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CM Strategy

Optionalysis: MA20 Ends Yet Another Awesome Trade with 23% in Four Days

Optionalysis

Oh, we love the MA20. When it’s bad, its a little bad, but when it’s good, it’s really really good!

* What is MA? Scroll to the bottom of this email.

We closed the MA20 options trade which was:

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• Short the 7900 call (150 qty) at Rs. 90

• Buy the 7800 put (150 qty) at Rs. 120

This requires an allocation of Rs. 100,000 (the two short calls need major margin – the net premium is just Rs. 30 x 150 quantity = Rs. 4500)

The Entry was on January 4 (Monday). (Noted on Slack and sent to Premium subscribers as email)

The Nifty Crashed, and We Got A Decent Return

The MA20 worked in our favour:

MA20

The exit was:

• Cover the short 7900 call (Thursday) at Rs. 29.55 for a profit of Rs. 60.45

• Sell the long 7800 put (Friday) at Rs. 215 for a profit of Rs. 95

Total profit of Rs. 155.45, and for a quantity of 150, that’s Rs. 23,317.45.

On An Allocation of Rs. 100,000 that’s 23.3%, in four days.

Past Performance of MA20

You can see the entire past performance and details on this strategy at:https://www.capitalmind.in/how-to-use-the-ma-20-indicator-and-system/

The current performance is:

• From November 2014 to Current, profit of Rs. 305,183.

• 25 trades: 19 winners and 6 losers. (76% win ratio)

• Approximately 2 trades per month.

• Average winner: Rs. 18,355

• Average loser: Rs. 7,259

• Max allocation has been Rs. 100,000 at any time

• Average holding period of 5-6 days per trade.

We’d like to maintain this performance going forward. It’s been kind to us in recognizing market turns.

What is 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. We then take a further four day MA of the resulting number to smooth it out.

(The MA5 is simply the same thing with the 5 Day moving average instead)

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 it crosses +30 from above to below, or -30 from below to above.

Remember the strategy is:

• Enter puts or calls when it crosses +30 from above to below or -30 from below to above.

• Sizing of positions and exits are discretionary

• One exception: max 50% losses on the options

You can see the strategy and full trade list here:

https://www.capitalmind.in/how-to-use-the-ma-20-indicator-and-system/

The power in the semi-system is a combination of good entries (through the algo), position management (semi-discretionary as we use the MA5 to determine position size) and reasonable exits (fully discretionary).

Note that the quantities are meant to be for 100,000 rupee portfolio. Since Nifty options are highly liquid, this strategy can be increased in quantity to higher allocation numbers fairly easily.

This is a very risky strategy. Don’t try it unless you’re willing to lose a large percentage of your investment. We haven’t provided backtested results because the exits are discretionary and there’s no proper way to back-test a discretionary system. (Heck we could make up whatever exit we want). We’ve traded it in our accounts, and every single entry and exit above has been posted in Capital Mind Premium. Now on Slack in #actionable.

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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.

Next Gen Financial Analytics

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