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Module 6 — Option Strategies
Chapter 13
Max Pain & PCR Ratio

514
13.1 – My experience with Option Pain theory

In the never ending list of controversial market theories, the theory of ‘Option Pain’ certainly finds a spot. Option Pain, or sometimes referred to as ‘Max Pain’ has a
significant fan following and probably an equal number of people who despise it. I’ll be honest; I’ve been in both camps! In the initial days of following Option Pain, I was
never able to make money consistently. However, overtime I found methods to improvise on this theory to suit my own risk appetite, and that yielded a decent result. Later
in the chapter I will discuss this as well.
Anyway, now this is my attempt to present you the Option Pain theory and talk to you about what I like and what I don’t about Max Pain. You can take cues from this
chapter and decide for yourself which camp you want to be in.
Option Pain theory requires you to be familiar with the concept of ‘Open Interest’.
So, let’s get started.
13.2 – Max Pain Theory

The origins of Option Pain dates back to 2004. So, in a sense, this is still a very young theory. As far as I know there are no academic/scholastic papers on it, which makes
one wonder why the academia has ignored this concept.
The theory of options pain stems as a corollary to the belief – “90% of the options expire worthless, hence option writers/sellers tend to make money more often, more
consistently than the option buyers”.
Now if this statement is true, then we can make a bunch of logical deductions –
1. At any point only one party can make money i.e either the option buyers or option sellers, but not both. From the above statement, it is clear that the sellers are the
ones making money.
2. If option sellers tend to make maximum money, then it also means that the price of the option on expiry day should be driven to a point where it would cause least
amount of loss to option writers.
3. If point 2 is true, then it further implies that option prices can be manipulated, at least on the day of expiry.
4. If point 3 is true, then it further implies that there exists a group of traders who can manipulate the option prices, at least on the day of expiry.
5. If such a group exists then it must be the option writers/sellers since it is believed that they are the ones who make maximum money/consistently make money trading
options.
Now considering all the above points, there must exist a single price point at which, if the market expires, then it would cause least amount of pain to the option writers (or
cause maximum amount of pain to option buyers).
If one can identify this price point, then it’s most likely that this is the point at which markets will expire. The ‘Option Pain’ theory does just this – identify the price at
which the market is likely to expire considering least amount of pain is caused to option writers.
Here is how optionspain.com formally defines Option Pain – “In the options market, wealth transfer between option buyers and sellers is a zero sum game. On option
expiration days, the underlying stock price often moves toward a point that brings maximum loss to option buyers. This specific price, calculated based on all outstanding
options in the markets, is called Option Pain. Option Pain is a proxy for the stock price manipulation target by the option selling group”.
13.3 – Max Pain Calculation
Here is a step by step guide to calculate the Max Pain value. At this stage, you may find this a bit confusing, but I recommend you read through it all the same. Things ill
get clearer once we take up an example –
Step 1 – List down the various strikes on the exchange and note down the open interest of both calls and puts for these strikes.
Step 2 – For each of the strike price that you have noted, assume that the market expires at that strike.
Step 3 – Calculate how much money is lost by option writers (both call option and put option writers) assuming the market expires as per the assumption in step 2.
Step 4 – Add up the money lost by call and put option writers.
Step 5 – Identify the strike at which the money lost by option writers is least.
This level, at which least amount of money is lost by option writers is the point at which maximum pain is caused to option buyers. Therefore this is the price at which the
market is most likely to expire.
Let us take up a very simple example to understand this. For the sake of this example, I’ll assume there are only 3 Nifty strikes available in the market. I have made a note
of the open interest for both call and put options for the respective strike.
Strike Call Option OI Put option OI

7700 1823400 5783025
7800 3448575 4864125
7900 5367450 2559375
Scenario 1 – Assume markets expires at 7700
Remember when you write a Call option, you will lose money only if the market moves above the strike. Likewise, when you write a Put option you will lose money only
when the market moves below the strike price.
Therefore if the market expires at 7700, none of the call option writers will lose money. Which means call option writers of 7700, 7800, and 7900 strikes will retain the
premiums received.
However, the put option writers will be in trouble. Let’s start with the 7900 PE writers –
At 7700 expiry, 7900 PE writers would lose 200 points. Since the OI is 2559375, the Rupee value of loss would be –
= 200 * 2559375 = Rs.5,11,875,000/-
7800 PE writers would lose 100 points, the Rupee value would be
= 100 * 4864125 = Rs.4,864,125,000/-
7700 PE writers will not lose any money.
So the combined money lost by option writers if the markets expire at 7700 would be –
Total money lost by Call Option writers + Total money lost by Put Option writers
= 0 + Rs.511875000 + 4,864125000 = Rs.9,98,287,500/-
Keep in mind that total money lost by Call Option writers = money lost by 7700 CE writer + money lost by 7800 CE + money lost by 7900 CE
Likewise the Total money lost by Put Option writers = money lost by 7700 PE writer + money lost by 7800 PE + money lost by 7900 PE
At 7800, the following call option writers would lose money –
7700 CE writers would lose 100 points, multiplying with its Open Interest we get the Rupee value of the loss.
100*1823400 = Rs.1,82,340,000/-
Both 7800 CE and 7900 CE seller would not lose money.
The 7700 and 7800 PE seller wouldn’t lose money
The 7900 PE would lose 100 points, multiplying with the Open Interest, we get the Rupee value of the loss.
100*2559375 = Rs.2,55,937,500/-
So the combined loss for Options writers when market expires at 7800 would be –
= 182340000 + 255937500
= Rs.4,38,277,500/-
At 7900, the following call option writers would lose money –
7700 CE writer would lose 200 points, the Rupee value of this loss would be –
200 *1823400 = Rs.3,646,800,000/-

