Nifty 50 - Why Option Chain Analysis fails ?

Nifty 50 - Why Option Chain Analysis fails?

 Reasons for the failure of option chain analysis

Option chain analysis is the most difficult analysis in the stock market but if the trader learns it they can easily find the direction of the nifty 50 direction.

Rules 1

1. Option chain doesn't follow the standard rules of India's vix. To find the direction of market-based on India vix we need to find the correlation between nifty and India vix. If you follow the standard rules option chain analysis can fail.
2. Premium Decay analysis can find the direction of nifty 50. Premium Decay starts Increase in the direction where the market can go in the future but after some days the decay starts in the opposite direction in that case option chain analysis fails.
3. Option chain analysis can be done after Recording data daily and observing the changes in data.
4. If you study candlestick patterns and analyze the option chain it could go wrong.
5. If you analyze only the current weak option chain and not analyze the future option chain analysis fails.

Rules 2

1. Overload of information about market direction after watching the news channels.
2. Doing half analysis not considering all data points like volume, implied volatility, changes in open interest.
3. If Volume is small big investors are buying or selling if the volume is a large small retail investor is buying or selling don't follow the retail investor they have limited capital.
4. Trading against big investors.
5. Change your trading attitude. Focus the process of analyzing the option chain, build the process, standardize the process, plan the trade and then trade the plan.

Rules 3

1. Don't Ignore the option greeks values. Learn the theory, build the process standardize the process, plan the trade and then trade the plan.
2. Market follow standard rules think in that way.
3. Don't find the shortcuts in the stock market.
4. Combine all data sets and analyze the direction if all data points suggest the same direction plan the trade in that direction.
5. Analyze open interest, Change in open interest and link it with volume and implied volatility 

Premium decay analysis excel sheet-free download

Option chain volume analysis

Nifty option trading advantages

Options Implied volatility research papers