How to make massive gains in event based movements without a risk

Budget day movement came a surprise to many and for our traders that was a massive gainer. We got few questions on how to trade event based news with minimum risk and yet be able to gain good gains out of them.

First we have to have two hypothesis  to trade events- 1  Is that the outcome of an event can be any, or in case of something like budget the interpretation of the even by the market can be either positive or negative. 2- Based on the outcome we will see a massive change coupled with increased volatility in a short time.

So how to trade based on these two hypotheses. Normally we don’t recommend buying options at all but these are the best situations that an option trade can be taken in  a hedged manner.  Why hedged? Because as per hypotheses 2  as a trader I don’t know what is the outcome of the event. So I will take a hedged trade ensuring that either way the movement is I gain out of it? Yes that’s the beauty of trading a hedged option long, you will make profits on movement of either way.

Let us review the trade we took,  when NIFTY FUT was hovering around  5800 we asked our traders to buy equal quantity 5800 CE and 5800 PE. Both were trading at around 22 rs per lot. So total payout is 44 INR per pair of option.

Since we don’t know the outcome but as per our hypotheses we know a strong movement can happen either way. But now at that stage we were in complete peace as our trade would had been profitable where ever the market moves.

When markets fell and NIFTY FUT closed near 5700 our 5800 PE closed at 110 levels and 5800 CE was just 2 INR. Net gain per pair was 112 INR.giving our traders a gain of a whooping 155% profit per pair without  any risk at all.

Lets say the markets would had moved in the positive direction and closed at 5900 levels. In that case the 5800 CE would had been around 110 and the 5800 PE near 2 INR still giving us the same gains of 155% irrespective of the outcome.

See the graph at for a better illustration of the movement and outcome.

option pair trading for News event- Risk free outcomes

Review of 27th Feb and Update for 28th Feb 2013

NIFTY FUTURE – Review of 27^th  Feb

NIFTY FUT –  Just yesterday we mentioned and discussed to all readers that how important it is to have a perspective of the market movements and trade with a plan in mind and to stick to it. Based on that we asked all readers that 5730-50 is a supply zone. We had discussed that for long. Based on that we asked traders to get into some investment positions and also low risk contrarian opportunities.
Markets pulled back exactly from that zone to near 70 points gain in a single day giving very good low risk gains.

How could we have detected the trend in intra day and traded a pull back. Look at the chart formations. NIFTY FUT made a low below the Trend decider near 5750 levels and once it managed to pull back from that zone above the TREND DECIDER it gave a low risk pull back opportunity.

Not to miss the short opportunity that was also created in the morning when markets made a high just near the BEARS LAST STAND point and failed to sustain there and slipped downwards to give good gains too. This is exactly the trade our traders were asked to take in the morning session.
In fact today was a unique day where we managed to gain both ways.
 Now that NIFTY FUT have pulled back and closed near the 5800 zones. Is the correction done? Well guess not. But whats the catch here?  Read our analysis for the next session.


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NIFTY FUTURE – 28^th  Feb  Trading Guide

NIFTY FUT –  Managed to pull back from the support zones and closed near 5800 zones, so the obvious question is that is the correction done? Well  again let us see it in with data rather than emotions.
First the supporting factors—NIFTY FUT has created a bottom near a swing trading support zone, secondly we have already see a near 350 points correction from the top so some pull back is obvious and expected. Thirdly we haven’t yet seen a budget based rally yet.
Now that negating factors—One is that we have seen the strongest correction in this zone a few sessions ago, so the trend may just continue, secondly a single day of pull back cannot justify a trend change.

Now let us analyze that against the trading levels. NIFTY FUT has immediate support at 5790 levels and that will form as the TREND DECIDER of the day. If NIFTY FUT manages to trade above that zone it will go on to attempt the hurdle of 5825 levels. And above that there will be the crucial swing hurdle of 5860. Only a clear and close above that will confirm a mid term trend  reversal and a bottom formation for swing traders.

On the downside NIFTY FUT in case NIFTY FUT drifts below 5790 it will again go onto attempt the support levels of 5760 zones, a crack of 5760 this time will ensure NIFTY FUT to test the 5730 levels . If that level is broken we can see NIFTY FUT move to 5700 zones.
On the downside any close below 5700 levels in swing basis can see a test of the next swing levels of 5630-40 zones.

Additionally please note that tomorrow is expiry and also that budget is around the corner. Trade with lower than normal positions and try and capture the swing if that happens

Trading levels for the day:

POWERTRADE BEARS LAST STAND POINT OF THE DAY ----- 5820-25 sustaining above which it will target 5855,5895
POWERTRADE TREND DECIDER OF THE DAY ------- 5790-5800
POWERTRADE BULLS LAST STAND POINT OF THE DAY------- 5760-65
Breakdown and sustaining below POWERTRADE BULLS LAST STAND POINT OF THE DAY will open target for support of ---- 5735,5710

Detailed analysis also posted at www.powertrades.blogspot.com

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