7800 CE writer would lose 100 points, the Rupee value of this loss would be –
100*3448575 = Rs.3,44,857,500/-
7900 CE writers would retain the premiums received.
Since market expires at 7900, all the put option writers would retain the premiums received.
So therefore the combined loss of option writers would be –
= 3646800000 + 344857500 = Rs. 7,095,375,000/-
So at this stage, we have calculated the total Rupee value loss for option writers at every possible expiry level. Let me tabulated the same for you –
Strike Call Option OI Put option OI Loss value of calls Loss value of Puts Total loss
7700 1823400 5783025 0 998287500 998287500
7800 3448575 4864125 182340000 255937500 438277500
7900 5367450 2559375 7095375000 0 7095375000
Now that we have identified the combined loss the option writers would experience at various expiry level, we can easily identify the point at which the market is likely to
expire.
As per the option pain theory, the market will expire at such a point where there is least amount of pain (read it as least amount of loss) to Option sellers.
Clearly, from the table above, this point happens to be 7800, where the combined loss is around 438277500 or about 43.82 Crores, which is much lesser compared to the
combined loss at 7700 and 7900.
The calculation is as simple as that. However, I’ve used only 3 strikes in the example for simplicity. But in reality there are many strikes for a given underlying, especially
Nifty. Calculations become a bit cumbersome and confusing, hence one would have to resort to a tool like excel.
I’ve calculated the option pain value as of today (10th May 2016) on excel, have a look at the image –
For all the available strikes, we assume market would expire at that point and then compute the Rupee value of the loss for CE and PE option writers. This value is shown
in the last column titled “Total Value”. Once you calculate the total value, we simply have to identify the point at which the least amount of money is lost by the option
writer. You can identify this by plotting the ‘bar graph’ of the total value. The bar graph would look like this –
As you can see, the 7800 strike is the point at which option writers would lose the least amount of money, so as per the option pain theory, 7800 is where the market is
likely to expire for the May series.
Now that you have established the expiry level, how can you use this information? Well, there are multiple ways you can use this information.
Most traders use this max pain level to identity the strikes which they can write. In this case, since 7800 is the expected expiry level, one can choose to write call options
above 7800 or put options below 7800 and collect all the premiums.
13.4 – A Few Modifications

In the initial days, I was very eager to learn about Option Pain. Everything about it made absolute sense. I remember crunching numbers, identifying the expiry level, and
writing options to glory. But shockingly the market would expire at some other point leaving me booking a loss and I wondering if I was wrong with my calculations or if
the entire theory is flawed!
So I eventually improvised on the classic option pain theory to suit my risk appetite. Here is what I did –
1. The OI values change every day. This means the option pain could suggest 7800 as the expiry level on 10th of May and may very well suggest 8000 on 20th of May. I
froze on a particular day of the month to run this computation. I preferred doing this when there were 15 days to expiry.
2. I identified the expiry value as per the regular option pain method.
3. I would add a 5% ‘safety buffer’. So at 15 days to expiry, the theory suggest 7800 as expiry, then I’d add a 5% safety buffer. This would make the expiry value as
7800 + 5% of 7800 = 8190 or 8200 strike.
4. I would expect the market to expire at any point between 7800 to 8200.
5. I would set up strategies keeping this expiry range in mind, my most favorite being to write call options beyond 8200.
6. I would avoid writing Put option for this simple belief – panic spreads faster than greed. This means markets can fall faster than it can go up.
7. I would hold the options sold up to expiry, and would usually avoid averaging during this period.
The results were much better when I followed this method. Unfortunately, I never tabulated the results, hence I cannot quantify my gains. However if you come from a
programming background, you can easily back test this logic and share the results with the rest of community here. Anyway, at a much later stage I realized the 5% buffer
was essentially taking to strikes which were approximately 1.5 to 2% standard deviations away, which meant the probability of markets moving beyond the expected expiry
level was about 34%.
If you are not sure what this means, I’d suggest you read this chapter on standard deviation and distribution of returns.
You can download the Option Pain computation excel.
13.5 – The Put Call Ratio
The Put Call Ratio is a fairly simple ratio to calculate. The ratio helps us identify extreme bullishness or bearishness in the market. PCR is usually considered a contrarian
indicator. Meaning, if the PCR indicates extreme bearishness, then we expect the market to reverse, hence the trader turns bullish. Likewise if PCR indicates extreme
bullishness, then traders expect markets to reverse and decline.
To calculate PCR, all one needs to do is divide the total open interest of Puts by the total open interest of the Calls. The resulting value usually varies in and around one.
Have a look at the image below –
As on 10th May, the total OI of both Calls and Puts has been calculated. Dividing the Put OI by Call OI gives us the PCR ratio –
37016925 / 42874200 = 0.863385
The interpretation is as follows –
• If the PCR value is above 1, say 1.3 – then it suggests that there are more Puts being bought compared to Calls. This suggests that the markets have turned extremely
bearish, and therefore sort of oversold. One can look for reversals and expect the markets to go up.
• Low PCR values such as 0.5 and below indicates that there are more calls being bought compared to puts. This suggests that the markets have turned extremely
bullish, and therefore sort of overbought. Once can look for reversals and expect the markets to go down.
• All values between 0.5 and 1 can be attributed to regular trading activity and can be ignored.
Needless to say, this is a generic approach to PCR. What would really make sense is to historically plot the daily PCR values for say 1 or 2 years and identify these extreme
values. For example for Nifty value such as 1.3 can indicate extreme bearishness, but for say Infy something like 1.2 could be extreme bearishness. So you need to be clear
about this, hence back testing helps.
You may wonder why the PCR is used as a contrarian indicator. Well, the explanation to this is rather tricky, but the general opinion is this – if the traders are
bearish/bullish, then most of them have already taken their respective position (hence a high/low PCR) and therefore there aren’t many other players who can come in and
drive the positions in the desired direction. Hence the position will eventually be squared off which would drive the stock/index in the opposite direction.
So that’s PCR for you. You may come across many variants of this – some prefer to take the total traded value instead of OI, some even prefer to take the volumes. But I
personally don’t think it is required to over-think PCR.
13.6 – Final thoughts

And with this, I’d like to end this module on Options, which has spread across 2 modules and 36 chapters!
We have discussed close to 15 different option strategies in this module, which I personally think is more than sufficient for retail traders to trade options professionally.
Yes, going forward you will encounter many fancy option strategies, perhaps your friend will suggest a fancy option strategy and show off the technicalities of the strategy,
but do remember – ‘fancy’ does not really translate to profit. Some of the best strategies are simple , elegant and easy to implement.
The content we have presented in both, Module 5 and Module 6, is written with an intention of giving you a clear picture on options trading – what is possible to be achieve
with options trading and what is not possible. We have thought through and discussed what is required and what isn’t. Frankly these two modules are more than sufficient
to answer most of your concerns/doubts related to options.
So please do take some time to read through the contents here, at your own pace, and I’m certain you will you will start trading options the way it is supposed to be done.
Finally, I hope you will enjoy reading this as much as I enjoyed writing this for you.
Good luck and stay profitable!
Key takeaways from this chapter
1. Option Pain theory assumes that the option writers tend to make more money consistently compared to option buyers.
2. Option pain assumes that option writers can influence the price of options on the day of expiry.
3. One can use the theory of option pain to identify the price at which the stock/index is likely to expiry.
4. The strike at which the option writers would experience least amount of loss is the strike at which the stock/index likely to expire.
5. The PCR is calculated by dividing the total open interest of Puts by the total open interest of the Calls.
6. The PCR is considered as a contrarian indicator.
7. Generally a PCR value of over 1.3 is considered bearish and a PCR value of less than 0.5 is considered bullish.
Module 6
Chapters
• 1. Orientation
• 2. Bull Call Spread
• 3. Bull Put Spread
• 4. Call Ratio Back Spread
• 5. Bear Call Ladder
• 6. Synthetic Long & Arbitrage
• 7. Bear Put Spread
• 8. Bear Call Spread
• 9. Put Ratio Back spread
• 10. The Long Straddle
• 11. The Short Straddle
• 12. The Long & Short Strangle
• 13. Max Pain & PCR Ratio
514 comments
1. nishu says:
May 16, 2016 at 2:56 pm
respected sir, please update all module up to this and future also in GUJARATI language from module no. 1 to continue………. i m too pleaser i have no word how
can i explain my happiness to see translation in GUJARATI so please update all your module in GUJARATI thanks a lot………….
¶Reply
◦ Karthik Rangappa says:

