Friday, June 21, 2013

Market chooses its winners (and losers). Is that our choice too?

Last 6 months chart for Nifty, its winners and losers

Last 6 months chart for Bank Nifty, its winners and losers

During uncertainty of a break-out or a break-down, straddle or strangle are the tools available for options traders to put to use. That means building positions in both directions in the same stock or index.

Another way of trading this could be to identify the winners and losers and buy at the money calls and puts in those identified stocks. When a break-out is expected, buy a call of an expected winner from the trend and a put of an expected  loser.

Advantage of this method is, profits are better than in a straddle in a single stock. But one needs to verify that trend reversal possibility for those stocks are minimum.