vivek_bajaj RS RSI for options credit spread.pdf

Social Partner Analytics Partner
Title Partner
Trading strategies Using RS
Vivek Bajaj
A presentation on my trading setup
using Relativity in implementing
different trading strategies in Indian
Equity and FnO markets.
INDIA TRADING CONCLAVE

2013: Stock/Nifty
2016: 1W3M Model
2019: RS55
and still evolving !!!!!
Title Partner INDIA TRADING CONCLAVE
My RS Journey

My Current RS Model
RS55>0
RSI>50
2H_RS55>0
Supertrend Positive
CORE
TRADE

Cash Market Short
Tenure Swing Trading
Daily chart Should be strong
Base RS55>0, RSI>50
Trending Up
2 Hourly Charts strong
Entry:
RS55>0, RSI>50
Supertrend Buy
Stock Crossing previous swing high
Weak in 2 Hourly Chart
Daily RS21 negative
Exit: RS21<0 (Daily)
RSI<50
RS55<0 (2 Hour)
Supertrend Changed to Sell

Cash Market Long Tenure
Swing Trading
Weekly chart Should be strong
Base RS21>0
RSI>50
Daily Chart should be strong
Entry:
RS55>0, RSI>50
Supertrend Buy
Stock Crossing previous swing high
50%
Exit: RS21<0, RSI<50
Supertrend Changed to Sell
Rest 50% RS55<0, RSI<50
Supertrend is also Sell

Using RS Model to Trade
Derivatives

Option Chain Analysis
• Support and resistance levels can be identified from the option chain by analyzing the key strikes with
the highest open Interest.
• A high OI buildup in these strikes signifies that the option sellers of these strikes are expecting the stock
price to expire below or above for call writers and put writers respectively.
• As the stock price approaches near these strikes with high OI buildup, the sellers of the option contract
try to defend their strikes and thus act as support/resistance.
• As the stock prices move, the Open Interest changes in these strikes. Addition of further OI signifies that
the support /resistance is intact. On the other hand, unwinding of positions in a particular strike
signifies that the market participants are expecting the stock price to breach the respective strike price
and hence shift their position to a higher/ lower strike in case of call writing/ put writing respectively.

Option Chain
IMAGE

Identifying Demand Zone
• The demand zone signifies the price levels or the price zone in a particular stock where higher demand is
witnessed in the stock.
• This zone shows rejection of price as bears try to push the stock prices further down but usually face
rejection as the prices witness a pullback due to higher demand in this zone.
• This zone can be safely considered as crucial support for a stock. However, breaching this zone usually
leads to further strengthening of the bears and prices likely keep falling further.

Demand Zone

Identifying Supply Zone
• The supply zone signifies the price levels or the price zone in a particular stock where higher supply is
witnessed in the stock.
• This zone usually shows rejection of price as bulls try to push the stock prices further up but usually face
rejection as the prices witness retracement due to higher supply in this zone.
• This zone can be safely considered as crucial resistance for a stock. However, breaching this zone usually
leads to further strengthening of the bulls and prices likely keep rising further.

Supply Zone

Credit Spreads
Bull Put Spread
Bear Call Spread

Bull Put Spread
View- Bullish
Strategy- 2-legged strategy
Leg 1- Sell Near OTM Strike (PE)
Leg 2- Buy Far OTM Strike (PE)
IMAGE

Entry Criteria
Analyze daily charts to determine
either to build long or short position in
the stock.
1. RS (55 days) > 0 = Long position
(Daily Chart)
2. RS 55 in 2 hourly charts turning
along with RSI >50
3. Super trend signal changing from
sell to buy in 2 hourly charts where
RS 55 is already positive and
trending upwards along with RSI
>50

How to select the strikes?
▪ Selecting the strike price is based on the analysis of option chain and identifying the demand zone.
▪ After Option chain analysis and identifying the demand zone, we select the strike closest to the
demand zone level.
▪ For example, if the demand zone is 402-404 and option chain suggests 400 as the PE option strike
with the highest OI buildup, we will select 400 as the strike for Short put.
▪ In case of Bull Put spread, we will sell 400 PE and buy 370/380 PE. The strike to buy for hedge would
depend on receiving close to ₹5000 or 10% of Margin in net premium from the Credit spread.
▪ The use of spreads reduces our margin requirement as well as hedges our position from Overnight
risk of carrying the position.

