AMIBroker is one of the most famous Algo-Trading Tools available in the market today, which uses AFL Scripting. We can use AMIBroker to create, back-test and deploy and strategy.
In today’s episode, we are going to see the following items:
How to get started with AMIBroker
Downloading and Installing AMIBroker
How to import Indian stock market data into AMIBroker
Impact of Covid-19 on Economy & Stock Market
How to invest during market crash for best returns?
Our 2 year old video on stock market crash of 2019-2020:
Live feed Link:
https://marketsecrets.in/technicals/nifty-investment-levels
Stock market is crashing for last 2 weeks and Nifty has dropped 31% from its high’s so far. During market crashes, people make either of these 2 mistakes –
1. people invest too early
2. People invest too
Learn, how to invest properly and systematically during this market crash?
Few things I want you to remember.
1. Adjust this plan based on your goals and surplus cash.
2. You should never panic.
3. Understand why market is crashing.
How to invest during market crash? Observe how market is crashing.
1. It is falling too fast.
2. Observe what happened on yesterday (March 13).
3. V shaped recovery
4. 65-70% carsh is possible
Now, how to invest during this scenario – First you should have a Basic investment Plan:
What is basic investment plan?
1. It should have a goa
2. Develop a discipline of investing regularly – This is your regular monthly SIP
3. Develop and stick to “what if things go wrong plan”
What if things go wrong plan:
Objective – Reduce or totally remove the number of decision makings during market crashes.
Basic Rules:
• I won’t invest in any new stocks or Mutual funds
• I will not deviate from my investment plan regardless of whatever news, issues, or reasons.
So what are my plans for investing during market crashes?
I have clearly written down what I will do if market crashes or corrects 10%, 20%,30%,40% and 50% and I’ll blindly follow it during market crashes/corrections.
1. When market is down 10% – Increase monthly investment 50% by manually buying stocks/MF on the same day 10% is breached and until market moves above 10% mark.
2. When market is down 20% – Double monthly investment by manually buying stocks/MF on the same day 20% is breached and until market moves above 20%
3. When market is down 30% – Triple monthly investment by manually buying stocks/MF on the same day 30% is breached and until market moves above 30% mark
4. When market is down 40% – Increase monthly investment 5 times by manually buying stocks/MF Units on the same day 40% is breached and until market moves above 40% mark
5. When market is down 50% – Invest 50-75% current debt corpus or cash immediately in stocks/MFs and have remaining corpus for investing during the recovery
How to generate weekly income through option trading?
Option Trading can be used to generate regular weekly income using simple MaxPain strategy. Let’s see it in detail.
Note: This strategy should be used only on Expiry day (or) 1 day before Expiry.
Step 1: Spot Price
Check and note down the spot price of the stock or index which you want to trade.
Step 2: Calculate MaxPain
Check the option chain open interest data of the selected stock or index. Analyse the open interest data and calculate MaxPain.
Step 3: Find MaxPain of nearby strikes
Once you find MaxPain and its strike price, check the MaxPain value of nearby strike prices and see whether any of the strike prices have closer MaxPain value.
If any strike prices have closer value, it indicates MaxPain strike price can change easily. In this case, you need to be very careful or avoid selling options.
Step 4: Compare MaxPain & Spot price
1. Focus on buying option – If difference between Spot and MaxPain is >200
2. Focus on selling option – If difference between Spot and MaxPain is <100
Consider MaxPain is at 32200, there are 3 Scenarios:
1. If BankNifty Spot is below 32000, Buy CE
2. If BankNifty Spot is above 32400, Buy PE
3. If BankNifty Spot is between 32100-32300, Sell PE & CE
One of these 3 scenarios will happen every week, so you can easily use this strategy to generate weekly income by trading Nifty/BankNifty options.
Why you should never Buy Deep In The Money options?
Before we get started, let’s see what are the different types of option contracts available. Based on where the price of a stock is trading at, there are 3 types of option contracts available.
1. In The Money option (ITM)
2. At The Money option (ATM)
3. Out of The Money option (OTM)
Let’s see each type in detail.
In The Money option (ITM)
A Call option is called In The Money, if the strike price of the option is less than the current spot price.
A Put option is called In The Money, if the strike price of the option is greater than the current spot price.
Why you should never Buy Deep In The Money options?
There are 2 reasons:
1. You will need higher capital for trading, so it eliminates leverage advantage provided by options.
2. Deep In The Money option increases risk but generates same returns as that of In The Money option
So it doesn’t make any sense to buy Deep In The Money option for any trader and better to stick it In The Money option.
At The Money option (ATM)
A Call option is called At The Money, if the strike price of the option is closest to the current spot price.