May 17, 2016 at 5:24 am
Thanks Nishu We just started our work on translation. We are working toward the same, please stay stunned here for regular updates.
¶Reply
◾ Guruprasad V says:
July 27, 2016 at 2:29 pm
Wonderful materials. Why there is no pdf version for option strategies. Would be great if you could put content in major Indian regional languages like
Telugu, Tamil etc., Would have great audience for these materials.
¶Reply
◾ Karthik Rangappa says:

July 28, 2016 at 6:02 pm
We are working on it Guru
¶Reply
◾ Ravindra Thakur says:

January 10, 2018 at 10:22 pm
Sir I am trying to make the Max Option Chart on Excel sheet but the calculation of Cumulative Call & Put, I am not able to find it’s formula.
Could you please help me with it…..?
¶
January 11, 2018 at 11:18 am
Have you looked at the excel sheet which I’ve uploaded? I guess it has all the details you need.
¶
◾ Ravindra Thakur says:
January 11, 2018 at 11:28 am
Sir, I have gone through the excel sheet, And on the cumulative call on 18th columns, the formula starts extending to
=R18*B2+R17*B3+R16*B4+R15*B5+R14*B6+R13*B7+R12*B8+R11*B9+R10*B10+R9*B11+R8*B12+R7*B13+R6*B14+R5*B15+R4*B16+B17*R3.
And the data I have made for strike is exact up to 44 Strikes for analysis purpose so as the strike extents the above calculation becomes
complicated, as well as one minor error, could lead to completely wrong data
That’s the reason I am asking you for the solution / formula
¶
January 12, 2018 at 10:46 am
Ah, I get your point. It does complicated with too many sum product kind of calculations. Here is what I think you can do – try and break up
the calculations into smaller bits leading to the main formula. When you do this, the chances of going wrong is also lower.
¶
◾ kiran says:
January 7, 2017 at 9:13 pm
sir,
option writing is better tools to get return on investment..I think this should explain to people who can’t spend more time for observations and chart
reading..Request you conduct any kind of finance programms, shows, investor progrmms frm zerodha
¶Reply

January 8, 2017 at 10:41 am
Thank you! We would probably have a session sometime soon. Thanks.
¶Reply
◾ Pramod Kumar says:

January 25, 2017 at 11:32 pm
Hi Karthik, We will get very low premium if 5% beyond the max pain.
May be even less than 10,Sometimes as less as 5.
Though premium will be less , Success rate will be high.
What was your experience?
¶Reply

It has always been low premiums but high probability of retaining the premiums!
¶Reply
◾ Kumar N KristeR says:

October 24, 2017 at 11:43 pm
Dear sir, I’m looking for FUTURES STRATEGIES, please upload as soon as possible.
Thank for everything, Really it was awsome journey from Module 1 to Model 6.
¶Reply

October 25, 2017 at 10:54 am
Cheers! The next module is on Trading Systems
¶Reply
◦ Mihir patel says:
November 12, 2017 at 8:56 am
Bhai, you can use Google translate..
Gujarati: bhai, tame google translate use kari sako 6o for translation ( bhashantar)
Maja karo mota bhai
¶Reply
2. Amol says:
May 16, 2016 at 3:14 pm
Can you please upload PDF files of module no. 6 for download ? This would make it easy for everyone to access the module on the go. Thanks for wonderful work
you all are doing.
¶Reply

May 17, 2016 at 5:24 am
Sure, we will do that shortly.
¶Reply
3. thulasi says:
May 17, 2016 at 7:00 am
Namasthe Sir
Plz update all modules in telugu language and coming modules also.
Thank u for your great work.
¶Reply

May 17, 2016 at 7:53 pm
Namasthe! Will surely try and do that
¶Reply
4. khyativerdhan says:
May 17, 2016 at 7:26 am
hi kartik
very very thanks for this module. is now this module finished??
¶Reply

May 17, 2016 at 8:08 pm
Yes, its all done from our side
¶Reply
◾ DP2307 says:
August 17, 2016 at 7:29 pm
why this module couldn’t be downloaded in PDF format
¶Reply

August 18, 2016 at 11:11 am
We are working on it, should be out soon.
¶Reply
5. Suresh.ks says:
May 17, 2016 at 9:21 am
Hi,
In Nifty option chain the strikes start from 5450 to 9500, should we calculate all the strikes OI of both Call and Put to calculate option pain?
and when should start to calculate from the starting of the contract or after 15 days?
¶Reply

May 17, 2016 at 8:11 pm
Technically you should calculate from the start (5450) to end (9500)…but then we know the liquidity is not much, hence we could ignore these strikes. You
can calculate the Max Pain value on any day…but I just prefer when there are 15 days to expiry.
¶Reply
6. Suresh.ks says:
May 17, 2016 at 10:31 am
Hi,
In Nifty option more OI built in 8000 CE and in 7800 PE and PCR is 0.94 in this case will Nifty expire below 8000 in this may series?
¶Reply

May 17, 2016 at 8:13 pm
Suggest you also use volatility and SD approach to this.
¶Reply
7. R P HANS says:
May 17, 2016 at 11:42 am
Sir, Thanks a lot for the simplified option course.

I think few more things may be added to make it complete. Items like Call butterfly, strip strap, covered call etc as you promised may please be included. When we
will get detail;ls on pair trading.
Thanks again.
R P HANS
¶Reply

May 17, 2016 at 8:14 pm
Sure, we will certainly add as supplementary notes as and when possible.
¶Reply
8. Bharath says:
May 18, 2016 at 2:37 am
can u provide excel sheets regarding OI analysis, moving averages etc,,,or any link regarding the same
¶Reply

May 18, 2016 at 7:16 am
Every chapter has an excel model attached which shows the working. Suggest you scroll down to download the link.
¶Reply
◾ Suraj pradhan says:

August 21, 2017 at 7:16 pm
Sir,
I hv opened a zerodha account recently. I want to know does zerodha hv any software of updating OI of banknifty option different strike price where live
data of OI for calculating option maximum pain in the excel sheet .
¶Reply

August 22, 2017 at 12:00 pm
No, nothing of this sort for now.
¶Reply
9. Khyati Verdhan says:

May 18, 2016 at 12:08 pm
When will zerodha bring order in kite???

