Nifty Pivot for 2nd March09

Nifty Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
2681.15-----2722.35------2749.65------2790.85-----2818.15

Dow Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
6935.50-----6999.21------7097.34------7161.05-----7259.18

FTSE Pviot :
----S2-----------S1-------------Pivot-----------R1------------R2----
3680.54-----3755.31------3835.48------3910.25-----3990.42
-----------------------------------------------------------------------

Futures Trading : A Cautionary Guide

This is a short, sobering guide to futures trading. Tradingfutures.biz does not tell you how to make your first billion, but it does tell you how not to.
We also give you some useful futures trading links and a trading record sheet and we debunk myths which only serve to confuse traders and interfere tactically with their trading strategy. Sometimes the best advice is free.
1 A successful futures trading strategy
2 A brief account of my career as a futures trader
3 System trading
4 About brokers and churning
5 Trading stock index futures
6 Trading commodity and currency futures
7 Day trading versus position trading
8 A word about leverage
9 Options and other derivatives of derivatives
10 Stop loss orders stop losses, right? Wrong
11 Gaps are always filled, right? Wrong
12 Go with the flow, right? Er, right
13 Improvised rationalisations
14 Arbitrage Trading
Appendix 1 : Essential links for futures traders
Appendix 2 : A trading record sheet to print & use
Appendix 3 : Disclaimer : before you lose your shirt
Appendix 4 : Some more jargon

Alligator Indicator

The main stated purpose of the Alligator indicator is to provide clear signals of a trend - and so reduce the probability of trading in a range-bound market - less effective, less pips, more losses….
The basis of the Alligator, as often, is moving averages. It’s possible to use simple, exponential or smoothed, but the standard recipe is : -

• Alligator Jaw line (blue) - 13-period moving average at the mid price (High+Low)/2, offset forwards 8 time units
• Alligator Teeth line (red) - 8-period moving average at the mid price (High+Low)/2, offset fowards 5 time units
• Alligator Lip line (green) - 5-period moving average at the mid price (High+Low)/2, offset forwards 2 time units.

The image is of an alligator asleep = market is range-bound, no clear trend.
While alligator awake = trend is forming.
If the three lines are entwined, tangled, close together, the Alligator is asleep. When they spread out, separate, diverge from each other, the Alligator has woken up - and it’s time to make trades.Once fed, the Alligator will go back to sleep again, line converge and it’s time then to close trades, and (hopefully) take profits.
Here’s an example on a bullish trend:

And which way to go - buy or sell? The Alligator has an answer for that : Price is above the Alligator’s mouth (all 3 lines) = an uptrend, bullishPrice is below the Alligator’s mouth = a downtrend, bearish.
Here’s an example of the Alligator in action on a bearish trend.

As you can see, the Alligator does indeed wake during the course of a trend, and go back to sleep when over. What the Alligator doesn’t do, in my experience, is wake up very quickly, and so often (not always) isn’t the indicator to identify the start of a trend.

27 Feb09 Chart

Nifty Pivot for 27th Feb09

Nifty Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
2705.85-----2745.70------2771.75------2811.60-----2837.65

Dow Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
7023.90-----7102.99------7252.65------7331.74-----7481.40

FTSE Pviot :
----S2-----------S1-------------Pivot-----------R1------------R2----
3805.04-----3860.34------3904.28------3959.58-----4003.52
-----------------------------------------------------------------------

26th Feb09 Chart

Nifty Pivot for 26th Feb09

Nifty Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
2736.90-----2749.65------2769.50------2782.25-----2802.10

Dow Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
7029.24-----7150.07------7277.50------7398.33-----7525.76

FTSE Pviot :
----S2-----------S1-------------Pivot-----------R1------------R2----
3765.51-----3807.25------3845.65------3887.39-----3925.79
-----------------------------------------------------------------------

