Monday, April 22, 2013

India can do better than Modi or Rahul

The country needs a good human being who also has practical ideas on how to bring progress and positive change

As the whole country views on television and reads in every newspaper the battle between Mr. Narendra Modi and Mr. Rahul Gandhi, I am only worried that we have actually come to this. We don’t care anymore about thought, kindness, honesty, action, responsibility, courage, leadership. We have one person who refuses to answer any question on the blood on his hands as Chief Minister and another who is being projected as a mature philosopher when we actually need a dynamic leader.
Recently at one of his many public appearances, Mr. Modi was asked whether he would take moral responsibility for the 2002 riots, to which he replied that he had already answered questions about the riots numerous times. But the same man has over the last few months been willing to answer time and again the same questions about his developed Gujarat.

Growth and humanity

Every time Mr. Modi’s name is discussed, the riots are a part of the narrative and the criticism is that we are trapping him within that event. But why not? Any person with some human essence must ask those questions time and again. Whether or not he was party to the violence is up to the courts to decide, but he was the Chief Minister of the State and has refused to say that he should have acted differently. How can we ever ignore that? In fact we should not. In my travels I have always met so many middle class Indians who think Mr. Modi is the Bill Gates of Indian politics. “Go to Gujarat and see the transformation, development, bridges, roads, IT companies, the speed of decision making and you will realise why he is the right person for us.” When I hear these statements I am filled with sadness that we as a society can easily erase people from our minds. We say that the courts have not convicted Mr. Modi, but we readily accuse someone else as being a criminal even when no verdict has been proclaimed. Essentially, economic growth seems to erase all sense of human decency.
I am also told that “after all the Muslims have also voted for him.” Honestly, I don’t care if all the Muslims in the world voted for him. I care that people died, not Muslims, Christians or Hindus. I am not aware of the voting patterns of Gujarat, that’s for psephologists. But I am aware that reasons for a minority community to behave in a certain way are usually driven by the behaviour of the dominant group. The “dominants” manipulate and coerce the weak to act in certain ways. The positive economic changes seen in the lives of the majority also influences the behavioural pattern of the minority. I am not saying these are the reasons but let us just keep this in mind.
We as human beings are built to empathise and feel for others. Let us not lose sight of this basic quality of humanity in the dream of economic comfort or seeming political “stability.” I would rather be poor than inhuman! Mr. Modi, I will not stop asking you this: “Will you take moral responsibility for the riots?” You owe this country an answer.

Point of trust

While this is one end of the political narrative, there exists another in the form of a smart, genuine young man who needs to know what he is doing. Someone has to tell Rahul Gandhi that he is not a philosopher and India doesn’t need one in him! We need a strong individual who is honest and willing to show courage. He need not constantly mention the problems of the political and bureaucratic class. We are only too aware of its failings, and are constantly made aware of them. We do not need a “magic wand” but someone with a will to change things and has not until date shown any will. Mr. Gandhi has floated thoughts on “what ails Indian society.” So, what next? There seems to be a stupor hovering over him, a cloud of inertia and intellectual lethargy. The country can ill afford a slumber of ideas, courage and determination in a man who is meant to be waking the nation up. What one misses in Mr. Gandhi is not earnestness of intent, not sincerity, but a crucial breaking of the trust barrier, a totally convincing breakthrough in winning the nation’s trust. He can fight all his political battles with Mr. Modi or anyone else but first he must be willing to fight the battle of his life for this country. Unless the nation sees him do that how can it entrust its future to him? His advisers don’t seem to see that the absence of a trust breakthrough in Mr. Gandhi is what Mr. Modi is cashing in on and substituting with his own brand of “I can do it” in surplus. India needs a good human being at its helm but also a proactive person with serious, practical ideas of how to change this nation. We have in him an exhaustingly long prologue; what we need now is the main action.
Watching this presidential style battle being played out in the media on an everyday basis has only further increased my disappointment in us as a society. Urban India is intoxicated by these two people, and the so-called “real India” is being manipulated by the same individuals. The end result is that India seems to have reached a political cul-de-sac. What other options do we have? We can not only look for other options but can actually force a change from these two. It is up to us to demand decency and human empathy, responsibility-owning from Mr. Modi and courage and determination from Mr. Rahul Gandhi. If neither have it in them then they don’t deserve our votes, and nor do their parties, bereft as they are of ideas for change.
(T.M. Krishna is a Carnatic musician.)

Thursday, September 13, 2012

One basic rule

Try to Buy at resistance levels .THIS IS THE SAFEST WAY TO PROFITS. Wait till the stock comes closer to the moving average and only then buy it. Especially if there is a big capital involved.

Suppose the stock is moving in a range like appl now at 260 but at that range, but if it moves to 280 and you are not sure if it is going to go up or down, then you have straddle the options.

If you do not STRADDLE, then it means that you are taking a GREAT risk and many times you lose money. If you did a STRADDLE then you would not lose any money if the market pulled back to the resistance level of 260.

