Options Daily 24.05.2016

NIFTY Summary:

  1. Jun 8000 calls added 4,52,550 contracts.
  2. Jun 6000 calls shed 2,475.
  3. Jun 7500 puts added 3,29,925.
  4. Jun 7200 puts shed 9,000.

Our trend model indicates a SHORT on the NIFTY and SHORT on the BANKNIFTY.

MAY NIFTY OI

MAY NIFTY OI chart

MAY BANKNIFTY OI

MAY BANKNIFTY OI chart

JUN NIFTY OI

JUN NIFTY OI chart

JUN BANKNIFTY OI

JUN BANKNIFTY OI chart

MAY NIFTY Volatility

MAY NIFTY Volatility chart

MAY BANKNIFTY Volatility

MAY BANKNIFTY Volatility chart

JUN NIFTY Volatility

JUN NIFTY Volatility chart

JUN BANKNIFTY Volatility

JUN BANKNIFTY Volatility chart
Dotted lines indicated actual underlying volatility. Solid lines are IVs.

VIX Density Plot

VIX kernel density plot

5-day forecast based on ARMA(5,2)+GARCH(1,1) model:

VIX 16.32 16.42 16.53 16.62 16.68
σ 0.82 0.85 0.87 0.89 0.90

A Brief Note on Monte Carlo

When we back-test a strategy against the historical prices of an instrument, say, the NIFTY 50 index, we have to keep in mind that historical values are just one path of the many paths that the instrument could have taken.

For example, 10 tosses of a fair coin can result in TTTTTFFFFF and TFTFTFTFTF with equal probability. If your strategy is path dependent (as most strategies are,) then just because it was successful in one trial (historical prices) doesn’t mean that it would have been successful in all (or majority) of them.

The simple thing to do after a successful back-test against historical prices is to run a Monte Carlo simulation to check if the strategy comes out ahead in most of them. This can be setup by assuming returns are normally distributed and running a simulation using the mean and standard deviation of the sample.

For instance, in the recent past, daily NIFTY 50 returns have exhibited a mean of -0.0003742873 and std. dev. of 0.01079387. When you run a simulation and plot the results over the actual closing prices of the index, you get the resulting chart:

monte-carlo.NIFTY

How many of these paths will result in a total equity wipeout of the back-tested strategy?

Opening Bell 23.05.2016

Your world at 9am

world.2016-05-23

Equities

Major
DAX(DEU) +1.23%
CAC(FRA) +1.67%
UKX(GBR) +1.70%
NKY(JPN) -0.99%
SPX(USA) +0.60%
MINTs
JCI(IDN) +0.39%
INMEX(MEX) +0.41%
NGSEINDX(NGA) +0.37%
XU030(TUR) -1.29%
BRICS
IBOV(BRA) -0.82%
SHCOMP(CHN) +0.78%
NIFTY(IND) -0.43%
INDEXCF(RUS) -0.01%
TOP40(ZAF) +0.47%

Commodities

Energy
Heating Oil -0.25%
Ethanol +0.69%
Natural Gas +2.91%
RBOB Gasoline -0.32%
Brent Crude Oil -0.31%
WTI Crude Oil -0.54%
Metals
Silver 5000oz +0.00%
Gold 100oz +0.00%
Copper +0.12%
Palladium -0.13%
Platinum +0.30%

Currencies

USDEUR:-0.08% USDJPY:-0.36%

MINTs
USDIDR(IDN) +0.09%
USDMXN(MEX) -0.00%
USDNGN(NGA) -0.05%
USDTRY(TUR) +0.12%
BRICS
USDBRL(BRA) -1.21%
USDCNY(CHN) -0.07%
USDINR(IND) +0.11%
USDRUB(RUS) -0.90%
USDZAR(ZAF) -0.00%
Agricultural
Coffee (Robusta) +0.00%
Lean Hogs -0.68%
Soybeans -0.61%
Sugar #11 +0.00%
Corn +1.48%
Cotton -0.66%
Lumber -0.94%
Wheat -0.16%
Cattle -0.39%
Coffee (Arabica) +0.00%
White Sugar +0.00%
Cocoa +0.00%
Feeder Cattle +0.66%
Orange Juice +0.00%
Soybean Meal -0.08%

Credit Indices

Index Change
Markit CDX EM +0.04%
Markit CDX NA HY +0.00%
Markit CDX NA IG +0.13%
Markit iTraxx Asia ex-Japan IG +2.03%
Markit iTraxx Australia +1.38%
Markit iTraxx Europe +0.22%
Markit iTraxx Europe Crossover +3.35%
Markit iTraxx Japan -0.02%
Markit MCDX (Municipal CDS) -0.34%
Out of 42 world ETFs listed in NYSE that we track, 8 are trading above their 10-day SMA and 11 are trading above their 50-day SMA.

Must reads

Raghuram Rajan has some thoughts on growth and reforms. (NDTV, Hindu)

India wants seed R&D but not willing to pay for it. (FE) MONSANTO 2,125.00 2.05 (0.00%)

Voters reward economic performance in assembly elections. (LiveMint)

1,700 years ago, the mismanagement of a migrant crisis cost Rome its empire. (QZ)

Good luck!

Options Daily 23.05.2016

NIFTY Summary:

  1. Jun 8000 calls added 4,06,500 contracts.
  2. Jun 8400 calls shed 38,625.
  3. Jun 7400 puts added 1,10,325.
  4. Jun 7800 puts shed 20,625.

Our trend model indicates a SHORT on the NIFTY and SHORT on the BANKNIFTY.

MAY NIFTY OI

MAY NIFTY OI chart

MAY BANKNIFTY OI

MAY BANKNIFTY OI chart

JUN NIFTY OI

JUN NIFTY OI chart

JUN BANKNIFTY OI

JUN BANKNIFTY OI chart

MAY NIFTY Volatility

MAY NIFTY Volatility chart

MAY BANKNIFTY Volatility

MAY BANKNIFTY Volatility chart

JUN NIFTY Volatility

JUN NIFTY Volatility chart

JUN BANKNIFTY Volatility

JUN BANKNIFTY Volatility chart
Dotted lines indicated actual underlying volatility. Solid lines are IVs.

VIX Density Plot

VIX kernel density plot

5-day forecast based on ARMA(3,2)+GARCH(1,1) model:

VIX 16.41 16.57 16.60 16.71 16.75
σ 0.80 0.83 0.86 0.89 0.91

Options Daily 20.05.2016

NIFTY Summary:

  1. May 7900 calls added 23,09,925 contracts.
  2. May 8400 calls shed 1,92,900.
  3. May 7500 puts added 1,21,350.
  4. May 7800 puts shed 13,29,000.

Our trend model indicates a SHORT on the NIFTY and SHORT on the BANKNIFTY.

MAY NIFTY OI

MAY NIFTY OI chart

MAY BANKNIFTY OI

MAY BANKNIFTY OI chart

MAY NIFTY Volatility

MAY NIFTY Volatility chart

MAY BANKNIFTY Volatility

MAY BANKNIFTY Volatility chart
Dotted lines indicated actual underlying volatility. Solid lines are IVs.

VIX Density Plot

VIX kernel density plot

5-day forecast based on ARMA(3,3)+GARCH(1,1) model:

VIX 17.11 17.10 17.17 17.22 17.28
σ 0.80 0.87 0.92 0.96 1.00