Trading in a Volatile Market- Santosh Gundecha

Market has shown that it is 'Supreme ' and has made a mockery of most of the analysts. lobalization took toll on Indian markets. Most of the analysts including myself, were not comfortable with the way market was trading above 4200-4300 and were of a view that market will go down and try to test 3800-3850.

Market did the same but not in the way everybody thought. It was going down like a falling house of cards. As IF this was not enough, the V shaped recovery after making bottom near 3800, caught most players on the wrong foot.

The non-stop news coming from US, made players unable to take any sort of positions, long or shorts. Daily gap-ups and gap-downs in the Indian market (courtesy Dow Jones) made all investors, traders and other market players - HNIs, large traders and small Fund managers - very uncomfortable.

Market has shown its supremacy so players have to go to the basics.

The first rule: 'Bull Market has no Resistances and Bear market has no Supports'. The supports were breaking so fast in 6-7 days of downfall from 4500 to 3800 that the levels were just numbers and not supports.

Second Rule - In bear market relief rallies are too fast and vicious. The same things we are observing now: we are about open a good gap up on Monday. So we are retracing fast in 3 days to the fall. To add to the 'Firangi induced' volatility, is our last week of expiry. So every player will be ready with his position to cover on or before expiry as the future looks very uncertain.

FIIs are major sellers in the Market are causing the Rupee to depreciate as much as 15 percent in the last few days. However IT stocks are not able to gain much because sentiment is much hampered for these stocks, since much of their business comes from the US ,and everybody is suspicious about the health of US companies and thus their ability to spend on IT development . This would have been a boon for IT companies as they were to have Super profits of 15 percent due to depreciation of Rupee.

Trading Strategy: Last few months, the market was moving in a range with small volatility. So major HNI and Small Fund Managers were happy selling Options i. e. calls and puts to get 'COOL' 3-4 percent profit in an expiry. This time many of them have burned their fingers because of the two-way movement. They had to go for hedging/ counter-hedging and this made things more complex.

While doing this one tends to forget simple rule that 'OPTIONS WRITING PAYS ONLY IN NON-TRENDING MARKETS'. One cannot be stuborn with markets and make a single strategy (like Options writing) to earn in every type of market.

It is a better opportunity (and simple too) to play with plain Options i. e. calls and puts strategy like Strangles, Straddles etc. Plain calls and puts are paying much more with limited risk .

Now we are moving in last week of expiry and are about to open with a gap-up on Monday. Technically there are a series of resistances starting from 4330 to 4550. It is advisible not to Fight with market and Play with simpler tools like Options, when we move 100-200 points in Nifty a day. (Those watching charts can watch Candles and gaps in the daily charts).

Hoping this write up will be eye opener and wishing all a Happy and Safe trading.