Exit Criteria
Profit Booking
The profit from the strategy exceeds 70% decay in net premium.
Example – The net premium received from a bull put spread = 7000 ; (10-3)*1000
400 PE = 10
370 PE = 3
Lot size = 1000
In this scenario, when profit is greater than ₹4900 or (7000*70%), one may exit.
In order to avoid the obligation of higher margin requirements, one may exit from the strategy
on the first day of the last week of expiry.
Risk Management Exit from the position only if the price violates the demand
zone and 2 hourly candle close is above the demand zone.

Bear Call Spread
View- Bearish
Strategy- 2-legged strategy
Leg 1- Sell Near OTM Strike (CE)
Leg 2- Buy Far OTM Strike (CE)
IMAGE

Entry Criteria
Analyze daily charts to determine
either to build long or short
position in the stock.
1. RS (55 days) < 0 = Short
position
2. RS 55 in 2 hourly charts turning
negative along with RSI< 50
3. Super trend signal changing
from buy to sell in 2 hourly
charts where RS 55 is already
negative and trending
downwards along with RSI < 50

How to select the strikes?
▪ Selecting the strike price is based on the analysis of option chain and identifying the supply zone.
▪ After Option chain analysis and identifying the supply zone, we select the strike closest to the supply
zone level.
▪ For example, if the supply zone is 396-398 and option chain suggests 400 as the CE option strike with
the highest OI buildup, we will select 400 as the strike for Short call.
▪ In case of Bear Call spread, we will sell 400 CE and buy 420/430 CE. The strike to buy for hedge
would depend on receiving close to ₹5000 or 10% of Net margin in net premium from the Credit
spread.
▪ The use of spreads reduces our margin requirement as well as hedges our position from Overnight
risk of carrying the position.

Exit Criteria
Profit Booking:
Risk Management: Exit from the position only if the price violates the supply zone and 2
hourly candle close is above the supply zone.
The profit from the strategy exceeds 70% decay in net premium. Example – The net premium
received from a Bear call spread = 7000 ; (10-3)*1000
400 CE = 10
430 CE = 3
Lot size = 1000
In this scenario, when profit is greater than RS 4900 or (7000*70%), one may exit. In order to avoid
the obligation of higher margin requirements, one may exit from the strategy on the first day of the
last week of expiry.

Tata power
Bear Call Spread

Entry date – 22nd
Feb 2023
Supply zone was determined at 215 levels and
highest Call OI was at 220 CE.
Stop Loss : closing above 215.
The following strategy was implemented:
-1 lot 215 CE @ 2.95
+1 lot 220 CE @ 1.9

Exit date – 16th
March 2023
Target profit – 3544*70% = 2481
Realised profit = ₹2700
The strategy was squared off:
+1 lot 215 CE @ 0.55
-1 lot 220 CE @ 0.30

JSW Steel
Bear call Spread

Entry date – 22nd
Feb 2023
Supply zone was determined at 740 levels
and highest call OI was at 720 CE.
-1 lot 740 CE @ 10.4
+1 lot 760 CE @ 5.65

Exit date – 27th
Feb 2023
Target profit – 6412*70% = 4489
+1 lot 740 CE @ 3
-1 lot 760 CE @ 1.65

Kotak Bank
Bear call Spread

Entry date – 20th
Feb 2023
Supply zone was determined at 1840 levels
and highest call OI was at 1800 CE.
-1 lot 1840 CE @ 18.8
+1 lot 1900 CE @ 7.85

Exit date – 23rd
Feb 2023
Target profit – 4380*70% = 3066
+1 lot 1840 CE @ 5.5
-1 lot 1900 CE @ 2.05

HCL Technologies
Bull put Spread

Entry date – 02nd
March 2023
Demand zone was determined at 1078 levels
and highest call OI was at 1100 PE.
Stop Loss : below 1078.
-1 lot 1080 PE @ 11
+1 lot 1050 PE @ 5.65

Exit date – 14th
March 2023
Target profit – 3745*70% = 2622
Realised Loss = ₹4480
+1 lot 1080 CE @ 22.75
-1 lot 1050 CE @ 11

Thank You
Title Partner

vivek_bajaj RS RSI for options credit spread.pdf

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