Particularly while trading in Index Options. And what points I’ve to consider to predict the movement of Nifty Index
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While I trade on options, i focus on three
- Short term trend - Why?
Option contracts are time sensitive. I can’t expect the same option price even after few days the underlying price comes to same place. So i don’t trust on trading options in medium and major trend. To be specific, i trade mostly on intraday basis.
- Volatility - Why?
Speed at which the prices moves based on the underlying change. You must be careful on this otherwise you will loose much on intraday basis while you trade without pre-submitted stop losses.
- Stock movements under the particular index - Why?
For example, when i trade on Nifty options, i don’t just depend upon the nifty underlying price because it is just a derivative product not an own-foot. Each day after market close, i go through all the major stock closing prices, chart patterns etc. This is bit longer process but i explain just one example here — I consider more value to some patterns like Wolfe wave wedge, and butterfly pattern. If more stocks have bearish pattern, next day i expect the nifty movement in bearish or if more stocks have bullish pattern next day i expect the nifty movement in bullish pattern. To be more accurate, try to look for the patterns in intraday too.
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First of all, read basics of technical analysis. Study Charts - Trends and MACD being most important.
And second but more important, avoid buying options all the time. Mostly try to write them.