¶Reply

May 18, 2016 at 7:26 pm
Kite is in order, anything that worries you?
¶Reply

May 18, 2016 at 12:09 pm
I mean Bo order type
¶Reply

May 18, 2016 at 7:27 pm
That should be up and running in new kite.
¶Reply

May 19, 2016 at 4:45 am
Hi kartik
I use new 2.0 version of kite. It has Co order but not Bo. Where it is???
¶Reply

May 19, 2016 at 4:51 am
Suggest you speak to support for this.Thanks.
¶Reply
12. Suresh.ks says:

May 19, 2016 at 8:11 am
Hi,
Based on option pain calculation if we write the Nifty call option keeping 5% safety buffer before 1 day expiry, What is the accuracy ratio from your trading
experience? can we make consistent profit?
¶Reply

May 19, 2016 at 6:00 pm
Well, accuracy is quite high but the money you make is very very little. Someone once said…its like picking up a dime in front of a road roller!
¶Reply
13. Hari says:

May 19, 2016 at 5:14 pm
Karthik bro can you start commodity,currency module and pause this option strategy module. Eagerly waiting for your modules on those chapters.
¶Reply

May 19, 2016 at 6:04 pm
In fact the module on options trading is done. Starting Commodities by last week of this month.
¶Reply
14. Suresh.ks says:

May 20, 2016 at 7:28 am
Hi,
FII and DII activity data indicate anything if we watch everyday?
¶Reply

May 20, 2016 at 7:05 pm
It generally gives a sense of where the smart money sentiment lies, nothing beyond that honestly.
¶Reply
15. Suresh.ks says:

May 20, 2016 at 7:36 am
Hi,
Nifty PCR is below 1 from last 4,5 days like 0.90,0.85,0.78. what it indicates? will trend reversal by expiry?
¶Reply

May 20, 2016 at 7:07 pm
PCR beyond 1.3 or below 0.5 is what I really consider worth noting, none of the other values signify anything much.
¶Reply
16. HARI says:

May 20, 2016 at 5:26 pm
lol what a coincidence
¶Reply

May 20, 2016 at 7:11 pm
But you got to wait for the first chapter to come out, at least till the first week of the next month!
¶Reply
◾ HARI says:
May 21, 2016 at 7:50 am
ah ok thanks for the information bro
¶Reply

May 22, 2016 at 5:49 am
Welcome.
¶Reply
17. Sastry says:

May 21, 2016 at 2:32 am
Dear Sir, Any chance of Trading Strategies with Hedging with Nifty Futures in this module will be expected in the near future because this is continuation of options
strategies or if it takes much more time kindly give your most valuable reply advice for my personal guidance. Kind Regards, Sastry
¶Reply

May 22, 2016 at 5:48 am
We plan to have a module dedicated to Delta hedging and Pair trading, probably sometime by this year end.
¶Reply
18. DA7586 says:

May 22, 2016 at 8:10 am
HI,
Very Good ready made data for the learners & professionals
keep it up Sir,
i really thanks to Zerodha Team…
Good Luck
¶Reply

May 23, 2016 at 5:58 pm
Cheers!
¶Reply
19. Suresh.ks says:

May 22, 2016 at 1:30 pm
Hi,
We are confusion about Nifty trend now, from which level is good for go long or short and reason please suggest me?
I always prefer to trade Nifty only.
¶Reply

May 23, 2016 at 6:00 pm
PCR above 1.3, look for shorting opportunities…PCR below 0.3 look for buying opportunities.
¶Reply
◾ Ravi says:
May 28, 2016 at 1:17 pm
Hi karthik
i’m a bit confused about PCR
The article says it’s a contrarian indicator.
so a PCR value above 1.3 is be a buying opportunity i.e the underlying will rise.
am i reading it right?
¶Reply

May 28, 2016 at 2:28 pm
Yes, in fact in the article, I have discussed the rational as well as to why its considered a contrarian indicator.
¶Reply
◾ ShreyaDR says:
June 15, 2016 at 4:50 pm
Karthik, You said <<<>>>>
Mr.Ravi asked <<<<<<<>>>>>>
your reply to him <<<<<<<<>>>>>
isn’t it contradictory? PCR above 1.3 is buying opportunity or shorting opportunity after all?
Secondly, I checked today’s PCR https://goo.gl/RCIeZp which is 51,042,500/40,376,700 = 1.26.

According to your first statement it should be shorting opportunity, right? hence either buying Put or writing Call. but surprisingly how
come Nifty is making high day by day?
Thirdly, i have calculated option pain at today’s close of 15th June,2016 and Strike price 7800 comes as a strike price for max pain.
This all sounds confusing.
¶
June 15, 2016 at 5:19 pm
Shreya – posting this extract from the chapter, hopefully this should clarify –
“You may wonder why the PCR is used as a contrarian indicator. Well, the explanation to this is rather tricky, but the general opinion is this
– if the traders are bearish/bullish, then most of them have already taken their respective position (hence a high/low PCR) and therefore
there aren’t many other players who can come in and drive the positions in the desired direction. Hence the position will eventually be
squared off which would drive the stock/index in the opposite direction.”
¶
20. suresh.ks says:
May 24, 2016 at 6:20 am
Hi,
Should we always check PCR if it is below 0.5 or above 1.3 while taking entry in Nifty?
¶Reply

May 24, 2016 at 5:32 pm
Yup, you could give this a shot.
¶Reply
21. B S Sriharsha says:

May 24, 2016 at 7:28 am
Any plans to start a module on Elliott Wave, Neo Wave , Time Cycles and Gann Theory
¶Reply

May 24, 2016 at 5:33 pm
Not anytime soon.
¶Reply
22. Sastry says:

May 25, 2016 at 2:45 am
Dear Sir, Is short strangle at an equidistance of 400 points from ITM Nifty options strike With delta neutral nifty options strategy in the current month series and next
month seriesbetter for a full time trader who can monitor the total deltas to zero as per direction of the market for conservative returns on the investment capital after
15 days of series start. Please advise me as I have waited till now for delta hedging trading strategies. Thanking you, Regards, Sastry
¶Reply

May 27, 2016 at 6:29 am
As long as you can manage the positions to ensure delta neutrality, it should be alright. I’d suggest you stick to current month series as liquidity is better.
¶Reply
23. shivamrao37 says:

May 25, 2016 at 4:49 am
@Karthik Bro.. can you give any idea that how much time you take for updating commodity module.. can i expect it updated in middle of june month..
actually i am trading in equity from last 2 years.. but i tried in commodity markets 3 months ago.. and Burnt my Fingers so badly…
so, i want to gain knowledge about commodity markets.. so, that i can re-enter and cover up my losses..
¶Reply