NIFTY50 outlook

• The March futures in various scrip discounts : State Bank of India (SBI), DLF, Bharti Airtel and Larsen & Toubro (L&T) closed at a discount indicating rollover of short positions
• March Futures : 25-30 points discount
• The 2,800 and 2,900 strike calls of the March series added an OI of 1.24 million shares in today’s trade
• Nifty March Series Range : 2,800-2,900

25th Feb09 Chart

Nifty Pivot for 25th Feb09

Nifty Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
2651.35-----2692.60------2718.80------2760.05-----2786.25

Dow Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
7016.73-----7183.84------7281.40------7448.51-----7546.07

FTSE Pviot :
----S2-----------S1-------------Pivot-----------R1------------R2----
3735.28-----3777.92------3815.08------3857.72-----3894.88

24 Feb09 Chart

Pivot for 24th Feb09

Nifty Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
2687.65-----2712.00------2733.65------2758.00-----2779.65

Dow Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
7141.66-----7253.66------7361.48------7473.48-----7581.30

FTSE Pviot :
----S2-----------S1-------------Pivot-----------R1------------R2----
3787.79-----3838.42------3928.40------3979.03-----4069.01

23rd Feb09 Charts

Moneyness : In the Money, At the Money, Out of the Money

Moneyness tells option holders whether exercising will lead to a profit. There are many forms of moneyness, including in,out or at the money. Moneyness looks at the value of an option if you were to exercise it right away. A loss would signify the option is out of the money, while a gain would mean it's in the money. At the money means that you will break even upon exercising the option

In The Money :
1. For a call option, when the option's strike price is below the market price of the underlying asset.
2. For a put option, when the strike price is above the market price of the underlying asset.
Example : In The MoneyIn other words, this is when your stock option is worth money and you can turn around and sell or exercise it for a profit.

At the Money :
An option is at-the-money if the strike price of the option equals the market price of the underlying security.
Example : At The MoneyFor example, if XYZ stock is trading at 75, then the XYZ 75 option is at-the-money. You can essentially think of this as the break-even point (when you don't take into account transaction costs).

Out Of The Money - OTM :
1. For a call, when an option's strike price is higher than the market price of the underlying asset.
2. For a put, when the strike price is below the market price of the underlying asset

Bull Call Spread

The bull call spread option trading strategy is employed when the options trader thinks that the price of the underlying asset will go up moderately in the near term.
Bull call spreads can be implemented by buying an at-the-money call option while simultaneously writing a higher striking out-of-the-money call option of the same underlying security and the same expiration month.

Limited Downside risk :

The bull call spread strategy will result in a loss if the stock price declines at expiration. Maximum loss cannot be more than the initial debit taken to enter the spread position.
The formula for calculating maximum loss is given below:
Max Loss = Net Premium Paid + Commissions Paid

Max Loss Occurs When Price of Underlying <= Strike Price of Long CallBreakeven Point(s)

The underlier price at which break-even is achieved for the bull call spread position can be calculated using the following formula.
Breakeven Point = Strike Price of Long Call + Net Premium Paid

Bull Call Spread Example

An options trader believes that XYZ stock trading at $42 is going to rally soon and enters a bull call spread by buying a JUL 40 call for $300 and writing a JUL 45 call for $100. The net investment required to put on the spread is a debit of $200.
The stock price of XYZ begins to rise and closes at $46 on expiration date. Both options expire in-the-money with the JUL 40 call having an intrinsic value of $600 and the JUL 45 call having an intrinsic value of $100. This means that the spread is now worth $500 at expiration. Since the trader had a debit of $200 when he bought the spread, his net profit is $300.
If the price of XYZ had declined to $38 instead, both options expire worthless. The trader will lose his entire investment of $200, which is also his maximum possible loss.

Aggressive Bull Call Spread :

One can enter a more aggressive bull spread position by widening the difference between the strike price of the two call options. However, this will also mean that the stock price must move upwards by a greater degree for the trader to realise the maximum profit.

