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Nifty option is another type of derivative tool that can be used to hedge the index of the NSE that is Nifty, the client can even buy a call or a put depending on the market conditions.
Call if the client is bullish and put if the client is bearish on the market. An option is a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset a stock or index at a specific price on or before a certain date. An option is a derivative. That is, its value is derived from something else. In the case of a stock option, its value is based on the underlying stock equity.
In the case of an index option, its value is based on the underlying index equity. An option is a security, just like a stock or bond, and constitutes a binding contract with strictly defined terms and properties. NiftyAlert shows direction to its clients and helps them in creating their capital and wealth. At NiftyAlert we have whole team of professionally qualified analysts with exceptional, specialized, expertise of providing quality services to our customers.
Monday - Friday Latest News No posts were found. An increasing ratio is a clear indication that investors are starting to move toward instruments that gain when prices decline rather than when they rise.
Since the number of call options is found in the denominator of the ratio, a reduction in the number of traded calls will result in an increase in the value of the ratio.
This is significant because the market is indicating that it is starting to dampen its bullish outlook. Regarding Nifty Open Interest, it provides good support and resistance levels for the series. Traders usually look for Nifty Open interest highest OI strikes.
These strikes are important to determine support and resistance. Because Option Writers are generally market players with deeper pockets compared to option buyers.
It is very important for option traders to understand the relation between open interest and market direction. Open Interest data can give very useful clues to determine Support and Resistance.
Similarly if huge open interest is build for calls it will be seen as major resistance zone. If the expiry is near than the market may stay range bound between these two levels. While first and third scenarios of interpretation of open interest charts indicate direction of future market trend Bullish in first case and Bearish in third Case , other scenarios does not indicate a clear trend.
Traders can wait for clarity in open interest data or use other indicators to initiate positions. Dear nifty11, Observation on Put Call Ratio. Please share your opinion. Regarding OI Pivot, I use it to only gauge market strength or weakness.
But I wait for retracement before taking any position and also check other indicators. Again, Indicator is one small part of TA. Patience, Money Management, choice of instrument, discipline etc. One cannot expect good result with TA alone. However, other things being equal, I suggest you read about the popular indicators and experiment with them. People have different biases, hence there is no indicator suitable for everyone or in every situation. Based on my experience, if you are looking for catching trend reversals, then look for momentum exhaustion.
Similarly, if you want to ride a trend, wait for retracement. How, High PCR means the market has bullish sentiments…? And premium of Puts rises only if the market falls.
This means the sentiment is bearish and the investors are expecting the market to fall and have bought puts to give them good returns. In contrast, if the market rises, the puts will decrease in value and the investors who have invested in Puts will loose their money. Trading is a zero sum game. One party makes money at the expense of other. Same holds true for option buyers and sellers also known as option writers. While both experienced and new traders buy options, the reasons for buying is very different.
The new trader or inexperienced trder is lured to buy options to make quick money. Option writers are usually people with deep pockets also more experienced , since writing options require higher margin compared to option buying. This is the reason why high PCR is considered bullish. Hope I have clarified your doubt. While markets are lot more complicated, I have simplified the dynamics for clearing your doubt.
Thanks for your prompt response. But it did not clarify my doubt. Hedging is trying to nullify the losses. Also, writing options require higher margin compared to option buying is correct as unless this is true you do not make a profit. This is what it is. Secondly, in terms of higher PCR, the investors are not writing puts they are buying..! Beginners react when there is panic or euphoria in the market.
Mostly when this happens the news is already priced-in. Beginners are usually not into writing options. Beginner traders are usually lured by low risk and unlimited return potential of buying options. While the experienced writers understand the time-value decay of options. The same puts are being written by someone who has been in the market for long time.
One party buying puts and the other selling them, so the PCR will go up. Hence the PCR has little or no impact from this.