On the Indian Stock Markets. January 28.

We had seen it coming and so had advised the readers of this blog in our previous post to play on the short side. The Nifty indeed did tank going down to 6130.85 before closing at 6135.85 breaching our key support of 6142.

It remains to be seen whether the key support of 6142 remains breached today too, in which case we will be headed towards the next support of 5973, 5737 and 5614 in the next sessions. It may be kept in mind that the F&O of January will expire on January 30.

That being said, the direction of Nifty in today’s trades will depend on which side of the 6151 mark the benchmark index trades. Above 6151, it will meet resistances at 6172, 6210 and 6231 whereas below 6151, the supports are at 6114, 6093 and 6056.

Intraday-traders may play on the short side with stop loss for shorts at 6151.
Short-term traders may exit all their positions in January series and open short positions in February series with stop loss at 6210.

Mid-term investors may wait and watch today and keep an eye open for a post from us during the day time, as in case if we think it is worth adding some stock to your portfolio, we will advise in a subsequent post.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

On the Indian Stock Markets. January 24.

The benchmark index must trade above the 6339 mark conclusively for it to remain bullish in today’s trading session in which case it will face resistances at 6365, 6383 and 6405. Otherwise it will consolidate further with bullish bias with supports at 6322, 6300 and 6283.

Intra-day traders may trade accordingly with stop loss for longs at 6328 and stop loss for shorts at 6345.

Short-term traders may continue riding their longs and even add more and raise their stop loss to 6225.

Mid-term investors may consider buying Lupin at 882.65, Maruti at 1746.30 and Tata Motors at 375.45 in small quantities. They may also consider offering 10 % of their holdings in each of HCL Tech at 1464.50, HDFC Bank at 691.15 and Tata Steel at 398.35 for today.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

On the Indian Stock Markets. January 22.

The benchmark index must trade above the 6317 point conclusively to remain bullish in which case it will face resistances at 6330, 6346 and 6363. Otherwise it will consolidate further with bullish bias with supports at 6307, 6276 and 6265.

Intra-day traders may trade accordingly with stop loss for longs at 6300 and stop loss for shorts at 6325.

Short-term traders may continue riding their longs with stop loss at 6218.

Mid-term investors may consider buying Lupin at 882.65, Maruti at 1746.30 and Tata Motors at 374.95 in small quantities. They may also consider offering 10 % of their holdings in each of HCL Tech at 1483.05, HDFC Bank at 688.70 and Hindustan Zinc at 147.30 for today.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

On the Indian Stock Markets. January 20.

The benchmark index must trade above 6278 mark in the initial hour of trade conclusively for the market to go up, in which case the resistances will be at 6296, 6308 and 6359. Otherwise, i.e. below 6278, the market will remain weak and bearish with supports at 6256, 6218 and 6148.  

A breach of the key support of 6141 conclusively with volumes and on closing basis will imply that the Nifty will be headed towards the 5946 mark.

Intra-day traders may trade accordingly depending on which side of the 6278 mark the index trades. They may go short if the index trades conclusively below 6278 in the initial trades with stop loss at 6296. In case if Nifty trades above 6278 conclusively then they may trade on the long side with stop loss at 6256.

Short-term traders may trade on the short side at higher levels with strict stop loss at 6308. They may however go long if Nifty trades above 6310 with good volumes.

Mid-term investors may utilize the current weakness to buy Lupin by placing bid at 882.65  buy Maruti at 1746.30 in small quantities. They may also consider selling 10% of their holdings in HCL Tech at 1424.95.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

On the Indian Stock Markets. January 15.

There seems to be a bit more of a headroom on the upside as per the technical indicators. That being said, the key point to determine the course of Nifty is at 6252 and the benchmark index must trade above this point in order to go further up with resistances at 6270, 6298 and 6316. Otherwise it will slip down weakening and consolidating with supports at 6223, 6205 and 6177.

Intra-day traders may trade accordingly and go long if the benchmark index trades conclusively with good volumes above the 6252 mark with strict stop loss at 6240. Otherwise they may short the index with stop loss at 6265.

Short-term traders may continue riding their longs and add further to their long positions if Nifty weakens with stop loss at 6177.

Mid-term investors may consider buying HCL Tech at 1284.55 and Maruti at 1746.30 in small quantities.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

On the Indian Stock Markets. January 9.

The Nifty closed in the last session on an inconclusive note. However, a breakout seems imminent in the immediate course, albeit the direction of breakout is not clear.

That being said, the critical point deciding the trend for the day is at 6176 and if the benchmark index manages to stay above this mark in the initial hour of trade with volumes then we may see it going up with resistances at 6194, 6222 and 6277. Otherwise it will weaken up, giving up more gains with supports at 6159, 6141 and 6099. If the key support of 6141 is breached then we will see Nifty sliding down to the next support of 5946. Otherwise, it can be concluded that a bottom has been made for the immediate term at 6144.75 on Tuesday last. Similarly, if the resistance at 6194 is conquered with good volumes, then we may see Nifty go up towards the next important resistance which is at 6276.

