Option Buying Setup - By Yogesh Nanda & Jitendra Jain
Published at : 05 Jan 2021
A small summary
General Assumption: The market is dominated by Option Sellers for two reasons, they pay more margin and they get limited profits.
When an option seller takes a position, Few things happen
a) Price of options stays below its Vwap ( Price below VWAP = selling, Price above VWAP = Buying)
b) As more selling is happening RSI Stays below 60.
c) Open interest Increases.
Any Undesired move against the seller's position can cause him higher loss as compared to his reward.
When such a move comes Seller exits his positions aggressively, Known as Short Covering.
Following things can be observed in 5 mins charts (You can take any time frame of your choice)
a) Price of option going above its VWAP
b) Open Interest Decreasing.
c) Sudden surge in Volume due to quick exit.
d) Rsi going above 60.
When these things happen, we can assume the seller is in panic mode and exiting his positions.
This gives a window to buy options. The video explains option buying using the same rules. Also teaches you risk management and compounding. Successful Examples and failed setup as well.
Hope you all like it.