So always know what the resistance level is. Try to buy at that level, with more number of calls. One can even straddle at that level too , but one can bet that on buying calls and also 1/2 number of puts.

But any level above 670 or 680, IF THE MARKET IS RANGE BOUND YOU HAVE TO STRADDLE. straddling is safest method to protect capital.

Monday, September 10, 2012

AAPL droped 2.6 percent from 280 to 262

having a long position with options would have been a disaster today. During uncertain markets it is best to take the profit and not wait for another day for the disaster to strike especially a week end.

Just take the 15 to 20 percent profit with options and keep the profits than when the market hit low, just buy gain or one can do some intra day puts buying.

Trading range. Even a straddle would have been good at this point.

Friday, August 31, 2012

Profit On Any Price Change With Long Straddles

Article talks about COSTS AND BREAK EVEN POINTS which is very important. Also straddles can be profitable because of the nature of option pricing and implied volatility.

Long straddle and Price consolidation

What Is a Long Straddle?A long straddle is one option trading strategy that offers option traders a unique opportunity not available to individuals who only trade underlying securities. Specifically, a long straddle affords a trader the opportunity to make money regardless of whether the underlying security advances or declines in price. The tradeoff is that the long straddle will lose money if the underlying security remains close to the price it was at when the trade was initiated. However, the trader can position the trade to give the stock enough time to make a meaningful move. (For more on long straddles, see Profit On Any Price Change With Long Straddles.)

A long straddle is entered into by simply buying a call option and a put option with the same strike price and the same expiration month. A call option gains value as the underlying security rises in price and a put option gains value as the underlying security declines in price. However, both options have limited risk. Therefore, the goal is to have the underlying security either:
  1. Rise far enough to make a larger profit on the call option than the loss sustained by the put option, or
  2. Decline far enough to make a larger profit on the put option than the loss sustained by the call option.
This is how a long straddle makes money. (To keep reading about straddles, see Straddle Strategy A Simple Approach To Market Neutral.)

One of the two options must advance more in price than the other option declines in price. In addition, the maximum profit potential on a long straddle is unlimited. As long as the stock keeps moving further and further in one direction, the long straddle can continue to accumulate greater and greater profits.

Option prices are comprised of intrinsic value and time premium. Intrinsic value is the amount that an option is in-the-money. The remainder of the price of an in-the-money option and the entire price of an out-of-the-money option is comprised of time premium. Therefore, the risk in buying a long straddle is that the underlying security will not make a meaningful move in either direction and that both the options will lose time premium as a result of time decay. The maximum risk for a long straddle will only be realized if the underlying security closes exactly at the strike price for the options.

Looking for the Next Big MoveIf you look at a price chart of virtually any security, you will find periods of price consolidation followed by price trends in one direction or the other. This trending period is then followed by another consolidation and so forth. If you look at enough charts, you will also notice that some securities are inherently more volatile than others. Because you need some type of meaningful price movement in order to make money on a long straddle, it then makes sense to consider buying a long straddle on a typically volatile security after it experiences a price consolidation.

A consolidation phase can often be quite subjective, but in the end the idea is simply to identify a period of time during which the stock in question has "gone nowhere". In addition, the more "tightly wound" the price action is during the consolidation - or, the longer and more narrow the trading range - the more likely the eventual breakout will involve a meaningful price movement. Some traders use various indicators to measure and identify consolidation, but it is possible to identify significant trading ranges simply by inspecting the price action for a given security on a price chart.

The first step is to identify a stock that has a history of making significant movements in price. Stodgy old blue chip stocks or utility stocks typically are not the best candidates for the long straddle strategy because they simply do not move significantly enough in price to generate a profit. What you really want are the high fliers that routinely make significantly large percentage price movements. In 2009, one such stock is Microstrategy (Nasdaq:MSTR), which appears in Figure 1 below. As you can see from a simple visual inspection of this chart, MSTR has a tendency to wind into a tight trading range and to then break out of that range with a large move.
Figure 1: Microstrategy (MSTR
Source: ProfitSource

Buying a Long Straddle Following ConsolidationOnce a stock establishes a trading range over a 10-day period at least, the thing to watch for is a breakout in either direction. Many traders will attempt to play the breakout in the direction of that initial breakout: they will get bullish if the stock moves to the upside and bearish if it breaks to the downside. However, breakouts often have a high failure rate and whipsaws can leave those initial buyers or short sellers with a quick loss. This is why a long straddle can be quite useful in this situation.

For example, if the stock breaks out to the upside and keeps going, a long straddle will make money. Likewise, if the upside breakout fails and the stock turns and runs to the downside, the long straddle can make money in that case also. In Figure 1, there are three consolidation periods marked for MSTR. Each consolidation was followed by a significant move in price. If you look at the second set of parallel lines, which occurred during the month of May, you can see that the stock broke to the downside on June 2. In Figure 2, you see a long straddle trade that could have been entered using options on MSTR.

