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Options Trading: Using Techinical Analysis As An Effective
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Jargon Management
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OBJECTIVE:
http://www.indiainfoline.com/bisc/opti.html
12/6/2002
Options Trading: Using Techinical Analysis As An Effective Tool For Trading ? A Live ...
Disclaimer
Page 2 of 9
http://www.indiainfoline.com/bisc/opti.html
12/6/2002
Options Trading: Using Techinical Analysis As An Effective Tool For Trading ? A Live ...
Page 3 of 9
ADVANTAGES OF BUYING
BUYING OF SHARES:
OF
OPTIONS
OVER
http://www.indiainfoline.com/bisc/opti.html
12/6/2002
Options Trading: Using Techinical Analysis As An Effective Tool For Trading ? A Live ...
Page 4 of 9
http://www.indiainfoline.com/bisc/opti.html
12/6/2002
Options Trading: Using Techinical Analysis As An Effective Tool For Trading ? A Live ...
Page 5 of 9
Plot the graph for both the share price and the moving
average:
Buy signal - the share price line cuts the moving average
from below or in the excel worksheet when the difference
becomes positive from negative
http://www.indiainfoline.com/bisc/opti.html
12/6/2002
Options Trading: Using Techinical Analysis As An Effective Tool For Trading ? A Live ...
Page 6 of 9
Sell signal - the share price line cuts the moving average
from above or in the excel worksheet when the difference
becomes negative from positive
Now let us get to the most important part of the paper:
A LIVE STUDY OF TRADING IN OPTION MARKETS
USING SIMPLE MOVING AVERAGE METHOD:
Methodology Followed for the Study:
Selection of stocks:
The ten most actively traded stocks in the Option market
on NSE were selected.
Period of Study:
1st August 2001 to 31st July 2002
Technical Analysis Method Used:
10-day simple moving average as explained earlier.
Strategy Used:
l
l
l
Illustration:
Let me illustrate to you for the month of October 2001 for
Infosys, how the trades would have taken place using the
above strategy.
The share prices are given in the above excel table. So we
start with a buy signal on 5th October 2001. For Infosys,
the market lot is 100 shares.
In the Options market:
BUY
SELL
Strike
Buy
Sell Profit /
Date Option
Premium
Date Premium
Price
Value#
Value@ (Loss)
8/10
Call
2500
9/10
Put
2200
10/10 Call
2600
http://www.indiainfoline.com/bisc/opti.html
96.00
9,900 9/10
8,800 24/10
102.00
9,900
94.00
9,100 (1,220)
**
51,950 43,150
12/6/2002
Options Trading: Using Techinical Analysis As An Effective Tool For Trading ? A Live ...
Total 29,020
Total
Page 7 of 9
70,950 41,930
# includes brokerage
@ is net off brokerage
** is the expiry date of the Option and the difference
between the strike price and the closing price on the
expiry date , will be received in cash. In this case
3123.50 (the closing price on 24th) less the strike price
i.e. 2600.
Thus, rate of return is approximately 320%. Net Profit of
Rs. 41,930/- on an average investment of Rs.10,000 /-.
In the shares market:
BUY
Date
SELL
Buy
Price
Buy
Value#
Date
Sell
Price
Sell
Value@
Profit /
(Loss)
8/10
2,375
2,37,800 9/10
2,402
2,40,500
2,700
10/10
2,540
2,54,300 24/10
3,022
3,01,900
(1,220)
Total
4,92,100
Total
5,42,400
50,300
# Includes brokerage
@ Is net off brokerage
Thus, rate of return is approximately 20%. Net Profit of
Rs.50,300/- on an average investment of Rs.2,46,000/-.
The same has been done for the ten most actively
traded Options and for the period August 2001 to July
2002.
Results of the Analysis:
In the Options market:
Scrip
Market
Lot
Total Annual
Profit
Avg
Monthly
Investment
Monthly Rate
of Return
E = ( C / 12 ) /
D * 100
Hindustan
Petroluem
1300
202,520
10,146
166
Infosys
100
194,042
10,293
157
Digital
400
144,840
9,345
129
Satyam
1200
121,740
12,044
84
Telco
3300
118,995
9,568
104
Tisco
1800
60,390
6,480
78
Bharat Petroleum
1100
37,805
7,880
40
600
32,892
4,224
65
600
32,010
7,183
37
1000
20,600
9,472
18
965,834
86,635
93
Sterlite Optical
Reliance
Industries
L&T
TOTAL
http://www.indiainfoline.com/bisc/opti.html
12/6/2002
Options Trading: Using Techinical Analysis As An Effective Tool For Trading ? A Live ...
Page 8 of 9
Scrip
Market
Lot
Total Annual
Profit
Avg
Monthly
Investment
Monthly Rate
of Return
E = ( C / 12 ) /
D * 100
Hindustan
Petroluem
1300
1,74,135
2,70,845
100
18,975
3,54,570
0.5
Digital
400
58,080
2,08,623
Satyam
1200
72,360
2,67,227
Telco
3300
2,07,900
3,76,411
Tisco
1800
1,02,420
1,82,484
Bharat Petroleum
1100
1,16,600
2,60,976
600
-5,580
82,505
600
5,670
1,73,800
0.2
1000
35,850
1,87,370
7,86,410
23,64,811
Infosys
Sterlite Optical
Reliance
Industries
L&T
TOTAL
MONTHLY RETURN:
http://www.indiainfoline.com/bisc/opti.html
12/6/2002
Options Trading: Using Techinical Analysis As An Effective Tool For Trading ? A Live ...
Page 9 of 9
A Word of Caution:
Although the above profits have been calculated using
actual market data, there is no certainty that the same
trends will continue in the future and one needs to
keep on revising their strategy.
HAPPY TRADING ON OPTIONS
SOURCES OF DATA FOR ANALYSIS
www.nseindia.com
www.icicidirect.com
Sandeep Nene,
IIM Indore
Sectors: Auto - FMCG - Pharma - Oil & Gas - Infrastructure - Infotech - Steel - Special: Ketan Parekh Saga - Budget - Personal Finance Money - Orange-GTM
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Tel.: +(91 22) 685 0101/0505 Fax: 685 0585
http://www.indiainfoline.com/bisc/opti.html
12/6/2002