Dear readers,
In today’s blog, I will divide trading into two basic categories: directional and non-directional and discuss about using non-directional to make profitable options trading.
If you have been trading for a long time, you may know it’s very difficult to predict market. I remember a wonderful quote by Louis Navellier, “Just when you think you are smart, the market will show you just how really dumb you are.” I would like to highlight another quote by William Bernstein, “There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor – the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.”
Directional trading: Example: A traders after making detailed technical analysis(Gann, EWT, candle-stick, etc) and buys NIFTY future expecting the NIFTY to bounce above the cost price, reach target and finally book profit IF NIFTY has bounced as predicted. One more trader who also had done detailed technical analysis (Gann, EWT, candle-stick, etc) and predicted that NIFTY would fall, shorts NIFTY future expecting NIFTY to fall below short price, reach target and finally book profit IF nifty had fallen as predicted. These are speculation trades. One can lose huge money in this kind of speculative activity of predicting and trading if he is not managing his risk properly. Market can go expire anywhere above 5200, between 5200 and 5000, or below 5000 or 4600. Predicting where the NIFTY will expire is a difficult task for many of us. On the other hand predicting where the NIFTY will not go is a much easier task that predicting the direction. Non Directional Trading is about making money predicting where the market will not go. Ask yourself, which is easier, to predict where the market will go or to predict where the market won’t go?
Following is the list of non-directional option strategies which works without predicting market direction or neutral option strategies
- Bear Put Ladder
- Bull Call Ladder
- Calendar Spread
- Guts
- Long Box
- Long Call Butterfly
- Long Call Condor
- Long Call Synthetic Straddle
- Long Iron Butterfly
- Long Iron Condor
- Long Put Butterfly
- Long Put Condor
- Long Put Synthetic Straddle
- Short Call Butterfly
- Short Call Condor
- Short Guts
- Short Iron Butterfly
- Short Iron Condor
- Short Put Butterfly
- Short Put Condor
- Short Straddle
- Short Strangle
- Straddle
- Strangle
To be continued….
Narendar Rathod, Options strategist, www.AssuredGain.com
Trade Wisely & Relax
