option. I do not track yearly charts. (Yearly means one bar for one year : this is what I understand). But on monthly charts there is no positive divergence yet.

Tushar wrote the comments on Tuesday. He got it right.

I have 2 questions:(1)I saw a bearish divergence in OBV indicator to price on nifty futures. Does this suggests distribution?(2)Was yesterday gap up an exhaustion gap? therefore we are going for a correction if not trend reversal

My Notes: This question was asked on Tuesday, May 5. Since then Nifty Futures have been in a range between 3700 – 3600. Tushar’s points are well taken. His observations seem to have been correct. Cheers! Given below is the chart for Futures & OBV. OBC can be part of an online day trading method or futures trading strategy.