Tuesday, February 4, 2020

Put call ratio & PCR in option trading

How people can use some instruments as a trading or hedging tool commodities & stocks.

Options future and PCR indicator

What are options?
in a commodities exchange have launched option that developed into futures if exercised.instrument that facilitated the purchase sales of and underlying commodity like gold or silver at a fixed price on a future date.
In SEBI has approved the launch of option by exchange like MCX, n c d e x and IC which are based on the rain commodities rather than on future.
What does PCR indicate?
Optional two types calls and put from a buyer's prospective call is purchased when and underline underlying is expected to rise and put is purchased when and on reliance is expected to to correct or fall from a sellers prospective call is sold when expect the underlying to not rise above the strike sold plus premium received from the buyers
Appu is sold when sick spect and under 14 below the strike sold minus the premium received from the pit buyers.
The open interest is the number of open buy and sell positions created by the birds or sellers.since for every sailor there has to be a bi and vice versa open interest is calculated single sided for example in a gold options in on MCX expiring on March 27 the maximum number of the coal sold at 830 mm for 10 gram strike which has 249 laws open the maximum number of puts sold is is at 30000 strike this means seller expected board to trade in 30,000 to 32000 range till March 27.
similarly if you look at the entire option chain the sum of all the calls and put gives the overall PCR of goal from month of season it tells you what the writers expect this stand at 1.58 this can be read in two ways by have haste themselves against up potential fall by buying more puts than calls but still have sold more put there are police on a gold price.
if gold rises the bookseller gets to keep much for all of the premium paid by the buyers but if it falls footwears can make a huge profit. PCR is therefore of contration indicator.
What were the pros and cons of option against future?
Below 10000 limited premium paid while profit can we very high in future loss and profit can be unlimited only stop loss are placed. Also to buy option premium which is normally lesser than the margin put up to a trade a future contract. There is no mark to market daily settlement in option unlikely in futures alt of the premium value of options keeps changing.however folding option by bears for long is risky as options lose value due to time decay or theta not the case with futures which can be rolled over for sailors the risk of writing option is technically unlimited but profit are limited to the premium received.also option seller have to put up margin normally equal to the Future margin to trade how your 8 out of 10 times of zilla make money while bad loose option sellers are considered better informed and financially service than buyers.
How does it help traders?
for an experienced Ada a very high PCR indicates that and all the layers might have stopped and himesh sale either a futures or a call option to benefit from anticipated short covering by put sellers again if the ratio is much below 1 ATS a 0.7 or 0.8 it might signal or potential bottoming in price as 2 minut have sorted called and might be forced to buy them back a square of their position in the event of trigger full stop the buying back of calls rises and the price just as the buying back of a puts by shot put writer cause the price of to decline however the PCR is only one indicator and there should ideally considered fundamental and technical analysis before buying or selling as derivative trading being levered is is brought with risk

No comments:

Post a Comment