Saturday, December 28, 2013

Option Demystified


 Everything from Short Build up, long build up, short covering, long unwinding. Picture worth a thousand words.

If you notice the PCR (put/call ratio) generally forms a bottom or top before NIFTY does & is an excellent indicator /precursor of when the NIFTY should give a reversal in trend.

#1: When PCR crosses over 1.50 and stays above 1.50 levels for couple of days we will see the Bullish Trend continuing in Nifty. It also indicates that the Put writers are too strong and the Put buyers have bought the options for hedging their long positions in Nifty.

#2: Similarly if PCR crosses below 0.80 and stays below that level for couple of days we will see the Bearish trend continuing in Nifty. It also indicates that the Call writers are too strong and the Call buyers have bought the options to hedge their short positions in Nifty. 

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