Option Trading can result into a classic strategy for any trader who understands the nature of the instrument. One way of understanding it is to see various Greeks like Theta, Gamma, Vega and much more. Another way is to simply look at the Option charts and apply simply concepts.
Below chart is of Nifty 14600 PE Feb Expiry 15 minutes chart
3 Simple Techniques: In above chart we can see 3 different important factors.
1. Ichimoku Cloud – This is a simple Technical analysis tool which is plotted along with prices. The red highlighted area is known as cloud. As long as prices are sustaining below the cloud the trend remains on downside. Move towards the cloud can provide opportunity to short for the down move as long as prices stay below the cloud. Post 22nd February we can see a push above the cloud but there was no clear higher highs and higher lows on bigger timeframe that suggested that the opportunity will still be on short side.
2. Average True Range (ATR) – This indicator helps to understand the volatility and on an average basis how much the option prices are moving during the 15 minutes time frame. This is again an important indicator that can help to setup stoploss for the positions. This method is very objective way of risk management which we discuss in much detail in our Mentorship program.
3. Kijun Sen (Base line) and Tenkan Sen (Conversion line) – In addition to cloud there are two more lines red line (base line) and blue line (conversion line). We are not going to get into details of plotting these lines but aim is to understand the application. When the blue line crosses below the red line this can be used as a signaling system for pulling the trigger. This acts like moving average crossover but it is plotted in a different way.
Above method clearly suggest 3 Simple but Powerful ways of Option writing without having to bother to look at the Greeks or spot prices.
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