A new experiment with Put Call outlook.

Here is an idea which is still in experimental stage.

Watch the numbers in the derivatives market closely. Data which is watched is

  • futures premium
  • options interests of 3 most active calls and 3 most active puts
  • implied volatility of the above options
  • change in open interest of the above options
Then using the above data, generate two numbers. One which indicates medium term expectation and one which indicates short term expectation of the market. I wont reveal the exact formulas but it is not hard to make your own. For finding the magic formula, some trial error and testing would be needed. This method provide one of the nice ways of algorithmic or system trading of nifty futures. anyway, for the moment let me keep it simple.

Here are today's numbers :
  • Medium # : -2.6
  • Short # : +9.8
The rough idea about the values of the numbers is self explanatory. For example, a very negative (less than -10 for example) Medium # would indicate that soon the market expects "itself" to go down son. A positive Short # would indicate expectations of a rally. This rally could be very short lived, e.g. just an intraday rally. These numbers would themselves keep changing throughout the market hours. Both positive numbers, and i'll go long, and both negative numbers and i'll go short. If there is an imbalance, like today, I will usually avoid trading.

Currently i wont be updating these numbers everyday, only when i have time to trade or experiement. but later on i plan to do regular updates.

Sep 5, 2008

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