My current commitments prevent me from watching the market action in the way I love, the screen flickering every second in front of me.
Even though it’s painful to see so many opportunities pass by, I take recourse in the next best thing I know.Swing Trade with Market profile.Actually Market profile is a great tool, if you want to trade options, especially if you understand the ebb and flow of market behavior.
With expiry next week and the markets coming off the resistance of 5577 and the support of 5370 close by ( All NF Prices ), I wrote the 5500 March Calls and Puts late yesterday for a combined premium of 312.
Let’s look at the charts and see what is in store next week :
The chart has a volume profile chart for the feb series overlaid with delta at the bottom which is the net difference between the volume traded at the bid prices and the ask prices.Delta is the effective volume and can be used as a replacement for the combined open interest in options as well as futures. A positive delta is akin to new money entering the markets and the opposite is also true.
To explain the charts I want to use a similar style employed by Shai in an earlier post.
Point 1 : Lows of the feb series
Point 2 : Low of delta. Notice how delta stopped going down earlier to price.
Point 3 : A pause at the Developing point of control
Point 4 : Delta moves up
Point 5 : Price at Developing value high
Point 6 : is DPOC again
Point 7 : Point 7 is vwap at 5421 currently
Point 8 : Value low at 5385 . Support on closing basis.
Point 9 : Delta at the close. Much higher than point 4.
Inference : Price between VWAP and DPOC for the series as of the close on Friday. Upper break out levels ( VAH ) and Lower breakdown level ( VAL) clearly defined.
Bank Nifty :
1) The difference between this chart and the one posted above is that delta is net positive for the bank Nifty.
2) Price is above VAH
3) VWAP and DPOC at 10587 ( very strong support )
4) Green lines are the value areas.
5) even though delta came off on Friday, it is relatively higher than the open on Thursday.
Inference : Region around 10820 can be used as a stop n reverse for a move higher.
Back to the 5500 straddle :
1)The POC is the best time to write an option as price tends to rotate around it.DPOC is 5475 and hence the 5500 strike was chosen.
2) Exit of the losing leg would be a break of value either side.The position should be profitable by upto 15 % on Thursday if price hold up around 5500 and volatility does not increase much.
Have a great weekend.