Hang Seng to trade 21000 or 22500 in next 7 days

Investors in Hangseng Index are in a confused state of mind for the last 3 months. Whenever the index trades near 23000, investors holding the view, central banks would not let the inflation turn into hyperinflation exchange the index for cash. On the other hand breakdown towards 21000 attracts the investors sitting on sidelines. The chart shows that approximately within 15 days Hangseng moves from 21000 to 23000 and then a cycle is completed by Hangseng dropping to 21000 in the next 15 days.

Betonmarket offers various products through which we can make money if the above mentioned turns into a reality for 4th consecutive time. We can place a bet that within next 7 days Hangseng will either trade at 21000on the lower side or at 22500 on the higher side, this bet can fetch us 2 USD for every 1.2 USD invested. This bet is a type of Boundary Bet and it is called Breakout Bet.

The other variants of this bet are

One Touch

This means the index should touch a specified target pre decided by you within the expiry period , the larger the difference from current price, the more you stand to gain. If the index doesnt have a shave with your target you lose your initial investment

No Touch

This means the Index should not touch a specified target, obviously decided by you, before the expiry of the bet. If it does you lose money.

Barrier Range

For a successful execution of this bet, the index should trade within the specified targets till the expiry period, if it moves past the specifies range you lose your money.

There are also Expiry bets and Double bets which I would explain later

Dow Jones 1929 Correlation Current Dow Jones

Investors trading the Dow Jones at 14000 in October 2008, were seen exchanging the Index for money, or the other way round money for the Index at below 7000 in October 2009, If we keep a track of Dow Jones Index from 1980 to 2008, this was the biggest negative return the Index gave to the investors in the close to 3 decades between 1980 to 2008, but the losses the investors digested in Dow Jones Index were comparatively less compared to the losses the Investors holding ETF’s of Emerging Markets had to digest, for e.g. The Sensex which stood at 21000 in January 2008, the investors exchanged money for the Index at below 8000 in Oct 2008, and if currency is taken into consideration then the loss was even for magnified as while 38 Rupees were equivalent to 1 Dollar in January 2009, the investors by Oct 2009 felt that 50 Rupees should be paid to buy a 1 Dollar worth Investment. This meant that the Sensex gave 70% negative return on investment, but still the losses made by the investors having there investments placed in stock markets could not outpace the Great Depression period losses, As during the Great Depression period the Investments made in Dow Jones Index saw loosing close to 90% of there value in more than 2 years between 1930 to mid 1932.

Now here starts our real topic, after the initial crash the Dow traced back more than 50% of its loss and then onwards the investors not owning the index could not pile up the cash or were hoarding cash instead of the Dow Jones Index, at the same time the Government policies at that time might have given the investors already invested in the Dow the willpower to hold the investment, as the investment would cut down losses and create profits, so what if the investment comes cost to cost 25 years latter. The Dow Jones traded narrowly for the next 15 years an could break past the initial cost of investment made in 1930 only 25 years latter in 1930.

Now how is the current situation comparable to 1929, If we make some adjustments then it is, Dow Jones has been trading in a narrow range for the period between 2000 to 2006, The investors who had invested in 2000 saw some profits on investment by 2007, but those who didn’t book profits by 2008 end, and then did not wish to exchange cash for index till they saw 14000 again are still holding the investments, so if we consider 2007 end as 1929, early 2009 as 1932, then by 2025 the Dow Jones could break past 14000 and it could be the time to trade between 10 to 11K for 5 years and other 10 years between 6.6K to 10K.

How to trade index and stock options of December expiry?

DLF seems to be quite bearish as the real sector seems to have lost favor with the investors, inspite of property prices not dropping to a bigger extent in India as compared to the globe. But would the downtrend achieve its target in short frame of time, to give profits on investment in put options, DLF could trade at 310 and if possible dip to 260 by the year end, with a stoploss at 372, a short sell position could be initiated in this stock, if 310 is considered to be the target the risk reward ratio doesn’t justify disinvestment in DLF, the option contracts of december expiry seem to be quite expensive as the 310 PA is trading at close to 9.5 Rs, the strike price 310 is more than 11% out of the money and the premium stands at close to 3% of the Last Traded Price of the stock.

ONGC is another stock whose charts give a feeling that distribution is underway, should the stock not have bidders above the price of 1190 and generate enough sell orders to have bid prices even below 1120, the stock prices could weaken further and by the year end a bid price of 972 on the stock could find a place in the best 5 buy orders, so keeping a stoploss of 1190 the stock could be sold and the square order could be 1000 or below. The options on the underlying stock dont attract traders and as such is hugely illiquid, The December expiry contract with a strike price of 1050 which has the last traded price of 12.25 is trading at a fair value, if the downside target of 972 turns out be the Last Traded Price for the stock on any day upto 31st December, the 1050 PA could be offsetted at 80 Rs/-, close to 500% return on investment, The lot size of the contract is 225, so the total cost of investment stands at below 3000/-

NTPC just like ONGC is in a distribution phase, if the stock continuously attracts supply from the distributors so that there is no bid for the stock at a price of 209 which is just 0.5% away from the current close, or if this seems to be a quite close call, the best buy order on the stock, if it is not able to surplus 213 then the scarcity of the buyers might see an investor bidding on the stock for just above 190 or even 182 by the year end. The December expiry Put Option on the stock for the strike price of 200 was last trade at 2.5, which is a fair price if the stock opens without change on Monday, the investment of 4000 as the lot size of the contract is 1600 and can make the investor double happier as the investment could return double the initial investment if the scarcity of the bidders see the price plummet to our initial target of 192.

Options on Stocks are illiquid, hence utmost care should be taken while executing them, I am advising mostly sell as the Nifty looks to be in a distribution phase, after the initial euphoria which saw the index give more than 75% return to the investor who invested at March 2009 low which was the testing of the October 2008 low, the velocity of bullishness is decreasing although the index is making new highs after the smaller corrections of 5-12%, so the index might (if the history repeats itself) atleast correct 50% of the March 2009 to the October 2010 gains, 50% of 2500 to 5200 stands at 1350 which means investors might bid for the stocks composing the index in such a way that the Nifty Index on the trading terminal reflects the value of Nifty to be at 3850 in the coming time, The stocks composing Nifty index could not find sufficient investors bidding at higher prices and the stock market had to be closed for 1 hour in May 2004 due to the index hitting lower circuit, the lack of investors bidding saw the history repeat itself in May 2006 and January 2008, could we have one now again or in January 2010. If the investors don’t bid the stocks composing the Nifty index in such a way that Nifty trades above 4988 (or 5200 the next stoploss) then the deficiency of buyers in the stocks composing the Nifty index could see the index trade at 3850 by the year end or the first month of the next year.