Hii am new trader lost 5% capital in 1 month. I understood lots frm market n lots to know still. I have basic Q if nifty is 50 stock index. Then how can analyst predicts levels from option chain. HOW OI can show resistance n support. If one strick price have more OI then it may be support level? I mean after loosing some Money i started selling options rather buying. Then my selled put became support (with other puts). Plz explain
Option data and OI etc. are not tool or indicator to predict the nifty.
Open interest part of option data just gives an idea about what could be potential range of the underlying.
Ex:
Assume Nifty 50 OI at a point like: Call Maximum OI at 11000 and put max OI at 10500. This denotes expectation of the market participants could be like, Nifty may stay in the range of 10500 - 11000.
You are venturing into troubled waters (Option selling), Please for the sake of your capital read zerodha varsity options module.
TBH my suggestion is stay far away from options for time being. get back when you know atleast Greeks.
Hi @Tushar_Tajane,
This is a popular misconception that option data predicts NIfty’s movements. What they actually tell are the levels that the big players in the market are betting will hold. The “big players” are nothing but the option sellers, who have much more at stake than the option buyers like you and me.
So, if there is an aggressive call writing happening at 11,200 levels it means that the option sellers believe that the market doesn’t have the steam to go past 11,200. Similarly, if put writers are actively selling 10,800 puts, that’s the level they believe the market will not breach on the downside. But that doesn’t mean market can not move past 11,200 or 10,800.
I think that option data gives us a reading on the market but it is still backward looking. One tweet from Trump or a change in RBI’s polciy stance or sharp surge in Brent crude overnight can completely alter the picture the next day.
Therefore, focus on what is happening in the real-time than relying too much on these backward looking indicators.
-Neha (vrdnation.com)
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Options are derivative instruments, meaning whatever price movement these instruments show you are simply reflection of what is going on in the underlying stocks. ( Jublfood option premium will move based on the Jublfood stock price). So, in order to become good at option your first have to MASTER the price movement of underlying stock (which one cannot do by trading in few months time). Moreover, lot sizes, greeks and what not in options bring whole new complications. So, any wise guy will suggest you to start from basic stock, understands how market works, buy/selling small quantity of stock (1 or 2 stock if needed) only once you get good at it go for option.
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Agreed with @Neha_Raghuraman partially, however, Max Pain and PCR ratio does help in understanding how the market outlook is, especially, how the big boys are playing the game.
While any news can affect the markets, the big boys tend to have an idea about this before we get to know. We get to know only after the event is passed.
Here’s a very detailed explanation on Max Pain on Varsity
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Thanks i have gone through module n its much clearer picture to me
Before entering any market, it is always advisable to spend some time learning. There is a lot of free learning materials on web. If needed, spend time also on demo account testing trading method or strategy no matter if you are experienced or inexperienced trader