Rattibha

How to execute positional trading/trend following through option selling?
When to initiate a trade?
What strike to choose?
When to roll over the strike?
And what should be the ideal position sizing to do?
Read On:🧵(1/22)

In order to understand all of this, you should know the basics of price action. Here's how I do it; you can implement it if it works for you.
When to initiate a trade:
For initiating trades, you should know the trend at higher timeframes, like Daily and Weekly. (2/22)

Always start with a higher timeframe and come down to a lower timeframe. Check whether it's bullish, bearish or sideways. It's important to initiate a trade at the right time. Let's understand with a few examples.(3/22)

Let's say it's bullish on both weekly and daily. When the trend is bullish, you must focus on buying the dips (until it breaks swing low )and breakouts - not selling at every resistance. (4/22)

Example:
After a downtrend in June, when Nifty started coming up in July and started making higher highs and higher lows (first indication of trend change) and after a small consolidation it gave a breakout of the range on 6th July. Check the chart for reference: (5/22)

How you could take a trade on 6th July via option selling:
It was taking resistance at 15900 and it gave a breakout on 6th July (Wednesday).
After range breakouts, good momentum is expected. In that case, you can sell near OTMs or ATMs as per your comfort zone and.. (6/22)

..make sure there is always a tail risk so that you have to take a position with proper risk management and correct position sizing. (7/22)

Aggressive Traders:
They could sell the 15800 puts - low of breakout candle and immediate support or could create a credit spread. As it was a Wednesday, and the breakout sustained too hence premiums expired the next day. (8/22)

If moves continue in your favour, roll over strikes on the basis of intraday move. Expiry should be traded on intraday move basis. For option sellers, expiries play a major role in profits. Take the same 15800 puts of next expiry and simply trail it. Check chart for ref: (9/22)

Moderate Traders:
Could sell swing low strike - 15700 & below or 200-300 strike away from ATM. Choose strike as per comfort/risk management. Start with small premiums and then move high. Go for credit spreads initially, then naked once you understand the trend following. (10/22)

There are different ways to trade:
• Breakouts
• Reversals
• Pullbacks
You can trade what suits you and your setups.
If you sell ATM or near OTM in case of a breakout, then there are some rules that you can follow: (11/22)

Take entry as soon as it gives a breakout:
If the premium decay even 30-40%, you can hold the same and trail the position as per spot. If you take it at day end, then take it with the hedge-credit spread. (12/22)

When to roll over a strike:
This is an important factor because if you just roll over it because the current premium expired without checking the price action at that time, chances are that you might lose profit and get unnecessary loss too. (13/22)

- Don't roll over a strike directly at the day end.
- Don't roll over a strike when Index is at exact resistance/support.
- Roll over strike when Index crosses resistance and we expect more momentum in case of an upmove and breaks support in case of a downmove. (14/22)

In short:
Roll over a strike when you expect more momentum and premiums are decayed by at least 60-70% and not when you are unsure.. because if you do at the wrong time, then premiums might spike and create fear and you might exit even without trailing SL hit. (15/22)

If you sell high premiums, you don't need to wait for premiums to become zero, book some profits. If it has decayed till 70-80% and you booked profits then wait for the right opportunity to take new position again. Take either at breakout or if you get dips or pullback. (16/22)

Let's say you traded breakout and sold 15800 puts and the next day was Thursday. You got a good move of 200 points in intraday and you rolled over too. Premiums expired but now you want to carry them. What we can do is... (17/22)

When we got follow-up breakout move of gap up on 7th July, you could sell next week's expiry for positional and trade Intraday for expiry.
Sometimes, if you take positional entry on Friday or Monday.. you can carry the same till Thursday. (18/22)