Bull Spread on a Credit :

The bull call spread is a debit spread as the difference between the sale and purchase of the two options results in a net debit. For a bullish spread position that is entered with a net credit, see bull put spread.

Bullish Option Strategies

Bullish strategies in options trading are employed when the options trader expects the underlying stock price to move upwards. It is necessary to assess how high the stock price can go and the timeframe in which the rally will occur in order to select the optimum trading strategy.
Very Bullish :
The most bullish of options trading strategies is the simple call buying strategy used by most novice options traders.

Moderately Bullish :
In most cases, stocks seldom go up by leaps and bounds. Moderately bullish options trader usually set a target price for the bull run and utilize bull spreads to reduce risk. While maximum profit is capped for these strategies, they usually cost less to employ.

Mildly Bullish :
Mildly bullish trading strategies are options strategies that make money as long as the underlying stock price do not go down on options expiration date. These strategies usually provide a small downside protection as well. Writing out-of-the-money covered calls is one example of such a strategy.

What is Call Writing or Naked Call?

Call Writing
Instead of purchasing call options, one can also sell (write) them for a profit. Call option writers, also known as sellers, sell call options with the hope that they expire worthless so that they can pocket the premiums. Selling calls, or short call, involves more risk but can also be very profitable when done properly.
Naked (Uncovered) Calls :
When the option trader write calls without owning the obligated holding of the underlying security, he is shorting the calls naked. Naked short selling of calls is a highly risky option strategy and is not recommended for the novice trader.
The naked call write is a risky options trading strategy where the options trader sells calls against stock which he does not own. Also known as uncovered call writing.
The options trader must be careful in the selection of the strike price of the call to be written as it has a significant impact to the profit/loss potential of the trade.
If one is neutral to mildly bearish on the underlying, one would execute a premium collection strategy by writing out-of-the-money naked calls.
If one is bearish to very bearish, then one would write deep-in-the-money naked calls as an alternative to shorting the underlying stock.

Call Writing/Naked Call Example :
Stock XYZ is trading at $47.89 per share DEC 50 Call is trading at $1.25 premium
Investor A forecasts that XYZ will not trade above $50 per share before December, so he sells the 10 DEC 50 Calls for $1,250 (each option contract controls 100 shares). Investor A doesn't buy the stock, therefore his investment is considered naked.
Meanwhile, Investor B forecasts that XYZ will go above $50, so he purchases those 10 calls from Investor A for $1,250. At expiration of the option, consider 4 different scenarios where the share price drops, stays the same, rises moderately or surges.
The following are four scenarios for the example:
Scenario 1 :
Stock drops to $43.25 DEC 50 Call expires worthless
Investor A keeps the entire premium of $1,250 Investor B makes a 100% loss

Scenario 2
Stock stays at $47.89 DEC 50 Call expires worthless
Investor A keeps the entire premium of $1,250 Investor B makes a 100% loss

Scenario 3
Stock rises to $52.45 DEC 50 Call is exercised
Investor A is forced to buy 1,000 shares of XYZ for $52,450 and immediately sell them at $50,000 for a loss of $2,450. Since he received the premium of $1,250 before, his net loss is $1,200. Investor B buys 1,000 shares of XYZ for $50,000 and now is able to sell them at open market for $52.45 per share if he chooses to. His net gain is $1,200 (same as Investor A's loss excluding commission costs)

Scenario 4
Stock surges to $75.00 on a news announcement DEC 50 Call is exercised
Investor A is forced to buy 1,000 shares of XYZ for $75,000 and immediately sell them at $50,000 for a loss of $25,000. Since he received the premium of $1,250 before, his net loss is $23,750 Investor B buys 1,000 shares of XYZ for $50,000 and now is able to sell them at open market for $75.00 per share if he chooses to. His net gain is $23,750 (same as Investor A's loss excluding commission costs)

What is Call Option?

