Today was the day when a carry forward position on the right side makes most sense.When there is a huge gap move options don’t move,they jump.At the open we were easily more than 100 points down,last friday when nifty closed it took support at 4200 and went marginally up.4200 was a strong support point.Today the gap down move was so strong it easily broke 4100,4050 and to some extent 4000.I was carrying a long put position of 4200 from friday which almost tripled in premium.This is the effect of gap moves on options.They are highly profitable if you catch them in time.I booked profit on 4200 put at around 10.45,it was marginally below 4000 and my view was that 4000 is too strong a support to be broken,especially since it was already too down and soon the move will be exhausted.After I booked it nifty did move upside slowly and went above 4000.This was a confirmation that my first logic was right.But soon there was another opportunity as nifty broke down below 4000.I long a put again but this time it was a small move as it went up from 3950.
Look at the chart attached with the post and you will see that market didn’t even try to break below 3950.This gives two signals.First,the selling side has taken the back seat now and gap move will slow down.Second,buying might come in and there is a good chance for profit in calls.Often it might be a case that selling takes the back seat but there won’t be much buying coming in,in these kind of times market moves sideways only.Today from 3950 it didn’t move sideways it went up.So it was a day when buying takes over as soon as selling rests.Before initiating a long call from 3950 it will be helpful to see if it goes above 4000 too.Because 4000 was a support that was broken it will now serve as a resistance.So the best time to enter a long call trade will be when 4000 is broken in the upmove and it stays above that.Move from 3950 started at 11.50 and confirmation of it came about 1.10 when it stayed comfotably above 4000.One could take a gut shot and go long right at 3950 but going long at 4000 at 1.10 is better because then risks and doubts of a false trade will be less.Market ended happily on an upside note.So a long position at 3950 or 4000 will earn good profit.
These kind of gap days do a lot of damage to the market and sentiments.On eod chart there is no support for the market once it breaks 4000,it will go all the way down to 3800.On the upside both 4100 and 4200 will be resistance.4100 is weaker resistance considering the fact that today market closed very near it and that the final momentum of price was on the upside.But 4200 will need a strong rally.If market doesn’t see a gap up moves it will be hard to break above 4200.A gap up move is highly unlikely given the conditions in USA and the fact that there is good domestic news either.
Today’s gap move is the kind when market reaches an important level and then turns opposite.Today after 3950 it turned on the upside.It gives good opportunities for both calls and puts. If you have a carry forward profiting position then it is advisable to book it as early as possible then wait for some time and see it market has reached its anchor level.If not then you can carry on with the momentum,once the anchor is reached-in today’s case 3950-all you need is one long trade.Today normally there were three very nice and easy trades.
I WRITE 