Intra-day traders may trade accordingly and may go long if Nifty trades above the 6176 mark conclusively in the initial hour of trade with stop loss at 6170. Otherwise they may short the Nifty with stop loss at 6194.

Short-term traders may play on the short side unless the Nifty conquers the 6194 mark conclusively. If it trades above 6194 then they may go long to get out around 6276 levels.

Mid-term investors may consider buying Lupin at  917.15 and Maruti at 1793.55.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

Understanding trading concepts Part II–Put Option.

We had introduced the meaning of a Call option in an earlier post. (Click here to read part I.)
In this post we introduce the concept of a Put option.

Like in a call option the buyer of the call option has the right to buy shares at a pre-agreed rate but he is under no compulsion to buy them. Similarly in a put option of a share, a buyer of a put option may, on payment of a premium, enter into a contract whereby he may sell shares at a pre-agreed rate but he is under no compulsion to sell.

Let’s assume that one thinks that the prices of a share may drop by the date of settlement from the price of 100 bucks to 80 bucks.and he buys a 120 bucks put option of the share today at a cost called ‘premium’ which goes to the seller of the contract. Now he has the contract whereby he may sell the share on the date of settlement at 120 bucks irrespective of whether it trades at 80 bucks on the settlement date. So on the settlement date he buys the shares at 80 bucks and sells them at 120 as per the contract. However, if the price of the share does not go down to 80 bucks and rises to 140 bucks on the settlement date then as he does not have to sell the shares compulsorily, he lets the contract expire and all he looses is the premium which is a minimal amount.

In this way he has maximized his gains and minimized his losses or in other words he has leveraged himself in a non-linear way.

Did these articles help you in understanding the concept behind Put and call option? Please write to us. 

In the next article we will introduce how trading is done in options along with various strategies. (Click here for the next article, Part III )

On the Indian Stock Markets. January 6

The markets behaved quite in expected lines and weakness prevailed through  out the previous session. Those who played shorts as we had advised might have made a killing.

The critical point for today is at 6201 which must act as a support for the Nifty to remain bullish in which case the possible resistances will be at 6231, 6252 and 6282. Otherwise the Nifty will weaken further with supports at 6181, 6141 and 6130.

Intra-day traders are advised to go long if Nifty opens and trades above 6201 in the initial hour of trade with strict stop loss at 6280. Otherwise they may play short.

Short-term traders may even attempt to go short at higher levels with strict stop loss at 6290.

Mid-term investors may bid Maruti at 1786.55 and 1764.35 in small quantities.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

On the Indian Stock Markets. January 2.

The benchmark index continued to be inconclusive. The tipping point for the day is at 6310. Our outlook continues to be the same as we had stated in our previous post.

Intra-day traders may go long only if the Nifty holds above 6310 with stop loss at 6284. However, they may go short only if Nifty conclusively trades below 6298 with stop loss at 6316.

Short-term traders may continue to trade long with stop loss at 6214. They may go short only if Nifty falls below the 6214 mark with stop loss at 6250.

Mid-term investors may utilize any up-spike to rid their portfolio of non-performers.

In case of weakness, they may consider buying HDFC Bank @ 637.25.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

On the Indian Stock Markets. December 31.

The benchmark index must trade conclusively above 6303 mark in the initial hour of trade for the market to go further up, in which case the resistances will be at 6332, 6373 and 6403. Otherwise, the market will remain weak and bearish with supports at 6261, 6231 and 6190.

Intra-day traders may trade accordingly depending on which side of the 6303 mark the index trades. But one may not go long unless and until the Nifty trades above 6309 mark conclusively with strict stop loss at 6303. Otherwise they may go short with stop loss at 6316.

Short-term traders may continue to trade long with stop loss at 6214. They may go short only if Nifty falls below the 6214 mark with stop loss at 6250.

Mid-term investors may utilize any up-spike to rid their portfolio of non-performers.

In case of weakness, they may consider buying HDFC Bank @ 637.25.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

On the Indian Stock Markets. December 27.

The benchmark index must trade above the 6280 mark in the initial hour of trade today in order for it to go up, in which case the resistances will be at 6301, 6324 and 6345. Otherwise it will go down with supports at 6257, 6237 and 6214.

The intra-day traders may trade accordingly with stop loss for longs at 6250 and stop loss for shorts at 6290.

The short-term traders  may go long only if the Nifty captures the key resistance of 6306 conclusively with good volumes.

Mid-term investors may consider buying HDFC Bank @637.25 in small quantities in case of weakness in the counter.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

On the Indian Stock Markets. December 17

The only take away from last session’s trade is that the critical support of 6141 held, otherwise all the technical indicators indicate weakness.

That being said, the benchmark index must trade above 6161 mark in the initial hour of trade conclusively for the market to go up, in which case the resistances will be at 6177, 6199 and 6214. Otherwise, i.e. below 6161, the market will remain weak and bearish with supports at 6139, 6124 and 6102.