In this example, the trade involved buying one October 80 strike price call option for $7.80 and simultaneously buying the October 80 strike price put option for $9.30. Thus, this trade costs $1,710 to enter [($7.80 + $9.30) * 100 Shares per options contract].

Figure 2: Long Straddle using options on MSTR
Source: Optionetics Platinum

The Particulars of the Long StraddleWhen you enter a long straddle, there are always three certainties:
  1. You have unlimited profit potential.
  2. Your risk is limited to the amount you pay to purchase the call and put options.
  3. Your breakeven points are equal to the amount you paid added to and subtracted from the strike price of the options purchased.   
You can see these factors reflected in the risk curves that appear in Figure 3, below. On the left-hand side is the price chart for MSTR. On the right-hand side are the risk curves that depict the expected profit or loss at any given stock price as time goes by. You can see in these risk curves that the higher or lower the stock moves, the greater the profit. You can also see that the maximum loss is $1,710. This will only occur if MSTR is trading exactly at $80 at the time of option expiration. You can also view the effect of time decay, or the process by which an option loses whatever time premium was built into its price as expiration approaches. This is reflected in the fact that the risk curves shift to the left (reflecting either a smaller profit or a larger loss) as time goes by.

Lastly, if it is held until option expiration, then you can see that the breakeven points for this trade will be 62.90 and 97.10. These points are arrived at by adding and subtracting the amount paid to purchase the straddle (17.10 points) to the strike price of 80.

Figure 3: Risk Curves for MSTR Long Straddle
Source: Optionetics Platinum

Managing the TradePrior to entering a long straddle, it is essential to determine what would cause you to exit the trade
with a profit or with a loss. Regarding risk control, some traders will set a percentage of the amount paid as a stop-loss point. Another possibility is to set a time limit. For example, a trader might decide to risk, say, 50% of the premium paid to enter the trade. For the MSTR example, this works out to about $850. As you can see above in Figure 3, if this trade was held until September 1 and the stock was about unchanged, then this trade would show a loss in the $800+ range.

In regards to profit-taking, different traders use a variety of different methods, but one of the simplest and most useful is a simple profit target. For example, a trader might decide to exit the position if a profit of a given amount or percentage is achieved. This comes down to personal preference and also depends on one's expectations for the underlying stock. However, it is not uncommon for a trader to target a 20-50% return. For the MSTR long straddle example, a profit target of 20% would mean that one would look to take a profit once the profit on the trade exceeds $342 ($1,710 * 0.2).

It took close to two months, but on July 28, MSTR finally fell far enough to generate an open profit of $430. The buyer of this long straddle could have exited the trade at this point and garnered a profit of 25% in just two months' time. The risk curves in Figure 4 are updated to reflect the change in the stock and the value of the long straddle position as of July 28.
Figure 4: MSTR stock drops, long straddle becomes profitable
Source: Optionetics Platinum

SummaryTaking advantage of unique situations is one of the benefits that option traders enjoy. One of those unique situations involves taking advantage of the fact that stocks - especially those that are extremely volatile in nature - will "pause" and consolidate from time to time. Eventually, that consolidation period ends. When it does, quite often it will be followed by a strong trend in the price of the stock. The problem is that it can be difficult to accurately forecast whether that new trend will be to the upside or to the downside. This is exactly the situation in which a long straddle can be quite useful. By buying a long straddle, or simultaneously buying both a call and a put option, a trader does not need to accurately forecast the direction of an impending price movement; he or she only needs to feel confident that a sufficiently meaningful price movement is likely to occur.

Rule NO 1. Back yourself up always in every single trade

1. Simple rules

a) For stocks use stop loss or hedge with options, prefer to use stop loss or buy out of money options both are good.

b) for  Options use a straddle at least during the initial big position during consolidation phase of 6 days. Of course invest money when there is a trend. But trends can also be uncertain. Future is always uncertain even in best trends. So back yourself up always.

Implied volatility has a big or singular role in options. Only buy options during consolidation phase of trend when the volatility is low and option price is low.

stop loss does not work in options because by the time you open the computer next day the option is down 50 percent if the underlying is down 10 dollar for example.

So stop loss is stupid in options only way to do it is to hedge it with opposite option at same strike price.

buying weekly options is stupid idea for consolidation phase of stocks uptrend or downtrend

these are the most dangerous for consolidation phase. Within 1 week, the value of the weekly option can go down a lot more than 60 percent.

How do you know that 6 days is for certain the stock is going to move in the desired direction. One does not know. That is the reason why there is no point in buying the weekly options when the stock is consolidating.

Another point is about rolling over the weekly options , which is again a waste of money for buying and selling transactions which can be a lot if one is buying big positions.

What a waste of time and money!!!

Weekly options is a horrible idea. Even buying 1 weekly option is a waste of money. That means selling weekly options becomes a good idea.