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CM Strategy

Optionalysis: Finally the MA20 Turns, Giving a Glimmer of Hope For Options


Optionalysis Header

A quick note on Optionalysis about the MA20.


(The MA20 is our proprietary indicator about market breadth. The MA20 is calculated by taking the number of Nifty stocks above their 20 Day Moving Averages, and we subtract from this number those that are below. Since the Nifty has 50 stocks, this calculation will oscillate between -50, when there are no stocks above their 20 DMAs, to +50 when there are no stocks below. We have found that trading opportunities exist when the indicator goes above +30, or below -30, and turns around. )

The MA20 has turned a little. It was at -37 but has moved up to -35. However this is still low, even if it has turned in direction.


Since it’s below -30 even now, it might be better to consider waiting a little longer before taking a position, since this does produce whipsaws. But in case the market moves up more tomorrow, it would be useful to look at buying call options for a very short term move. The strike price of 8400 is the most attractive, as the put-call ratio at 8400 seems to be a 0.86 and implied volatilities are relatively low (NSE shows 15.8).

However, without confirmation of a move to above +30, the position size would have to be smaller – about half of the regular position size.

Stop losses need to be over 50%! Be very very careful.

Monday seemed like a lot of short covering. If it was a one day thing, it’s over; and we have seen one-day whipsaws recently. But if it’s truly short-covering, the shorts will probably take a couple more days to run out the door, at which time it will be enough to get rid of these options at a profit.



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.

Capital Mind for ZD



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