29 August 2010

Volatility Bottom ?

Observations :

Volatility is very near to its historic lows. 
Nifty struggling to take out resistances at higher level.
Nifty very near to channel top.

Expectations :

Volatility to rise.
Chances of a correction much higher than a breakout rally. (4:1 if my conviction matters)

Opinions :

Current low volatility, means low option prices.
Best way to position oneself - buy naked puts.
Hedged play : buy 5400 put and sell 5300 or / and 5200 put. (buying selling leg can be tried to time)

Risks :

We are looking at a long term chart here, so doesn't mean we are going to see a rise in volatility, immediately. So expiry of the options should be chosen keeping that in mind. Though I would go for September expiry, October would be ideal !


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