Kharikumars Option Theory – The street-smart way of trading.

It is a layman’s understanding only. i have read a lot about all oi / volume action but never
understood anything. i am more of a visual trader. i genuinely believe many times what we
see can teach us.
l'll try to explain it a little. it may not sound scientific but that's the way it is. because if all
indicators and setups were so perfect 70% of of the trading world would have been making
money. doesn’t mean they are not good but they are not conclusive. anyway, that’s just my
view.

i do not continuously watch the option chain on the nse site but i keep looking at it now
and then just looking at where the maximum action is and how the volume trends there.

for example, today i saw that 25500 ce of today’s expiry, which was a good 900 points away
from the current price was trading in good volume and going up for some time, with
change in open interest being positive, if the existing options writers were exiting it should
have been negative. so it points to someone buying. but why??. there will be arguments that
it is option sellers making money which is generally true. but how many retail traders would
be buying at that distance in an obvious blood bath. so i assume that is possible someone
who probably knows that it will go towards that point buying cheap and covering at a
higher price.

now this may sound a bit lame, uneducated to a lot of you with greater technical knowledge
and understanding of nitty gritties of the market. but like i said i put a lot of trust in what i
see. many a times the way a price movement occurs at pivot locations will give a feeling of
strength of weakness there. of course, it is not a given but it is the essence you get from
watching. since i trade only the index, it’s only the index futures i watch. i also keep a few
fno constituents to give the market watch some substance.

this sort of thing is not all the time, like now if i look at the option chain everything is
positive which does not mean anything to me. there are times when you see such wild
movements happening at a little far off options which should be indicative.

yesterday i was looking at the option chain in the afternoon and noticed some good
buildup around the 24000-24500 puts. i honestly should have given it a little more thought
but when the index was raging upwards and these were so far away i dismissed it.

i am not sure if i was able to convey anything of sense here, but will try to put in a few more
things as and when i think of it.
To continue. looking at the option chain now,

Please understand that this is just a very crude analysis that i do and does not have any
prescribed methodical support. i could well be wrong but i am just trying to explain one of
the pointers i look at.

i see that the put options are still in good volume between 24500 - 24000, and i dont see a
corresponding strength in the call options above 25500. there is also a decent volume at
10000 pe. This is the reading i got today. this could well change later.

so even though the market is going up i personally would be cautious at levels above/ after
25500.

one of the things i understood from the traders of the bank is that not all are assigned to
day trading/ swing trading whatever. some of the good guys are are they have huge
amounts of money to play with.

one of the examples was lets say the bank nifty is at 24900 in the afternoon of the expiry
day. depending on which way the trend is if the closing is expected to be lets say 25000.
they will place huge quantities of call options sell of -lets say 40-50 rupees. then they will
start buying the heavyweights of the bnf pushing it up. once they have sufficient upside to
clear their sells, they will start selling stocks of bnf pushing it down to end up at closing near
or below 25000 making all their sold options expire worthless thus getting in huge amounts
of money. similarly for the put option side. there are lots of such stuff they do and have the
cutting-edge technology and software to help them. depending on annual profits these
guys get a bonus.
they may not be paid so much, but definitely a fat amount. they also must be doing parallel
trades in their own trading accounts.

plenty of rubbish goes on in the markets. even many of the blue channel analyst have cases
against them for such things like give advice to buy/ sell a stock and then get their trading
house to take the opposite position, all bloody dhokebaaz fellows.

In continuing the options chain story.

Why i said 25300 is a possibility is because: let me tell you a small story on how i started
looking at this.
Sometime back i was randomly looking at the option chain and noticed something unusual.
(i will illustrate with hypothetical figures.). it was one day before the closing and the bnf was
going strong at let’s say 25200. it was going up for the past few days and obviously it was in
buy mode for everyone and their uncles. i noticed there was a good volume at 24800 pe
without any corresponding reduction in 24800 ce. i checked with my friend and he said its
market players playing with retailers and i left it at that. next day the market opened it green
and bnf was expected to close at 25400/500. and the whole day it was just loitering around
without actually going anywhere. but the end of the day it just dropped and came down 500
points to close at 24800. that gave me some idea. it’s not any concrete strategy but at times
i get a sense of the areas of action. Now whether these levels are being sold into or bought
into is something i can’t say. i just know there is some interest in that level.
normally the volumes are in the 500 levels--- 24000 / 24500 / 25000 etc.

So you will have one good volume at let’s say 25000 pe and as it goes down the volumes
keep reducing till 24500 where there will again be good volume. these volumes also keep
changing so if we notice any unusual movement in the morning it may not be visible in the
afternoon.
i saw that the 25300 pe has more volume than 25400 and with an increase in volume today.
correspondingly there is a reduction in the 25300 ce, which indicated covering up of
positions.
so i guess there is some action that level and probably the index may head there. now by all
given standards and TA experts etc that assumption is not right and i am looking at it in the
wrong perspective, but like i said i have a different opinion of the option chain movement.
i feel that now it has gone up to expected levels and calls are being covered and puts are
being opened to eat up the expected increase which it will see when the index moves in its
direction. Notice i am looking at it from a option buyer's perspective and not the option
sellers point which is how open interest analysis is done. This is the reason i say my view
may not be the proper way and could be wrong.

but i use it to give me a general sense of strength, direction etc. like the other day i saw that
there was no volume strength beyond 25500, and in a way, it paused there and generally
came back. these things can save some sorrow and prevent some mistakes.

of course it is not a foolproof way and many a times i have been taken for a ride. but on the
whole i am comfortable with it.