Mastering Option Trading - INTRADAY: A Step-by-Step Guide

 

Mastering Option Trading -INTRADAY: A Step-by-Step Guide

Introduction

Option trading can be highly rewarding when approached with a disciplined and strategic mindset. In this blog, we'll break down a step-by-step approach to trading options in stocks, emphasizing the importance of careful stock selection, precise timing, and disciplined execution. Let’s dive into the essentials of a successful options trading strategy.

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1. Stock Selection: Timing and Criteria used in 5 min chart

Timing:

• At 9:20 AM: Begin your stock selection process.

Sources and Criteria:

1. Top Gainers/Losers:

   • Visit the NSE website to review the list of top gainers and losers in the futures segment.

2. Movement Check:

   • Identify stocks with at least a 2% movement in futures by 9:20 AM.

3. NSE OI Spurts Website: 

   • Access the NSE OI Spurts website to find stocks with a 7% increase in open interest (OI)  BY 9.20 AM. If no stocks with a 7% increase are available, then consider stocks with a minimum 4% increase. Prefer stocks with a 7% increase if available. 

4. Filter Stocks:

   • Identify common stocks that appear on both the top gainers/losers list and the NSE OI Spurts list. These common stocks are eligible for your options trades.

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2. Selecting Option Strike Prices

Criteria:

1. Determine Strike Price:

   • For Call Options (CE): Select a strike price 2% above the current equity price.
   • For Put Options (PE): Choose a strike price 2% below the current equity price.

2. Check Liquidity:

   • Ensure that the selected strike prices have sufficient liquidity for smooth trade execution.

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3. Timing and Entry into Trade

Timing:

• Once 9:25 AM High or Low is Crossed

Entry Criteria:

1. Nifty 10-Minute Candle:

   • If the 10-minute Nifty candle is green (bullish), consider taking positions in Call Options (CE) or buying the equity.
   • If the 10-minute Nifty candle is red (bearish), focus on selling the equity or buying Put Options (PE).

2. High/Low Levels:

   • Establish the high and low levels of the 10-minute candle from 9:15 AM to 9:25 AM.
   • Enter a trade if the stock price breaks or crosses these high/low levels at 9:25 AM:
     • Break Above High: Consider a Call Option (CE) or buying the equity.
     • Break Below Low: Consider a Put Option (PE) or shorting the equity.

3. No Trade Scenario:

   • If the stock price does not break any high or low levels by 10:30 AM, refrain from trading for the day.

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4. Exit or Profit Booking

Exit Criteria:

1. SMA-Based Exit:

   • Exit the trade if the stock price crosses and closes below the 8-period SMA and the next candle also closes below the previous candle’s close.

2. Profit Booking:

   • Book profits when the exit criteria are met or if you reach your profit target.

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5. No Trade Days and Timing

No Trade Days:

1. Two Days Before Monthly Expiry Day
2. Two Days After Monthly Expiry Day

No Trade Timing:

• If the 10-minute candle does not break out by 10:30 AM, avoid trading for that day.

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Conclusion

By adhering to this structured approach, you can enhance your option trading effectiveness. Focus on disciplined stock selection, precise timing, and strategic entry and exit points. Avoid trading on specified no-trade days and times to minimize risk. Practice this strategy thoroughly and refine it as you gain experience.

Happy Trading!

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