A call option is a financial contract between two parties, the buyer and the seller of this type of option. It is the option to buy shares of stock at a specified time in the future.[1]Often it is simply labeled a "call". The buyer of the option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying instrument) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right.The buyer of a call option wants the price of the underlying instrument to rise in the future; the seller either expects that it will not, or is willing to give up some of the upside (profit) from a price rise in return for the premium (paid immediately) and retaining the opportunity to make a gain up to the strike price (see below for examples).Call options are most profitable for the buyer when the underlying instrument is moving up, making the price of the underlying instrument closer to the strike price. When the price of the underlying instrument surpasses the strike price, the option is said to be "in the money".The initial transaction in this context (buying/selling a call option) is not the supplying of a physical or financial asset (the underlying instrument). Rather it is the granting of the right to buy the underlying asset, in exchange for a fee - the option price or premium.

What are the Options? Options Basics : Calls and Puts

An option is a contract written by a seller that conveys to the buyer the right — but not the obligation — to buy (in the case of a call option) or to sell (in the case of a put option) a particular asset, such as a piece of property, or shares of stock or some other underlying security, such as, among others, a futures contract. In return for granting the option, the seller collects a payment (the premium) from the buyer.
For example, buying a call option provides the right to buy a specified quantity of a security at a set agreed amount, known as the 'strike price' at some time on or before expiration, while buying a put option provides the right to sell. Upon the option holder's choice to exercise the option, the party who sold, or wrote, the option must fulfill the terms of the contract.
The theoretical value of an option can be evaluated according to several models. These models, which are developed by quantitative analysts, attempt to predict how the value of the option will change in response to changing conditions. Hence, the risks associated with granting, owning, or trading options may be quantified and managed with a greater degree of precision, perhaps, than with some other investments.
Exchange-traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among independent parties. Over-the-counter options are traded between private parties, often well-capitalized institutions that have negotiated separate trading and clearing arrangements with each other. Another important class of options, particularly in the U.S., are employee stock options, which are awarded by a company to their employees as a form of incentive compensation.

Pessimistic Vs Optimistic Investing Attitudes

Investing Attitudes :

One major thing that all the investors must learn is that attitude really matters. In fact, in investing it is simply amazing how much difference an attitude can make!

There is a basic and consistent feature among investors that are successful:

Positive Attitude!

An investor with a positive (optimistic) attitude is more likely to make money than one with a negative (pessimistic) attitude.

An investor with a pessimistic attitude is more likely to give up hope and abandon a successful system and invest on emotions.

• He is more likely to focus on bad investments rather than good ones.
• He is more likely to think he is always right, rather than learn from others.
• He is more likely to lose money, given the same recommendations than someone who has a positive attitude.
• He is more likely to be mad or upset or stressed out at the end of the day and more likely to bring that back the next morning.

On the other hand, the investor with an optimistic attitude realizes that not all choices are winners, that over the long run, with patience and discipline, he will make money.

• He sets aside his pride and lets himself learn valuable investing lessons.
• He understands that everyone makes mistakes, including himself and realizes that if you learn from a mistake, it can be a good thing.
• He is more likely to make money, given the same recommendations than someone who has a negative attitude.
• He is more likely to be happy at the end of each day, and more likely to start investing with a positive attitude the next day. These cycles continue on and on and on ...
• That is why most successful people are optimists and most unsuccessful people are pessimists.

Investors must learn the value of this quality and always look on the bright side of life !

What is S&P CNX Nifty - Introduction to Nifty

S&P CNX NiftyNifty Watch

S&P CNX Nifty is a well diversified 50 stock index accounting for 22 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India's first specialised company focused upon the index as a core product. IISL has a Marketing and licensing agreement with Standard & Poor's (S&P), who are world leaders in index services.

