How to analyze banknifty chart through option chain?

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How to analyze banknifty chart through option chain? lets understand option chain first. An option chain is a list of Option contract for a particular Stock/Asset/Index or Security. It provides all the information about the option contracts available for trading including Strike Price, Open Interest, Volume, Last Traded Premium Price, Expiry dates and Option Greeks. I am not going to explain the definitions of all these terms here but I will how I analyze it to make my trading decisions.

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How to analyze banknifty chart through option chain?

  • Take a look at the following table;
How to analyze banknifty chart through option chain?

In above table you will see on the left side Call Options data while on right side Put option data. Now lets see How to analyze banknifty chart through option chain?

  • Step1. Take previous day closing price of Bank Nifty and mark it on the above table. In the above table you can see I marked the closing price by Red Line.
  • Step2. Now next step is to how find current Support and Resistance by using option chain? There is a simple method which I use myself regularly
  • How to find Resistance: In option chain Call Side data is used to find Resistance. Start looking for highest Volume and highest Open Interest ON Call side for the strike prices above today’s closing i.e. the Red line we marked earlier. (In table look below the red line in option chain strike prices are displayed from lower to higher in ascending order). The first highest volume or first highest open interest you see that strike price is first resistance (R1). Mark this value on banknifty chart. Then find second highest volume and second highest open interest on call side and mark that strike price as second resistance (R2) on chart.
  • How to find Support:  Start looking for highest Volume and highest Open Interest On Put side for the strike prices below today’s closing i.e. the Red line we marked earlier. (In table look above the red line, in option chain strike prices are displayed from lower to higher in ascending order). The first highest volume or first highest open interest you see that strike price is first Support (S1). Mark this value on banknifty chart. Then find second highest volume and second highest open interest and mark that strike price as second support (S2) on chart.

I am using this methods for a long time with almost 80% trading accuracy in my trades.

In the above method we learned how to find R1, R2 and S1, S2. Mark these levels on the chart as shown below. For this you can use charts on www.investing.com or www.tradingview.com .

How to analyze banknifty chart through option chain?

Use support levels to take Long position (Buy Call) and use Resistance levels to take Sell position (Buy Put). You can also set your target and stop loss by using these levels. For example if you Buy Call at Support 1 then your target will be Resistance 1 and Resistance 2 and your stop loss is Support 2 and vice versa.

To make right decision observe how prices react at support and resistance levels. It is often seen that prices tend to bounce back from support levels and tend to reverse from resistance level. In addition use MACD cross over and Bollinger band to support your decision.

Conclusion:

It is important to remember that stock market is unpredictable but the above method gives you an idea of possible price movement.

If you find our guide “How to analyze banknifty chart through option chain?” helpful, don’t forget to post comment! For more information please visit our websites www.chartedge.co.in. Must know websites for Indian stock market www.nseindia.com and www.bseindia.com

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1 thought on “How to analyze banknifty chart through option chain?”

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