May 27, 2016 at 6:29 am
I guess the first chapter of the module should be out in the next 10 days.
¶Reply
24. B S Sriharsha says:

May 25, 2016 at 7:38 am
Please mention the path for downloading the data for STRIKE CALL OI PUT OI for the available strikes which you have shown in the module
¶Reply

May 27, 2016 at 6:35 am
Check this – https://www.nseindia.com/products/content/derivatives/equities/historical_fo.htm
¶Reply
25. Sastry says:

May 28, 2016 at 1:57 am
Dear Sir out of 15 strategies which you have explained to us, out of your good experience , which you consider more less risk for constant monthly even for
conservative returns or whether hedging get strategies are more less risk for conservative constant returns to play nifty index options with help of Greeks. Thanks
¶Reply

May 28, 2016 at 2:26 pm
Each strategy is different and should be used under different circumstances. I personally prefer the short strategies – short strangles and straddles, short ratio
spreads etc.
¶Reply
26. ASHISH SODHI says:

May 28, 2016 at 6:37 pm
Hello Sir, from where can we get the PCR on a daily basis for stock options and NIFTY ?
¶Reply

May 30, 2016 at 4:42 am
Not sure of any reliable source Ashish. Will let you know as soon as I come across one. Thanks.
¶Reply
27. sastry says:

May 30, 2016 at 11:12 am
DearSir,
Is it safe and conservative to play short strangle Delta Neutral Strategy in Bank Nifty options recent modified weekly series wef 27-05-2016 in your view. If so at
what Delta and at what equidistance, just like nifty 400 points, from ITM strike price of Bank Nifty option strike, I can play Bank Nifty Short Strangle Delta Neutral
strategy and also please advise the disadvantages if any. Thanks
¶Reply

June 1, 2016 at 6:06 am
The weekly options are not very liquid. If there is enough liquidity then a short strangle 1000 points either ways would probably make sense. But you should
wait and watch how this plays out.
¶Reply
28. sastry says:

June 1, 2016 at 7:20 am
Dear Sir,
Also please advise me what could be the reasonable range from ITM strike in bank nifty monthly options contracts just like 400 points in nifty current month. Thanks
¶Reply

June 2, 2016 at 12:23 pm
Sorry, dint get that. Can you please elaborate?
¶Reply
29. Sastry says:

June 2, 2016 at 3:49 pm
Dear Sir, To play short strangle in bank nifty monthly options current month contracts, at what equidistance from ATM strike of call and put of bank nifty, we can
trade with DELTA NEUTRAL strategy. Please advise me. With best regards, Sastry
¶Reply

June 5, 2016 at 4:45 am
Check this chapter – http://zerodha.com/varsity/chapter/volatility-normal-distribution/
¶Reply

June 3, 2016 at 6:06 pm
Hi kartik
How can I know the expiry date of future contracts of mcx i.e. commodity markets
¶Reply

June 5, 2016 at 5:06 am
MXC website has all the info, check this – https://www.mcxindia.com/market-data/top-gainers
¶Reply
31. varesh.et says:
June 4, 2016 at 8:46 am
Dear Karthik,
It’s great pleasure reading all these articles and gives deep insight on option trading. I would love to see more complex strategies like iron condor or mouse ear
condors which one can use for monthly income generation.
Are you planning to write on any such strategies ? Or can you let me know source of knowledge where I can understand such strategies for monthly income
generation ?
Thanks.
¶Reply

June 5, 2016 at 5:22 am
Thanks you. I will be discussing this at a later stage I guess…as supplementary notes. For now we shifted focus on Currencies
¶Reply
32. toushif nadaf says:

June 5, 2016 at 5:11 am
Please Add Download PDF link
¶Reply

June 5, 2016 at 5:29 am
We are working on it, should be available soon.
¶Reply
33. subrata dasgupta says:

June 5, 2016 at 4:20 pm
hi karthik,
can u give us excel sheet for pcr calculation? otherwise any site regarding d same.
¶Reply

June 6, 2016 at 3:44 pm
Its in the same excel sheet.
¶Reply
34. Sourabh Sisodiya says:

June 6, 2016 at 3:02 pm
When will other modules on trading systems and currency be updated.

Waiting for them eagerly.
¶Reply

June 6, 2016 at 3:48 pm
We are working on the Currency module, the first chapter will be out in a day or 2.
¶Reply
35. sastry says:

June 7, 2016 at 10:03 am
Dear Sir,
I guess that Delta Hedging with Future strategy means buying Nifty future assuming total DELTA as ONE and buying ATM strike of call or put options with total
Deltas of ONE this side vice versa. Please advise me whether my understanding is correct or wrong. Thanks & Regards, Sastry
¶Reply

June 7, 2016 at 11:48 am
You are kind of right here. Delta Hedge works on a similar idea.
¶Reply
36. Sastry says:

June 7, 2016 at 12:21 pm
Dear Sir, Thank you very much for your replly to my query on Delta Hedging with Future. But I could not understand your reply telling that ” You are kind of right
here.” Can you tell me in detail please. I feel so sorry for repeating same query. Kind Regards, Sastry
¶Reply

June 8, 2016 at 1:01 pm
I just meant to say you are thinking in the right direction However, the exact steps of Delta Hedging will involve a bit of daily adjustments, we will be
discussing this step by step when we take up this topic.
¶Reply
37. suresh.ks says:

June 8, 2016 at 12:45 pm
Hi, sir
when can we get this option strategy module in PDF ?
¶Reply

June 8, 2016 at 1:10 pm
Will try and put this up soon.
¶Reply
38. santosh jangam says:

June 9, 2016 at 11:04 am
sir make video s fo this subject.or webinar session.last 6th option strategies not download page.pl.help.
¶Reply

June 9, 2016 at 11:23 am
What is the problem? I can help you with your query. Please do feel free ask.
¶Reply
39. Prasheel says:

June 9, 2016 at 2:32 pm
Sir,
Please could you suggest a strategy or two that is based on margins ( premiums ) instead of one in which we have to wait till expiry??
¶Reply

June 10, 2016 at 2:24 pm
In fact all the strategies can be implemented for intra day or for overnight positions. You need not even have to hold them to expiry.
¶Reply
40. Parth shah says:

June 9, 2016 at 4:46 pm
what is the use of the helper column in Option Pain computation excel table ?
¶Reply

June 10, 2016 at 2:25 pm
That was to hold all the calculations, if you double click on the formula cells, you will know the exact steps.
¶Reply
41. Amit D says:

June 9, 2016 at 10:34 pm
Nice learning, thanks Karthik & others for their Qs…
¶Reply

