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CM Strategy

Optionalysis: The MA20 Sits On The Borderline, Action Time!

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We spoke of the MA20 on Thursday when the Nifty showed potential signs of peaking. We went (40% of the regular position) short through put options.That was then, and Friday gave us a phenomenal return with the 8600 put going from 63 to 88. We’ve stayed short, but Friday’s data sits us on the edge.

MA20

The MA20 is just the counter of Nifty stocks above their own 20 day moving averages, minus the number of stocks below. (MA5 is the same, but uses a 5 day average instead). The MA20 and MA5 will oscilate between +50 (when all stocks are above their DMAs) and -50 (when all are below). These, we have found, give you a slight advance notice of a trend change.

The MA20 has fallen to exactly 30 on Friday with the dip in the index. Given that today’s open was lower, we are looking to add the full position (remaining 60%) in the day. 

The MA5 (which uses a 5 day average and is faster but more choppy) is also in confirmation, and not oversold – if it were much below zero at this point the trade is less likely to work.

MA5

Action: We’re buying the remaining 60% of puts at the 8600 strike today. Given that a 10% cut is due for a long time, one might consider a closer put at 8700, or a further one at 8500. But the 8600 puts at 90 are still worth our while.

Note: This is not a recommendation. We can afford to lose this money. Please do your own research before you apply your money to the market.

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Disclaimer

Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion. 

Disclosure: The authors at Capital Mind have positions in the market and some of them may support or contradict the material given above, or may involve a direction derived from independent analysis.

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