Technical analysis and investment ideas of binomous


I tried doing it but not coming correct. Can you help me out if you know the excel function. The normdist function in excel is used in the context of normal distribution. What you are asking for may not be implementable using this at least as far as i know. I know this can be done in excel by entering the Nifty future price, Nifty Call option Strike, Nifty Put option Strike , Call option implied volatility, Put option implied volatility , Days to expiration.

Sir, Fantastic reading material ……… I am reading it again and again to digest it fully …….. Some queries on the calculations of volatility. Will be grateful to you if you can attend the same ……. You have taken the sample data for days i.

What should be the optimum size of the sample data? Of course, this is based on daily returns and used for plotting the graphs. With this calculate 2 year, 1 year, and 6 months volatility to get a fair reference. Am I right, Sir, Karthik Rangappa? Sir, If I have to estimate the range for next 1 week, how many days data should I use to make these calcualations?

HI Karthik, I was trying to calculate the strike of nifty which is worth writing in this expiry, i have followed your steps explained in next chapter. Due to this negative value i am getting a wrong nifty range for next 8 days days left for march expiry.

Due to negative average i am getting wrong range in which nifty will be trading for next one year. Please throe some light on calculations when average is negative. Nice, btw have you checked this — https: You may find this helpful.

This is completely arbitrary. Dear sir, It may sound stupid but I am not able to resist myself asking this. Why are we calculating daily returns, instead we can find out the SD, mean directly on the daily closing prices itself. I tried doing so but somewhere i am missing something.

Not able to find out the mistake. Hence the preference for calculating these on returns and not really prices. Does it denotes Daily Average or standard Deviation? Daily Volatility represents the daily standard deviation. Thanks Karthik for simplifying things for us!!

I have few doubts related to volatility chapters. Could you pls share few mins to resolve. If you need a yearly range, you need to take the yearly number. If I have used daily numbers, I may have done a mistake. I need to re check this. For log returns, please check this — http: If I sell CE at 1.

So I get the premium of On the expiry day the Spot price is below Now how will the tax and other charges be calculated in this case. No tax implication here as you are a seller of the option. However, if you had bought options and let them expire in the money then you will have to pay a hefty STT, check this post — http: The SD calculation on excel is explained in the chapter.

Request you to kindly go through the same. Wonderful explanation and a common man also can understand the way you have explained it. One question is still unanswered which is on look back period.

There must some rule for look back period for a given future time horizon. Say I wish to get If I choose any number of look back period, the SD and average return will vary and output range will also vary, may not be to a great extent but still theoretically we should plug the question to be more precise. The higher the Standard Deviation, the higher is the accuracy. However, with higher accuracy the range also increases. Accuracy in this context is simply because of the virtue of it including all possible data points.

Thanks for your reply…… my question was on look back period, should we always take last one year data or we should change the range? Will it not be wrong when market goes in apposite direction. May be the past return was calculated in uptrend and now there is downtrend.

The look back period depends on the extent to which you intent to predict the raneg. If you are trying to forecast the range for the next one year then clearly look back period of 1 year is required. Also, we consider both the upper end and lower end of the range…so this kind of takes care of down side.

Dear Karthik, thank you for the wonderful article. I have a question on calculating yearly and 30 days SD from the NiftyExample. Karthik, Thank you for your prompt reply. Similarly, Can I go with actual number of days[ ex: Dear Karthik, Thank you for the wonderful article. Could you please help me in understanding the above. One can certainly develop a deeper insight into trading options by looking into Volatility.

Karthik, Thank you for the reply. Does it make any sense to compare annualized volatility with options IV [ from options chain ]? I am trying to link between previous chapter and the beginning of this chapter. Not sure whether I am missing any thing here. I am confused that where did we discuss about the upper and lower range of Nifty. I see only for Wipro. Also the below points from this chapter. I am sorry to bother you. I have been reading this Options module for last one week.

