I’m writing this post in response to a Twitter friend who tried the Long Strangle Options strategy on a relatively steady stock, Maruti.
It didn’t work for him, and he asked this question:
So again the ques ll be to define volatility sir
— alok and shashi (@jawsshashi) May 26, 2018
So, well, this post will help you discover volatile AND steady stocks on which you can apply Options Strategies.
Before we move ahead, you should read up on the following Options strategies:
LONG STRANGLE (works only on volatile stocks)
PROTECTIVE COLLAR STRATEGY (works only on stocks that are expected to be steady in the short term and bullish in the long term)
SHORT STRANGLE (works only on stocks that are expected to be steady in the near term. Note that this is a slightly risky strategy as it involves shorting.
HOW TO DISCOVER VOLATILE AND STEADY STOCKS
METHOD 1: NSE WEBSITE
Open NSE Daily Reports and select “Derivatives” Tab
Choose “Historical Volatility” in the Derivatives section.
When that page opens, choose “Daily Volatility Files,” select the previous trading date and download the file.
It will be a CSV file. Open it in Excel, select all rows and columns, and now sort Column G from “largest to smallest.”
In our example, PC Jewellers, RCom, R Naval, Star and JP Associates are the most volatile.
The least volatile stocks will feature at the bottom of the stock. Remember not to consider Indices and stocks that feature in volatile sectors (For example, HDFC Bank volatility was among the lowest, but it sees days of massive volatility because it is used to manage the index.). Choose stocks like PowerGrid, NTPC, etc., which are relatively steady.)
METHOD 2: STOCKS IN THE NEWS
Once a FNO stock gets in the news, for the right or wrong reasons, you see massive volatility. Latch on to it on the first day the news breaks. Examples: Fortis, PC Jewellers, HCC, RNaval, Wockhardt.
METHOD 3: RESULTS DATE
FNO stocks react sharply on results day. Though the results season is over now, there will be many more to come.
This is how you discover volatile and steady stocks to apply options strategies to.
Do not start option trading unless you perfect the techniques using paper trades.