A Put option is called At The Money, if the strike price of the option is closest to the current spot price.
At the Money option is the most actively traded instrument in the market.
Out of The Money option (OTM)
A Call option is called Out of The Money, if the strike price of the option is greater than the current spot price.
A Put option is called Out of The Money, if the strike price of the option is less than the current spot price.
Out of The Money option doesn’t have any intrinsic value and it only has time value. So if you consider this option expires right now, it will become 0.
Capital required for trading Out of The Money option is very low when compared to ATM & ITM options.
Out of The Money option are generally called Hero or Zero Trades. [i.e] There are the option multibaggers, which generates 2X, 3X, 4X & 5X returns of the capital.
Option Trading Basics
Let’s see in detail about the option trading basics every option trader should be aware of.
Why Option Trading is Famous?
Where the money goes, people’s energy flows. Since 85% of all the market action and market money is concentrated on option trading, option trading is extremely famous.
Also, the capital required for buying option is too low, but profit potential is extremely high when compared to stock/futures trading.
Strike Price
Strike price is the various price points at which option contracts are available for each stock.
For nifty, we have strike prices for every 50 rupees. For banknifty, strike price is in multiples of 100.
Underlying Price
Underlying price is the spot price of the actual stock or index from which option price is derived.
Option Premium
Option Premium is the value at which option is currently trading. It is simply the Last Traded Price (LTP) of the option contract.
If you are an option buyer, you need to pay the option premium to buy options.
If you are an option seller, you can sell options and collect the option premium.
Option Expiration
Option Expiration denotes the date in which the option contact will go void/invalid.
In India, stock options generally expires on last Thursday of each month (has monthly expiry contracts) whereas index options expires on every Thursday (has weekly expiry contracts).
Hope this post helps you to understand the basics of Option Trading.
How to generate regular income through BankNifty Weekly Expiry Strategy?
BankNifty Weekly Expiry can be used to generate regular weekly income with a simple strategy. Let’s see it in detail.
Note: This strategy should be used only on Expiry day (every Thursday).
Step 1: Spot Price at 1.00 PM
On Expiry day, Check BankNifty Spot price at 1.00 PM and note it down. Let’s say BankNifty Spot is trading at 32180.
Step 2: Select Strikes to Trade
Select the strike price just above and below the BankNifty sport price. Strike above the current price should be our CE and the one below should be our PE.
Since BankNifty is trading at 32180, we will select 32200 CE and 32100 PE.
Step 3: Entry Trigger
Place aorder to Buy both at 32200 CE & 32100 PE at 25 Rupees each. Your total investment will be 50 Points, which is 50*20=1000 Rupees.
Step 4: Target & SL
Your Target for this trade is 75 Points. If either CE/PE (or) combined premium hits 75 points, you can exit the trade. Your profits will be 25 points, which is 500 rupees.
Your SL for this trade is 25 Points. If the combined premium hits 25 points, you can exit the trade. Your max loss will be 25 points, which is 500 rupees.
If SL Hits, reverse the trade (Sell 32200 CE & 32100 PE, and collect 20-25 premium), you will earn 25 Points easily. SL for reverse trade is 50 Points
Note: You need to wait till 3.00 PM for either SL/Target. If neither target nor SL is hit by 3.00 PM, you can exit the trade.
Let’s talk about Personal Income Tax Changes for the Financial Year 2020-2021: In Today’s budget, government has announced income tax payers will be provided with 2 options from FY 2020-2021 regarding how their income tax is calculated. Under current regime, you are allowed the following commonly used deductions: 80C – 1,50,000 80CCD – 5,00,000 Medical…
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The Shortness of Life is one of the best books ever written on Managing Time and it is one of my personal favorite.
Here are the Top 5 Takeaways from the book The Shortness of Life:
1. Know Your Most Important Asset
2. Being busy always is not living
3. Luxury & Leisure are not living
4. Reversing the clock is not possible
5. How to Live With Duty and Purpose
What are the Option Trading Basics every trader should be aware of?
Understanding the basics of options is very important for every trader even if you are not into option trading.
Here are the list of things every option trader should be aware of:
1. Option Buying has Low Risk and High Reward
2. Option Selling has Odds of winning at 90%
3. Option Trading is a game of Risk vs Odds
4. Focus on option buying during High Volatility Events (India Vix)
5. Beware of Theta (Time Val) in 2nd Half of Month
6. Naked Calls and Puts has Unlimited risk but profit is limited
7. During option Selling Use 10% Buffer from MaxPain
8. During One Side Selling, Avoid writing PEs and target CEs