Trade for the Week - Analysis

I could not post yesterday from mobile and also could not post in the evening. Was just too busy in office through the day only to be too tired at home.

Our reading of down trend in the market is working too well for us... I say too well because last two weeks as well as this week so far has been negative. We are due for a counter trend day at least. But mind you, this is pretty strong trend and normal expectations of a counter trend move may take some time to materialize.

Let's see status of our trade so far.

When I first posted the cost of one lot of 5300 CALL and 5100 PUT was around 95 and today it is 100... so not much to mention. However, lack of time on Monday morning caused to me to hurry up the post (I am also learning) and I did not elaborate on my way of trading a strangle (Caution: it may not be correct way).

Many a times lot of experts mention that hedging trades are difficult to be executed at the same time and so there is risk. You may not execute both buy/sell, CALL/PUT trades at the same time at the price you want which creates this risk. In my case, I intentionally do not want them to be executed at the same time... in fact I do not even place the orders together.

Usually when I want to trade strangle with the bias of a particular direction and market is moving in the same direction, it makes my preferred Option Premium higher and I don't like that so I tend to wait (even though I may not get the chance again as market may just run away in the same direction). I can just let it go consoling myself by saying that this is not the end of the world. Agreed that the Premium of the other Option (which is to be used for hedging) goes down but I do not buy it before making the main trade.

On Monday, however, market was moving in the positive direction in the morning making Premium of 5100 PUT Option go down to 33-35 levels. An ideal level for me to enter. In the afternoon, market resumed downtrend so our main Trade was increasing in value while hedging trade was going down giving us the opportunity to hedge the position at a much lower cost.

You may think that this is good to say in hindsight and difficult to execute actually... I agree. Not the hindsight part but the difficulty in execution part. You have to be looking at the market through the day to understand the undercurrent and then time your trade.

I will have to be more active in posting through my mobile I suppose.

As for the trade, both Europe markets and US markets (presently) are down marginally. The chart (not posted) still shows weakness so you may want to hold on to it. (Disclaimer: I missed the bus... was too busy.)

Will post about further trading strategies in between. Who knows, may be next post will be on some trading strategy. Happy Trading.