• The average total traded value for the last six months of all Nifty stocks
  is approximately 62.45% of the traded value of all stocks on the NSE
• Nifty stocks represent about 63.98% of the total market capitalization as on
  Jan. 30, 2009.
• Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.16%
• S&P CNX Nifty is professionally maintained and is ideal for derivatives trading
• Nifty Stocks List

20th Feb Charts

Pivot for 20th Feb09

Nifty Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
2751.75-----2770.50------2786.35------2805.10-----2820.90

Dow Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
7342.07-----7404.01------7509.49------7571.43-----7676.91

FTSE Pviot :
----S2-----------S1-------------Pivot-----------R1------------R2----
3954.54-----3986.45------4015.83------4047.74-----4077

19Feb Charts

1

Pivot for 19th Feb09

Nifty Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
2703.25-----2739.70------2773.10------2809.50-----2842.95

Dow Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
7413.33-----7484.48------7551.12------7622.27-----7688.91

FTSE Pviot :
----S2-----------S1-------------Pivot-----------R1------------R2----
3882.12-----3944.47------4000.48------4062.83-----4118.84

FTSE, Nifty, Dow Chart - 18th Feb09

Nifty Pivot for 18th Feb09

Nifty Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
2726.95-----2748.70------2779.05------2800.80-----2831.15

Dow Pivot :
----S2-----------S1-------------Pivot-----------R1------------R2----
7,355.13-----7,453.86------7,649.75------7,748.48-----7,944.37

FTSE Pviot :
----S2-----------S1-------------Pivot-----------R1------------R2----
3,915.40-----3,974.76------4,054.76------4,114.12-----4,194.12

Traders booked profits and built fresh short positions on disappointment over the Interim Budget and weak world markets. Heavyweights such as Reliance Industries (RIL), ICICI Bank, Tata Steel, Suzlon Industries and Unitech witnessed short build-up in the futures and options (F&O). Nifty February futures continued to trade at a discount to the spot and shed an open interest (OI) of 2.02 million shares, indicating unwinding of long positions. Unwinding was observed in most of the put options, mainly at 2,800 and 2,900 strike, in the last few days, indicating that traders expected the Nifty to trade below 2,800 going forward.

Nifty, FTSE, DOW Chart 17th Feb09

Nifty Pivot for 17th Feb09

----S2--------------S1-------------Pivot-----------R1------------R2----
2779.55-----2814.00------2873.55------2908.00-----2967.55

Nifty, FTSE chart - 16th Feb09

Pivots for 16th Feb09

13th Feb09 Chart

12th Feb 09 FTSE, Nifty Intraday Chart

Nifty Pivot for 13th Feb09

----S2------------S1-------------Pivot-----------R1------------R2----
2853.75-----2873.35------2906.20------2925.80-----2958.60

Nifty Pivot for 12th Feb09

----S2------------S1-------------Pivot-----------R1------------R2----
2853.70-----2889.70------2913.60------2949.60-----2973.50

Nifty February futures closed at 2,924.70, a 10-point discount to the spot. In F&O segment strong buying in 2,900, 3,000 and 3,100 call options and fresh unwinding in 2,800 call options. This indicates that a section of F&O players expects the Nifty to move above 2,962 and even revisit its recent high of 3,150 in the near future.

Nifty, FTSE & DJI Intraday Chart - 11th Feb09

Nifty Pivot for 11th Feb09

----S2------------S1-------------Pivot-----------R1------------R2----
2862.20-----2898.25------2927.85------2963.95-----2993.50

Nifty is in overbought zone with the Nifty put-call ratio for February options staying at 1.44. Options traders unwound short positions at 2,800 and 2,900 calls, indicating formation of support levels. They also wrote 3,000 calls, suggesting resistance.

If Nifty fails to close above 2,962, then it may retrace to the 2,662-level. The index on Tuesday declined sharply from its intraday high of 2,957 to get support at 2,870 before recovering.

Nifty Pivot for 10th Feb09

----S2--------------S1-------------Pivot-----------R1------------R2----
2809.00-----2864.45------2895.60------2951.00-----2982.20

Nifty Chart 9th Feb09

PE & Nifty Future Spot & Change in Open Interest

Put Call & Nifty Future Spot Values