June 10, 2016 at 2:33 pm
Cheers!
¶Reply
◾ Mohit Agarwal says:

Could you please elaborate on the use of helper column? I mean that if you could please clarify that if the helper table in the excel sheet can be used in
real life estimation of max pain point? And also, do you consider a certain range for put call ratio?
¶Reply

January 30, 2018 at 12:13 pm
Ah, no…I used the helper column to just help myself with ease of calculations. No range as such.
¶Reply
42. Amit D says:

June 9, 2016 at 10:47 pm
Karthik,
MaxPain theory can we also apply to stocks ?
Do we need to see liquidity in that particular stocks too ?
¶Reply

June 10, 2016 at 2:35 pm
Yes Amit, Max pain is applicable to stocks as well.
¶Reply
43. Nitin Desale says:

June 10, 2016 at 9:36 am
sir
If I bought nifty call option eg Nifty30June8400CE @ 100 rs one lot (25) . If I hold till expiry. At the expiry nifty at 8700 then can I exercise the option at the
expiry.? is there any switch for exercise like square off..? how it works?
And from above example how much profit I made..?
¶Reply

June 10, 2016 at 2:38 pm
You can hold this to expiry. You’d make (8700 – 8400)-100 =200
=200*25
=5000/-
¶Reply
44. Naresh says:

June 10, 2016 at 12:43 pm
Hi Karthik, Tried Max pain on July 16 option nifty data and max. loss is being indicated for 7500 strike of about minus 917 million. Considering Nifty today is
approx. 8200 and the nearest strike price points with losses ( much smaller losses ) are wide apart, I AM UNABLE to interpret this result in today’s situation. Can
you assist . Thanks
¶Reply

June 10, 2016 at 2:40 pm
Do you have an excel with the calculations?
¶Reply
45. Naresh says:
June 10, 2016 at 1:11 pm
Sorry, withdrawing my comment. I inverted my logic and computed max pain rather than min pain. Ignore my comment. Thanks
¶Reply

June 10, 2016 at 2:52 pm
¶Reply
46. Raja Kishore says:

June 10, 2016 at 6:34 pm
Hi Karthik,
Do we need to update all values manually in the excel to calculate pcr ratio ? cant we automate it ??
please advise
¶Reply

June 12, 2016 at 8:40 am
I suppose you can write a simple macro to do this or use Kite Connect APIs, check this – https://kite.trade/
¶Reply
47. uday says:

June 10, 2016 at 7:20 pm
Hi karthik, your modules are awesome, actually can pay for the quality,
I have a doubt regarding futures trading types,
Do we have trailing stoploss feature for NRML type product,
Or they just limit to only BO or anything only intraday,
In module 4, page 78 in table regarding trailing stop loss, you have shown the days column, by which it meant NRML product, or if it limits to only intraday, how
come the days column?
Hope you get my point,
Wish clarify my doubt
¶Reply

June 12, 2016 at 8:51 am
Thanks Uday
No there is trailing SL for NRML, its available only for BO. For your second query, can you please help me with the chapter number?
¶Reply
48. NG says:
June 11, 2016 at 9:33 pm
Today when PCR is calculated, it shows 1.4 which indicates market is oversold and will be bullish soon. When I calculate the Max Pain, 8100 is the value where the
market is likely to end. Is it wise to exercise 8500/8600 call option?
¶Reply

June 12, 2016 at 9:41 am
By exercise you mean call writing?
¶Reply
◾ NG says:
June 12, 2016 at 12:39 pm
That’s correct, is it a good idea for 8500/8600 call writing?
¶Reply

June 13, 2016 at 11:15 am
I cant comment on that
¶Reply
49. D says:
June 13, 2016 at 11:08 am
Dear sir, when we calculate pcr and derive an expiry value and we keep cusion of +5% of that derived value, what r u the chances that the market may expire in a
range of -5% of that derived expiry value. (i am asking this questions in regards of your personal experience).
thank you in advance.
¶Reply

June 13, 2016 at 11:38 am
As far as I remember 1 in 5 trades would go wrong…and the loss trade would take away at least 25% of total profits. But I’d suggest you back test this yourself
to get a fair idea.
¶Reply
◾ D says:
June 13, 2016 at 1:44 pm
ok, thank you sir.
¶Reply

June 14, 2016 at 4:15 pm
Welcome.
¶Reply
50. DR1840 says:

June 13, 2016 at 9:14 pm
Hi Karthik,
Can you please also explain cross calendar options strategies.
Thanks,
Raja
¶Reply

June 14, 2016 at 4:27 pm
Will add that as a supplementary note at a later stage.
¶Reply
51. D says:
June 14, 2016 at 9:10 am
hello sir,
there are so many contracts being traded on the exchange. is there any way so that we can fetch data from NSE india or any other website directly into excel sheet to
automatically calculate the total loss value?
thank you
¶Reply

June 14, 2016 at 4:32 pm
You can download the bhavcopy as a CSV from NSE India and automate these calculations.
¶Reply
52. rohan says:

June 15, 2016 at 3:07 pm
Hi,
what is the logic behind option pain theory?
why there is high probability of market expiring at that strike where there is minimum pain to option writers?
Regards
Rohan
¶Reply

June 15, 2016 at 5:18 pm
Rohan – have explained the logic in the chapter itself
¶Reply
53. Amar says:

June 16, 2016 at 10:53 pm
Hi Karthik,
Great work on Option strategies!! But I didn’t find any PDF download option in Option Strategies Module as I usually read the modules in travelling!! Please provide
as it is a useful feature !!
¶Reply

June 17, 2016 at 10:47 am
Thanks Amar. Sure, we are working on it, will put it up as soon as possible.
¶Reply
54. Amit D says:

June 17, 2016 at 11:07 pm
Hi Karthik,
One more question. In the above calculation for Max Pain the value comes to 7800.
5% buffer is approx 400 points. You have take 5% in upper range.
Shouldn’t we take range as 7600 to 8000 (+-200 points)
¶Reply

June 19, 2016 at 12:29 pm
Technically yes, but I’m quite uncomfortable shorting Put options.
¶Reply
55. Sudheer says:

June 18, 2016 at 4:31 pm
Hello Sir,
Thank you very much for the tutorial and yes, I have thoroughly enjoyed reading the same. I am not clear on this point… .You have mentioned “I would set up
strategies keeping this expiry range in mind, my most favorite being to write call options beyond 8200”. Does this mean you, wait until nifty goes beyond 8200 and
then write calls? What should be the scenario if nifty doesn’t even touch 8200? Please shed some more light. Sorry if my question sounds naive.
¶Reply

June 19, 2016 at 12:45 pm
Beyond 8200 – by this I mean strikes beyond 8200…like 8300CE or 8400CE.
¶Reply
56. DNYANESHWAR CHAPHALKAR says:

