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What is probability and how it works in Stock Market?

Probability theory:

A field of mathematics concerned with the examination of random processes is known as probability theory. A random event’s outcome cannot be predicted before it occurs, although it could be any of multiple possibilities. The final result is said to be dictated by chance.

Now how does that apply to stock market?

A Stock/index has three probibilities that is

  1. it can go up that is increase
  2. it can go down that is decrease
  3. it can remain around same price

So, there is 33.33% probability of a event above happening.

Now, how does this apply to stock/index options?

Call option and put option have … Read the rest

Option Buyer or Seller ? What makes things work?

Option Buyer or Seller ? What makes things work?

Option buyer

Why would a trader elect to take the risk the money on buying options or selling options for premiums.

The main Greeks that work against Option buyer is Theta / Time Decay.

Next comes with owning negative-Gamma positions. For the option owner to earn a profit, the underlying stock must move in three ways.

Move in the right direction (up for calls, down for puts)
Move quickly to prevent the loss of too much money to Theta (time decay)
Move far enough to overcome the cost of buying the option
That is a lot of movement and most traders have a difficult time predicting market direction without a time … Read the rest

Option strategies – Synthetic Long ( risk reversal)

What is  Synthetic Long ( risk reversal) Option strategies?

A synthetic long Option strategy is for options trading that is designed to mimic a long stock position. Traders create a synthetic long asset by purchasing at-the-money (ATM) calls and then selling an equivalent number of ATM puts with the same date of expiration.

Synthetic long assets carry an infinite amount of risk, but they also carry an infinite amount of potential return. The synthetic long asset position is a less expensive approach to trade than buying a comparable number of shares of the underlying stock outright. Because the cost of the call options is at least partially offset by the money obtained for selling the put options, it can be … Read the rest

Option Strategies – Synthetic Short (risk conversion)

Option Strategies – Synthetic Short (risk conversion)

The synthetic short stock options strategy consists of simultaneously selling a call option and buying the same number of put options at the same strike price. Both options must be in the same expiration cycle. As the strategy’s name suggests, a synthetic short stock position replicates shorting say 100 shares of stock.

Synthetic Short Stock Strategy Characteristics

 

Synthetic Short Strategy ‘s general characteristics:

Max Profit Potential – it defined by below where the selling and buying the same strike price can result in debit or credit net premium. Breakeven point is simple as explained below

Max Loss Potential: Unlimited

Expiration Breakeven

If the synthetic is entered for a debit premium then breakeven … Read the rest

Option Chain Analysis in Trading

Option Chain Analysis in Trading

First lets cover the basics of Option chain….

  1. What is open interest?
  2. How to study option chain table
  3. The element of the option chain table
  4. How to interpret option open interest
  5. Use of open interest
  6. Market Structure Principles

Price moves within a structural framework of the supply and demand zone. A breakout of the structural framework supply and demand zone will lead to price movement in the next area of the framework of the supply and demand zone

CPR with Resistance and support levels

OPTION CHAIN COMPONENT

WHAT are ITM (IN THE MONEY) OPTIONS?
  1. A call option is said to be in ITM if the strike price is less than the current spot price of the security.
  2. A put option is
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How to get Narrow CPR stock on daily basis?

How to get Narrow CPR stock on daily basis?

We uploaded NR7 and NR Stocks where possible here

Narrow CPR Stocks or Narrow CPR formed for below stocks

Updated shortly…

Bullet points to remember:

  1. Narrow CPR screener – chartink link will be provided shortly
  2. Narrow CPR excel formula – Excel sheet calculator will be provided
  3. Narrow CPR strategy – as explained above buy above R1 and Previous day breakout and sell below S1 and Previous day low breakout.
  4. Narrow CPR formula – as explained above TC to BC range must be narrow compared to other days
Read the rest