an introduction to candlesticks for options - traders' … · an introduction to candlesticks...

An Introduction to Candlesticks for OptionsPresented by Steve Nison

Using Nison Candlesticks as the Foundation to your option trading

An Introduction to Candlesticks for Options

Presented by Steve Nison, CMTPresident: Candlecharts.com


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• Easy to Understand• Early Reversals• “Safety First”• East + West• All markets• All Time Frames

Candlestick Benefits

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open close

open

RealBody

high

low

Real Bodies / Shadows

ANATOMY OF THE CANDLESTICK LINE

close

Shadow



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Who’s in control?

Who’s in control?



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Good buy?

Negative Selection

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Nison Candlesticks for ExitingNison Candlesticks for Exiting

“I find that the candlesticks are wonderful for EXITS.”

“I use candlesticks to tell me to get out”




Get into a newtrend before other

traders see it




Basic Criteria• Market in a downtrend

• Small real body (either color)at, or near, top of range.

• Lower shadow at least 2xheight real body




HAMMER AND BULL SHADOWS



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Benefits of Options

• Leverage

• Risk Control

• Trade high price markets

• Easy to short

• Portfolio protection

• Can profit in any market environment

• Easy to change market stance

• Generate Income



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Buy at 144.50Sell at 151.50% gain on stock = 4.8%$700

Buy ATM 145 call14 days expiration@ 3.25

Sell to close call 11 days later for 6.60with mkt @ 151 ½% gain on options =103%$335

Leverage



CandlestickCharting

Strategies

Candlesticks +Western

Indicators

Candlesticks + Trade Management

Steve Nison’s

Trading TriadSuccessSystem

Steve Nison’s


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Four Basic TradesFour Basic Trades

Right tobuy

Right tosell

CALL PUT

Obligationto buy

Obligationto sell

Buyer(long)

Seller(short)

ExamplesXYZ January 70 Call at $3.10: Call buyer can buy XYZ (up to expiration

date) for $70. And call seller must sell to him at that price.

ABC February 35 Put at $1.20 (Put buyer can sell XYZ (up to expirationdate ) for $35. And put seller must buy it from him at that price.




Scenario 1 – buy at hammerMkt @ $395: 400 call @ $11.30

Exit at doji ( red arrow 13 daysafter hammer) mkt @ 447: 400call @ $47.50 (320 % return)

Scenario 2 – buy based on MACDMkt @ $418 : 420 call @ $13.45

Exit at doji (5 days later) mkt @447: 420 call @ $31.20 (132%return)

Result: Nison candlesticksgenerated over 2x the profit!

Nison Candlestick strategies for long calls




Direction is the single most important thing you needto know to make money on any options trade

Directionblows away

impliedvolatility




AAPL

1) Hold IV constant at 26% and price +20% over 30 days

APPL @ 300: 60-day 300 call = $12.70

APPL @ 360: 30-day 300 call = $60.10

2) Hold Price Constant at $300 and IV +20% over 30 days

300 strike 60-day call: Vol @26% = 12.70

300 strike 30-day call: Vol 31.2% = 10.70

Result:

20% change in price = +$47.40 (374% gain)

20% change in Vol = -$2.00 (15% loss)

Implied Volatility vs. DirectionImplied Volatility vs. Direction




Nison Chart Challenge #1Nison Chart Challenge #1

1) What are two times to consider a long put?

2) For each of these what would be your target?

3) For each of these what would be your protective stop?

4) When would you close out the long puts and why?



CandlestickCharting

Strategies


Indicators

Candlesticks + Trade Management

Steve Nison’s


Steve Nison’s


21



Nison Chart Challenge #2Nison Chart Challenge #2

1) In the boxed area above when would you consider a long call?

2) What is you protective stop?

3) What is your target?

4) When would you have closed out the trade and why?




S&P

VIX

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Bullish Bearish




Candles as resistance for option trading

Scenario1:

Long call at hammerTarget = bear engulf resistance

mkt @ 1775, 185 call @ 3.20

close out long call 8 days later @8.00 with market @ 1875

Scenario 2:

Long put at 2nd bear engulfTarget = hammer

mkt @ 1875, 185 put @ 5.20

close out put 13 days later @9.75 with market @ 1700



target

Market holds a support areaset with a bullish engulfingpattern.

The target is a dark cloudcover at 51 ½

We are looking for a quickrally (within 10 days)

Assuming we are doing along call, should we do a 45call or a 50 call?

Using the What…If Concept

Successful test of support



50 calltheoreticalgoes from 1.40to 3.50 = 150%

What...If analysis for 50 call

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45 calltheoreticalgoes from 3.40to 7.00 = 106%

What...If analysis for 45 call

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Remember Implied Volatility!

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30


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Use the highest high ofthose two sessions (topof upper shadow) asresistance



Candles and Momentum Trading

Look at all thereversal signals



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Nison Candle strategies for portfolio protection

Worried about a move to 178 area.Mkt @ 200

Buy a 30–day 200 put @ 6.85Close out put at support at 178 withput @ 22.45

Paper loss on stock of $ $2,200 on 100shares and made $1,560 on protectiveput



How NOT to use candlesticks

Oh my goodness! Themarket rallied after theshooting star!



CandlestickCharting

Strategies


Indicators

Candlesticks + Trade Management37


EAST & WEST CONFIRMATIONEAST & WEST CONFIRMATION

Where acandle signalconfirms aWesternTechnical signal




resistance doji




Bullish Engulfing Pattern at Support




Bull Call Spreads

Buy lower strike (95) call

Sell higher strike (100) call (same expiration)Which of these two strikes will be more worth more?

So will be buying the more expensive lower strike call- andselling the cheaper call: Result is net cost to you - hence adebit call spread

Buy 1 XYZ 30-day 95 Call @ 3.50Sell 1 XYZ 30-day 100 Call @ 1.50Net Debit (2.00)

At expiration:

Maximum Profit = Difference in Strike Prices (5) - Net Debit (2) = 3

Max Risk is net debit = 2

Breakeven = Lower Strike (95) + Net Debit (2) = 97

Concept: less costly way to buy call. But give up profit potential




East + West = Increased Confidence

1) What are these candle signals?2) What are they confirming?

Bull call spread at hammer (assume $1 strikes):Buy 81 call @ 2.80 with market @ 81Sell 87 call (resistance area) @ .85Net debit = 1.95Max profit = 4.05BE= 82.95



Snap

Crack

Target

Stop

Buy

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1) What western signal is at theclose of the session with arrow?2) What is target3) What is stop4) What outright option, and strike,would you do and why. Assume$10 strikes

Nison Chart Challenge #3



What if you knew howsolid support orresistance was, and byknowing this be rocksolid confident aboutwhat outright or spreadoption strategy to use?



Your Special Thank You Bonus:$79 value

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an introduction to candlesticks for options - traders' … · an introduction to candlesticks...

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