I stuck here as I could not find the link between end of the chapter 16 and the beginning of the chapter I guess the range calculation is mentioned in chapter 15, towards the end. We discuss the range for both TCS and Nifty. The same is explained in the excel. Hi Karthik, I could answer my above questions by visiting the last two chapters and the excel sheet which you shared.

Thanks for your detailed explanation. I have a confusion with the multiplication of figure i believe we should use here instead of in the above equation and siting example from the 30 day Mean and Std. Y-axis represents the number of times a certain return has been generated in the past.

For example in Nifty, approximately 80 times a return of 0. Sir i have one doubt! Why do we use log normal while calculating returns..

In the previous chapter, you had used as the base. However, you have used as the base here. But current price is The articulation, language and the ease in explanation is really amazing.

You are an Star Karthik!! Dear Sir, Thank you for such wonderfull writing, I have become a real fan of your articles. I was doing the calculations here for Federal bank and I dont get a normal distrubution, can you please help to check this and let me know if this is not in normal distrubution. I took the data for Federal bank for last year i. I really appreciate if you can help me understand if Federal bank is in normal distrubution or not.

Thanks for the kind words, Murali. Most stock returns are normally distributed. I will check this as soon as I can. First I wanted to thank you for detailed and elaborate info. I have few questions to ask How do you convert log percentage to normal percentage? Please if you could explain this. To calculate the SD, why do we consider the daily returns.

Why can we not do it using the closing prices? For all such calculation we consider the daily returns, and not closing prices. One of the main underlying principles is that the returns are normally distributed while the closing prices or stock price in general are not. You can select this based on the number of data points you have. Higher the number of data points, larger is you bin size.

No preset formula to decide this. If the given value stems out of series which is normally distributed, then you can extent this and assign a probability to it. I calculated historical volatility using stdev. How can we calculate mean value? The mean should be calculated using normal distribution. I tried deriving the daily average from daily volatility for nifty from the nseindia site daily volatility is the exp daily average. For other stocks this method is working fine.

Daily average can be calculated by running a simple average function on stock return. Step d seems redundant. I am trying to avoid the downloading of historical data.. When i tried the above for nifty, the 1sd upper range came in negative for nifty. This worked for me till now but when the upper range is negative the resistance goes below the market price and hence wondering what am doing wrong. I can send you the excel template on the mail which might help in understanding what and where am going wrong.

Not sure if I can run through the excel, Varun. I think you are taking the wrong approach while calculating daily average. When I calculated the average daily returns for nifty for the last one year 15 jul 16 to 14 jul 17 the value turned out to be negative.

How come this be true? Does that mean nifty is bearish? Also in your calculation, you have taken the average of daily return for nifty over 4 years. What is the rationale behind that? How many years of data should one take to find the average daily returns and volatility if you are looking for a time span of days vis-a-vis months? Avg daily returns can be negative, however, this may not be the case with Nifty as the markets have been trending upwards.

Ideally, for a day period you should look at maybe In the example of volatility used to calculate the stoploss airtel , The upper and lower range for 5 days is computed by using volatility only. I want to add more column data. What i want to do? I m trying to attach snap shot. Thanks for your reply.

I find from the forum for edit. I really need to lot of thanks such a wonderful describe about options. I like it so much the way you example and describe. You have a great talent. Hats off to you. Standard deviation for sample data you have taken is 1.

Can you specify the date range for which you have calculated? When I try to calculate it from ,7,22 to ,7,22 , it is 0. I have one doubt here. In above excel you calculate probable volatility. For that you have consider nifty from to Now, suppose I have calculate volatility for net 10 or 15 days only so, for that how much past record should we consider.

Means, to calculate volatility for next 10 to 15 days should we consider the same past record for 10 to 15 days back. Is my calculation correct??? On NSE website it show daily volatility has 1. Venu, try the same calculation for trading days. Average could be correct. If we want to calculate the Daily volatility. How many days shall we consider for calculating daily returns.