June 19, 2016 at 9:21 pm
Sir this is very very imp for trading
¶Reply

June 20, 2016 at 4:05 pm
Hence the chapter

¶Reply
57. Samir Palit says:

June 26, 2016 at 7:03 pm
Karthik,
I am a newbie to trading. Varsity has provided me with necessary primer knowledge – thanks for that. I have the following query:
I have started following stars in OpenTrade. I do not see any of the stars trading options. Also the most successful stars that I have followed seem to do intra day
trading only. On top of the theoretical knowledge from Varsity, the practical application I see appears to be the strategy of trying to gauge the price movement in very
short term – exit with profit, if correct or exit with loss, if incorrect.
Could you please elaborate if my perception is wrong. Could you please also comment on the need of including a chapter on intra day trading in Varsity. Also is there
any guideline as to how to become a full time trader?
Thanks and regards,
Samir
¶Reply

June 27, 2016 at 11:32 am
Samir – I cannot comment on what the stars are doing in Opentrade!
There are no set guidelines on how to become a full time trader simply because there are so many styles and strategies the the trader can adopt. But yes, we do
plan to write about few strategies going forward.
¶Reply
58. hardik upadhyay says:

June 28, 2016 at 11:43 am
Hii Karthik,
You have written wonderful modules in easy language. I am currently trading a mean reversion strategy on Banknifty futures. Although, I have been successful at it, I
want to know which option strategy is best for trading short term mean reversion strategies. Also , one of my rules is I scale in to positions if the signal still suggest
oversold scenario. My strategy stats are: winners 85%, holding period on average is about 5-7 days, Monthly about avg 2 trades. Please let me know of options
strategies where I can use the leverage at the same time reducing my max risk. Thanks
¶Reply

June 28, 2016 at 12:00 pm
Hardik – this really depends on when your signals occur. For example if an overbought signal (therefore expecting a decline) occurs closer to expiry, then you
should be shorting strangles to exploit time decay. However if you get an oversold signal (therefore expecting a rally) half way through expiry then you should
be looking at buying slightly OTM options. Of course you can calibrate based on many such parameters.
¶Reply
59. sastry says:

June 29, 2016 at 3:00 pm
Dear Sir,
What is a mean reversion strategy? Can you please explain in brief please. thanks & Kind Regards. R V N Sastry
¶Reply

June 30, 2016 at 12:08 pm
Assume the average price of a stock is 100, and it now shot up to 110, then you expect the stock to revert to its mean which is 100. In other words you expect
10 points correction. Alternatively if the stock is down to 90, then you expect the stock to go up 10 points to 100.
¶Reply
60. SAILAJA K V says:

July 3, 2016 at 6:00 am
Hello Karthik,
This Options Strategies module is explained well with easy to understand (especially to those who are new to trading options strategies) examples. Appreciate your
efforts on this. I have enjoyed reading Options Theory chapters as it has a lot of excellent content for intermediate or even expert options traders (as a refresher). My
suggestion to you is to cover at least 4 more important strategies (Covered Call/Put, Collar, Condors and Butterflies) to make Options Strategies module complete. I
believe it will be very useful for retail options traders to know about these strategies. Once again great effort from you and Zerodha team in coming with such a great
education offering.
¶Reply

July 3, 2016 at 9:49 am
Thanks again! Will try and add these topics sometime soon.
¶Reply
61. Amit Pal says:

July 4, 2016 at 1:23 pm
Hello Karthik Bro,

At first, many many thanks to you and zerodha to initiate to varsity module. You are my mentor. I appreciate your effort. I learn many new concepts of trading from
these chapters . Is these module complete or new chapter introduced (for option strategies) in near future? To calculate option stock or nifty, any tools or software
available like MAXPAIN & PCR RATIO? Please suggest me some suitable tools to calculate and implement option strategy? Is option oracle help in this regard?
¶Reply

July 5, 2016 at 10:59 am
Amit, thanks for the kind words
For now we consider this module done, maybe at a later stage we will add some supplementary notes.
I’m not really sure of good reliable tools to do this, will certainly keep you posted as soon as I get to know myself
¶Reply
◾ Aditya Abhas says:

December 22, 2017 at 3:32 pm
Hi Karthik,
If there is no tool for plotting the max pain graph, can you suggest any way to fetch the required data so that I can manually plot it?
It would be better if I can make some API call to fetch data in real-time.
Thanks,
Aditya
¶Reply

December 23, 2017 at 11:05 am
Nothing that I’m aware of Aditya. However, we will make few announcements around options platform in a month or two. Watch out for that.
Thanks.
¶Reply
62. Hari Prasad says:

July 7, 2016 at 6:29 pm
Can you add pdf version to it for better reading of this module
thanks
¶Reply

July 8, 2016 at 10:49 am
We will do that sometime soon. Thanks.
¶Reply
63. Amit says:

July 10, 2016 at 3:34 pm
Can you please mak the module in pdf version so that it can be downloaded to read offline.
thanks
¶Reply
64. arun kamath says:

July 10, 2016 at 10:35 pm
over here http://zerodha.com/z-connect/queries/stock-and-fo-queries/open-interest-maxpain-put-call-ratiopcr , nithin has mentioned that if PCR is above 1 means put
has been written and hence, it would be bullish and vice versa.
¶Reply

July 11, 2016 at 11:10 am
Yes, PCR is a contrarian indicator.
¶Reply
65. narsimha says:

July 22, 2016 at 10:17 am
sir,iam from INDIA a big follower of u ,with all u people inspirations&10yrs of hardwork,knowledge&littlebit dicipliene&due to my health&wealth conditions.i
have opened a trading off where in iam asking clients to deposit a small amount of 22000rs in THEIR ACC&i will trade on behalf&promise them to pay 1100(5%)
per month by trading their acc%i will charge 2200(10%)this strictly i trade only 1lot of NIFTY OPTIONS&wait having lot size of 75 my premium in buying will
never increase 100rs/lot(this is begining as i get good results iwill say clients to increase)now the question is iam not consistent sometime i make money&give it back
how can i be professional&trustworthy ple guide me with quick reply
¶Reply

July 22, 2016 at 11:11 am
Narsimha – please get yourself one of the following licences SEBI-
1) Investment Advisor
2) Research Analyst
3) PMS manager
Without any of these you cannot trade/advice on behalf of clients. Also, this is a very risky business (trading and assuring returns to clients), I’d suggest you
think about this thoroughly before acting.
¶Reply
◾ narsimha says:
July 23, 2016 at 2:25 pm
sir,actually i dont want to go in that big way,people around me want to invest in mkts but they dont know athing 7&i want to make livelyhood(anyway
trading is my life&passion)and mover iam promising only 5%&iam operating from home no labour no etc only 5 computers&cbill iam little bit
handicapped&i dont want to open off,shop at any point of time,my logic is if i do anything rathen trading(which idont believe even thogh i own a saree
shop bcozover heads rent,keb,labour exceeds 15%&we will never take home athing in this competative&uncertain economic world)so what i want to say
is when RISK IS PART OF LIFE why i cant i go with small risk&create my world of 40 clieents&trade proffessionally&win their trust ofcourse i know
the uncertnitys of trading so iam stritly operating as hedge fund means some win some loose my querry to u is iam able to make wins but not huge
enough to support loosers GUIDE
¶Reply

