Reading An Options Data

There has always been a difference of opinion over methods of analysis in stock markets. These opinions are mostly extreme thoughts. There are many ways in the market to predict future price moments. Some representative opinions are -

'Fundamental Analysis is the only way to deal with the markets'
'Technical Analysis has no base and works slow'
‘Options Data Analysis is very difficult to understand and worthless'

 

I feel all these opinions are too extreme to consider. Nothing in this world is useless and nothing is in the world is perfectly useful. Personally, I have studied all of the methods and I am using it as per the situation.

-         If I am looking for a long-term investment then I love to prefer a combination of Fundamental & Technical.

-         When my view is medium to short term then I go for Technical.

-         Options Data use to identify the market or stock sentiments for a day or two days.

Earlier we have discussed on Fundamental and Technical Analysis. Now, we will explain some basic plus advance things about Options Data.

You can see in below table how options are working.

SCRIPT price	CALL price	PUT price
Up	Up	Down
Down	Down	Up

 In this market, many traders who have started their market journey with options trading. The major reason behind that is limited risk & unlimited profit and these advantages are attractive to the trader. As per their understanding or knowledge, options trading means only buy PUT or CALL and that is wrong.

In options, we can do trading in four different styles –

-         Buy call option

-         Sell call option

-         Buy put option

-         Sell put option

However, small traders always prefer only to buy option; they never think about the sell option. That is the reason many small traders lose their money in options trading. Whenever we are doing trading in options that time we should have to calculate time limit for the same.

We will take a small example of time limit –

Suppose, I have bought 1 kg ripen tomato on 1^st July and keep it in the freeze. After 10 to 15 days, the tomato will not useful because of their poor quality and long-time of storage. If I have to buy raw tomato on 1^st July then after 10 to 15 days it will useful for me with good quality.

In the same manner, options having a time limit of one month i.e. expires on last Thursday of every month.

Now, we will discuss why options are there –

Purpose of options is to protect or hedge to the fresh or carried position. We can use options like health insurance. Mostly big trader or investors are using this strategy.

Let me take an example:

Suppose, I want to buy 50,000 shares of TITAN in cash. The current market price is 1300.

50,000 quantity x 1300 cmp = Total investment is 6,50,00,000.

Here share quantity is huge and there are fewer chances of order execution at the exact price 1300. In this scenario, I have place order at market price and the seller is always sitting on the upper price of the current price.

So, maybe my average buying price will be 1301/1302/1303/1304/1305. Consider it is 1305, that means I am paying an extra 5 rupees on each share.

50,000 x 5 = 250,000 (extra amount)

I do not want to pay this extra 5 rupees behind per share. Now, I will sell 1300PE until fill equal quantity.

Lot Size = 1500 & Share Quantity = 50,000

Total Lots = Share Quantity / Lot Size = 50000 / 1500 = 33.33

Before buying shares in cash, I will sell 33 lots of 1300PE at current market price.

1300PE = 100 Rs.

After selling 33 lots at market price is will come down until 96/95/94.

After fulfilling my quantity in PE selling then I will buy a share in cash. My buying order will help to increase the share price and at the same time, PE price will fall more.

After buying shares in cash PUT price will come down until 92/91/90 and will book profit at a lower price. Using PUT writing, I will hedge my cash position.

Frankly, I feel Options Data Reading is good for 1-2 day trend analysis and renamed as "Sentimental Analysis".

One thing is for sure you cannot do the long term trading with the help of Options Data Analysis.

If you are an Intra-day or a BTST/STBT trader then use of Options Data Analysis can enhance your chances of winning a trade. It helps you understand markets sentiments. Some traders feel they will make 'sure' money once they learn the options data analysis. It is not only about learning the analysis, but it is also about practicing it over a period of time. You cannot become a good cricketer just by learning rules of cricket. You have to practice it hard. 


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Disclaimer: The contents produced here are purely for educational purpose. They should not be construed as buy/sell recommendations. I am not a SEBI registered Analyst or Investment Advisor. Readers are advised to consult their Investment advisor before taking any decisions based on the above write-up.