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Identify the Trend – Bull, Bear or Sideways

Tools to use:

Trend Indicators Volatility Indicators Momentum Indicators Bar styles

SSMA ATP Ichimoku kinko hyo Line chart
EMA (3) BB (2) KST (ROT) Candelsticks (4)
HMA Option volatility CCI woodies style
Mathematic tool Stochastic (5)
RSI
Price (3)

Support and Resistance Indicators Market strength Indicator Pattern Indicator

S&R (2) VAhigh and VAlow Any pattern (2)
Volume
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Vega – Volatility
Standard Volatlity or Historical Volatility – Applicable for Market

Implied Volatility – Applicable for Options

Low Vega – Buy options

High Vega – Sell options

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Theta – Time
All Options expires worthless except ITM options.

OTM = Only time value and no intrinsic value

ATM = Time value and little bit of intrinsic value
ITM = Lot of intrinsic value and less time value

Every option has an expiry date. As the expiry day nears, Options prices will go down fast due to Theta
decay. See the fig above.

Important : So you have to count days to achieve your Target.

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For the pure directional trade we count only the days from Resistance to Support. Trend is down and we
only trade in the direction from the trend. That is why from R to S and not from S to R! We could do that
with a put. We recognize that the market needs between two and four days for the distance from R to S.
If we would plan a trade for the full distance, we would take an option which at least would have a five
day and longer live. So we know: Time frame of our trade is around one week.
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As a strategically trader we could count the days which are needed from R to S and back to R. Why? A
strategically trade could be a long strangle. If we want to implement it leg by leg, we need to be aware
of how long it takes to finish the whole strategy. We could start with the put buy at R and if market is at
S, we could buy the call. As it takes the market between four and six days to close this range, we would
need a put which has a live of at least seven days and more.
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Delta

Delta represents the rate of change between the option's price and the underlying asset's price - in
other words, price sensitivity.

For example, with respect to call options, a delta of 0.7 means that for every $1 the underlying stock
increases, the call option will increase by $0.70.

Put option deltas, on the other hand, will be negative, because as the underlying security increases, the
value of the option will decrease. So a put option with a delta of -0.7 will decrease by $0.70 for every $1
the underlying increases in price.

As an in-the-money call option nears expiration, it will approach a delta of 1.00, and as an in-the-money
put option nears expiration, it will approach a delta of -1.00. (*)
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