Maths — The language of Gods.

For the gods, perceive things in the future,
ordinary peoples, things in the present,
but the wise, things about to happen.

It’s one of my favorite quotes, when I read this it made so much sense. Anyhow why did I wrote it in this article though? So as the quote states, far future is only perceivable to the gods, while the wise one can perceive future but only about things about to happen.

I wanted to write this, because I encountered something kinda similar to this today, although for a naked eye it could seem totally like a bet and at first I also went with it as a bet, but my confidence was high. Anyway let me get to the point.

So, in my previous article I wrote about Black-Scholes formula used to price option contracts, and how it incorporates all the other data like economy condition, market volatility, market emotions and policies in a simple formula. Today when the market opened, I thought about giving all that a try and just predict the movement of the prices on the basis of only what I got from this formula.

Before that, yesterday I looked at NIFTY’s indices and papers and wrote down about the stocks and there weightage in the indices. So about 40% weightage is given to Financial Sector (BANKNIFTY), then we have IT Sector (NIFTY IT) about 20–25%, these two sectors kinda consists of more than 50% of the NIFTY indices, so if NIFTY goes down there is more probability that either of these two sectors or both gets the hit. Cool, next I looked up stock weightage in particular indices, and I found RELIANCE, HDFCBANK, ICICIBANK and some other I don’t remember right now, have more weightage on these indices, great we got something. Next comes FUTURES and OPTIONS data, so first I looked at RELIANCE, and as stated in yesterday’s article, CTP of RELIANCE was so near it’s support according to the OPTION CHAIN, last trading session it closed at 1903, at looking at the OPTION CHAIN most participant believes that it won’t go down than 1900, and then the next resistance was at 2000, so many believe it won’t breach the 2000 mark. Just looking at this data, one can predict that price should move up, but still all these aren’t certain, it’s all in probability, although it was greater than 0.5, but still it’s not 1 to bet everything on.

Now that we know about the relationship about the volatility, economy and indices we can make better judgement, next I opened up NIFTY chart or daily interval, and did some technical analysis on it, typical oscillators movement and drawings on the chart revealed that well it was also near a small resistance, so if it breaks it then there would be good upward movement to capture, next I looked into the futures and options data and well it seems like most believes that it would break it. So in my head, I had predicted that if nifty gonna break this resistance than it would be gap up opening tomorrow and with this RELIANCE and BANKNIFTY should go up, to make my prediction more reliable I looked at BANKNIFTY data, and other banks data too and most of them supported my prediction, with this I looked at other data like OTM and ITM contracts and some technical analysis, to predict the volatility , with this I also looked at economic calendar to look is there any upcoming announcements that can affect the pricing.

So for first time in my life I traded in FNO section, I bought some lots of RELIANCE2000CE for 29 April, which was trading at 2.25 INR yesterday and I also did my calculation, so for me to make any profit, the stock price had to move above 1935, well today morning I was so happy when my prediction turned right and I made 400% ROI on my initial investment, in matter of hours.

Now, with this I traded using the same relationships learned today in ICICIBANK and was able to ride both the up and down move in the pricing throughout the day. Although I was constantly switching to different tabs, but I guess it was worth it, and happily closed all my positions around 2 pm.

To conclude it all, at first market seemed so random to me and I bet it still is random for most, but once I started understanding the relationships between the present and future, although its still unpredictable but now I wasn’t trading only on 0.5, with interpreting all these data, I was able to bring that probability near 1.

but the wise, things about to happen.