I mean last one year, two years , four years As per your excel or more. And can we interpret that more number of days means more accurate results we will get. Can you please elaborate on how did you arrive at 1. I am stuck here and it will be very helpful. Do this on the same set of data that we have used in this chapter.

It gives same Results, still I need to cross check again …. How did you arrive at number 50? Also find a way to update website, so that we get email alerts, whenever you respond. It haappens in other websites. It can be 25, 50, , or based on the number of data points. Article was really wonderful. I have downloaded the Nifty Example Sheet. I am little bit confused.

Just tell me whether put the close price of any stock for 1 year I can get the data correctly means the range it will trade for the month If I am wrong please correct me. I have downloaded 1 year data of aurobindo pharma stock close price form nse since it allows for days but nothing changed in excel sheet after filling in price column.

I have done all the calculations for NIFTY expiring 22nd feb and upper limit tends to be and suppose if we sell Call option How to calculate the stop loss referring to the above example? That should be other way round?? No, as the range increases, there is more room to accommodate the volatility, hence less room for error, hence more confidence.

I saw that you are using exponential calculations to calculate volatility. Instead of using the exponential calculations. Does this formula looks correct to you? However if one is calculating volatility for long periods, its best to use exponential calculation. As you said that Volatility Calculation for longer periods based on percentage formula can give incorrect results.

What do you mean by longer periods? For example in my case I am using stock prices of 1 year to calculate volatility and daily return. If we need to calculate Banknifty deviations for 1-week expiry then a percentage based volatility is better then exponential based volatility calculation as you said that exponential is better for more than one-year calculations or it also gives an edge for shorter periods as well, as in the case above. That is a good observation — maybe I should use 22 trading session for monthly calculation.

Even if there are s of comments still i wanted to salute you for bringing this kind of tough topic in a easy manner! Maybe 3 or maybe 4 out 5 were successful. Will try and look it up 4 Yes, in fact, the better approach is to look at 2 years, 1 year and last 6 months SD. Gives you a perspective of how the SD is changing. I have created a Galton Board that demonstrates this idea.

It is call The Random Walker. So let us dig a bit deeper and get our answers. Will they all fall in the same bin? August 6, at August 7, at 6: January 1, at 1: January 1, at 6: August 6, at 3: August 7, at 2: August 7, at 3: August 7, at 5: August 7, at 7: August 7, at August 9, at 3: August 17, at 2: August 17, at 6: September 21, at 9: September 21, at August 10, at 5: August 10, at 7: August 10, at 9: August 11, at 5: November 13, at 2: November 15, at 3: August 11, at 7: August 12, at 7: August 11, at August 12, at 4: August 12, at August 13, at 5: August 12, at 3: August 13, at 6: August 13, at 4: August 14, at 4: October 15, at August 17, at 5: August 17, at 9: August 18, at 7: May 13, at May 14, at 5: August 17, at 3: August 18, at 9: August 19, at 8: August 18, at 4: August 18, at August 18, at 2: August 20, at 1: August 21, at 6: August 31, at 2: August 31, at 7: September 2, at 8: September 3, at 6: September 18, at September 18, at 4: September 19, at 8: September 20, at 5: September 22, at 5: September 22, at 6: September 22, at 7: September 25, at September 26, at 1: October 21, at October 21, at 1: October 24, at 3: October 26, at 6: November 13, at 6: November 13, at 9: November 25, at November 26, at November 26, at 4: November 27, at 6: November 27, at 7: November 28, at 4: November 29, at 6: November 30, at 9: December 9, at 2: December 8, at 2: December 8, at 8: December 9, at 7: December 10, at 9: December 9, at December 10, at 8: December 10, at 5: December 11, at January 16, at 6: January 16, at January 17, at 4: February 2, at 6: February 2, at 1: February 3, at 6: February 3, at 5: February 20, at 3: February 20, at The course will provide a comprehensive view of the financial markets and financial Institutions in India, their functioning, and regulatory systems that are in place to ensure smooth running and management of these markets.

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