A breach of the key support of 6141 conclusively with volumes and on closing basis will imply that the Nifty will be headed towards the 5946 mark.

Intra-day traders may trade accordingly depending on which side of the 6161 mark the index trades. They may go short if the index trades conclusively below 6161 in the initial trades with stop loss at 6175. In case if Nifty trades above 6161 conclusively then they may trade on the long side with stop loss at 6161.

Short-term traders may continue to trade on the short side at higher levels with strict stop loss at 6257. They may consider going long in Tata Motors for a day or two with strict stop loss at 360.

Mid-term investors may utilize the current weakness to buy Tata Steel by placing bid @ 398.05 and 381.55, buy HCL Tech @ 1158.65 and buy HDFC Bank @ 677.45 and 666.55 in small quantities.

Disclaimer: The writers of this column do not personally hold any stock or position in the F&O market and do not intend to benefit in any way by publishing this column. The final discretion is that of the reader and we disown any responsibility for any loss incurred by the reader.

Understanding trading concepts Part I - Call Option.

Suppose a share is available at 100 bucks and one bets one's money on the cost of the share going up. In such a scenario he buys, say 100 shares for which he has to invest 10,000 bucks. Now suppose the stock gained by 25% and the owner sold it at 125 bucks he would have made a cool profit of 2,500 bucks. But if instead of buying and selling the shares, if one were to trade an option, the profit derived out of putting the same amount of money on exiting the trade at 125 bucks on the hundred buck stock will yield a manifold profit. Here is how it works. But first one ought to understand what exactly an option is.

An option is a contract by which the buyer of the contract (i.e option) has the right to buy or sell a specified number of shares at a specified price on a particular date. But he is under no obligation to buy or sell. In other words he is under no compulsion to buy or sell.

There are two types of options available in the stock market. Call option and Put option.
Let us explain a bit more. It is important to get the concept.

A Call option of a share is a contract, the buyer of which has the right to buy specified quantity of the share at a specific price. But he has the choice to not to buy the shares if he does not want to buy. 

Every month there is a settlement date which happens to be on the last Thursday of every month in India. On the last Thursday of a month the options of that month expire. It is on this day that the buyer of an Option my choose to buy (or not to buy) the underlying share of the contract.

Let us assume that there is a company GAMBIT-GAMEIT listed in the stock exchange and that its Options too are available in the exchange.

Suppose you think that the cost of the share is likely to go up to 125 bucks till the settlement date. So if today you enter into a contract wherein you agree to buy say 100 shares of GAMBIT-GAMEIT at 100 bucks on the settlement date, i.e. on the date on which the contract expires, then you can buy 100 shares at 100 bucks on the date of expiry and sell them at 125 bucks the same day collecting a cool 2,500 bucks per option.

But herein lies the catch. The contract or option is between two people. The seller of the contract, called Option writer, sells the contract at a price called 'ask price'. 
The price at which the contract got bought in the exchange goes to the Option writer.

Every share's options have a specified strike price. The strike price of the option in our example is 100. The strike price of a call option is the specified price at which the buyer of the contract has the right to buy the underlying share.

The option is traded in the stock markets just like the shares with ask and bid prices. Bid price is the price that the prospective buyer of the option is willing to pay to the seller for the option.  

Now let's say the Call option of our underlying scrip GAMBIT-GAMEIT of strike price 100 bucks is available at a price of 2 bucks. Lets assume that one lot of Call option of the scrip consists of 100 shares then the buyer of the GAMBIT-GAMEIT Call 100 will pay 200 bucks to the seller. Now if the share price goes up to 125 bucks then you will have received 2,500 bucks by exercising the option and buying at 100 while selling at 125 on the same day i.e. the settlement date. But as you had put in only 200 bucks while buying the contract you gain 2300 bucks (2500-200) which in percentage terms is many fold. If you had bought the stock for 10000 bucks you could have bought only 100 stocks whereas if you had bought Call options for 10000 bucks you would have bought 50 contracts for the same amount. That is the power of options.

Now suppose the stock did not trade above your strike price and in fact slipped down to 90 bucks then the maximum amount you loose per contract is 200 bucks.

Thus your profits can be unlimited while loss is limited.
However, it is only in theory that the owner of stock call option buys at strike price and sells at actual price. In practice one buys and sells Options just like shares. If the price of a share increases, the the price of the Call Option too increases and one sells the option he had bought earlier and makes handsome profits. On the other hand the loss is limited to the cost of the option which is very small in comparison to the cost of the underlying share. Options are also available for index. One may click on the following link to see the bid and ask price of Call and Put Options of the index 'Nifty' of expiry date 26/12/2013 as on 13/12/2013.
Option Chain of Nifty
We will explain Put Options in a subsequent article. (Click here for part II - Put Option)
If the followers of this blog have not traded options, they are advised not to trade in options till they become well versed. We will be publishing more of such tutorial posts and will advice the followers to start trading only after we have finished this series.