July 24, 2016 at 9:16 am
Well, the choice is entirely yours!
To begin with stick to stoploss, where the SL is based on logic. Here is a chapter which explains how to place logic based SL –
http://zerodha.com/varsity/chapter/volatility-applications/
¶Reply
◾ Sudipta says:
This I think is the Best conversation in varsity…. Enjoyed it a lot !
I have an advice for Narasimha. What you are planning to do, in simple words, is to take a LOAN from fellow clients and give them a
monthly interest of 5% (i.e. annualized interest of 80%)… and you are planning to use that LOAN to trade in stocks. So you have to earn
100% to make this business profitable. If you understand this math, I think you should be very very cautious. I can only see a collapse as no
business in the whole world has achieved such high level of returns ever. Besides, every great person has always advised us not to borrow
any money for investment in market.
¶
Very true Sudipta! Sustaining such high rate of returns is not only difficult, but almost impossible to achieve in the first place (year after
year that is). Besides, borrowing to trade can be disastrous!
¶
66. narsimha says:
July 25, 2016 at 10:22 am
sir,whenever we check fair values of options call option premiums will be below current mkt prices&it will be trading cheaper then put options even though many
people will be trading call options why? ELABORATE DETAILY
¶Reply

July 25, 2016 at 12:22 pm
Its not like people trade only call options. They trade both CE & PE in equal measure.
¶Reply
67. pravin says:

July 28, 2016 at 8:00 pm
you said you will add supplementary note for reaming strategy such as calendar spread …when you will add ….???
¶Reply

July 29, 2016 at 9:19 am
Pravin, will add this whenever possible. Cannot commit a timeline as such.
¶Reply
68. Ankur Agrawal says:

July 30, 2016 at 8:46 pm
Hi Karthik!
When are you adding pdf version. Please do so, It will be highly convenient for me.
¶Reply

July 31, 2016 at 12:00 pm
AS I’ve mentioned, we are trying to get this done. If its urgent, please use the convert to PDF option from your Chrome browser.
¶Reply
69. sagar says:

August 4, 2016 at 9:31 pm
Is it like max pain is lowest for ATM strikes and it gets higher as we go far from ATM strike??
¶Reply

August 5, 2016 at 11:32 am
This really depends on how the OI changes…cant really generalize.
¶Reply
70. Ankit says:

pls……upload PDF
Guru ji…..
¶Reply

August 7, 2016 at 9:16 am
Working on it.
¶Reply
71. Bharath says:

I want to share a excel sheet here. but I can’t. please provide to upload files
¶Reply

August 8, 2016 at 11:01 am
Cant really upload excel here, but what is it about?
¶Reply
72. bharath says:

Wonderful material. Looking for a pdf version for option strategies. Thanking you sir.
¶Reply

August 9, 2016 at 12:46 pm
Very soon the PDFs will be available.
¶Reply
73. SantoshShetti says:

August 15, 2016 at 8:40 pm
Hi Everyone, I am new to trading. I have a question, may be very basic one: where do we get news related to corporate qtly/yrly results announcement s or RBI
policy announcements at the earliest? I mean is there any particular site(s)? Bcoz by the time it comes to google news it’s bit late from trading perspective, I think.
Please reply.
Dear Mr.Karthik you are doing a fabulous job. Study Materials on varsity are simply great, especially for people like me who are in elementary school. Very
insightful and lucid writing. Keep it up.
¶Reply

August 16, 2016 at 11:37 am
Getting real time news is a bit tricky, we have tried to aggregate all the news into a single page, check this – http://pulse.zerodha.com/ , lots of traders find it
useful.
In fact we do have a Chrome extension for Pulse, which I think is really cool. Check this – https://chrome.google.com/webstore/search/zerodha
Btw, thanks for your kind words
¶Reply

August 16, 2016 at 12:59 pm
Dear Karthik, thanks for the info, i will definitely check it out
My account opening with Zerodha is in process (submitted signed form with all documents to Zerodha), hopefully it will be done in a day or two (working days).
When is the “Trading Strategies & System” Module is expected?
Are there any demo videos of Pi, Quant & Kite on Zerodha Site or YouTube?
¶Reply

August 17, 2016 at 11:15 am
That module will take some time
I’d suggest you check out the user manual for Kite – https://kite.trade/docs/kite/
And this for Q – https://q.zerodha.com/dashboard/
And this videos on Pi – https://www.youtube.com/watch?v=Hg5iZzvBV1A
Good luck with your new Zerodha account, and of course – Welcome to the family
¶Reply

August 17, 2016 at 2:02 pm
Thanks a lot. ?
¶Reply

August 18, 2016 at 10:45 am
Welcome!
¶Reply
76. Raj says:

August 18, 2016 at 8:54 am
Can you please upload PDF files of module no. 6 for download ?
¶Reply

August 18, 2016 at 11:42 am
By next week.
¶Reply
77. Sunil Tyagi says:

August 25, 2016 at 11:29 pm
The PCR for Sep16 is 1.02 whereas PCR for DEc 16 is 0.88. Looking at these numbers, Is there any possibility to enter in some kind of Calendar spread ?
¶Reply

August 26, 2016 at 11:09 am
Ah! Not sure, I’ve not explored calender spreads via PCR route. Maybe worth the try.
¶Reply
78. DJ9425 says:

August 30, 2016 at 7:35 pm
Hi Karthik,
Can you give some theoretical knowledge about diagonal spread? also want to know that is diagonal spread and calendar spread are same or are different.
Regards
Haridas.
¶Reply

August 31, 2016 at 11:04 am
Sure, will try and add that as a supplementary note sometime soon. Thanks.
¶Reply
79. shashank says:

September 5, 2016 at 12:51 am
Hi Karthik, Put and call options OI includes long and short positions. Then, how can we say whether it is bullish or bearish just based on the OI while calculating
PCR.
¶Reply

PCR does not read much into positions…but just the number of contracts open in the market.
¶Reply
◾ shashank says:
September 5, 2016 at 3:49 pm
Exactly… That is what i’m asking, open contracts may have buy and sell both…So how can interpret bullishness or bearishness using PCR
¶Reply

Yes, open contracts include both buy and sell. Think about it this way – for example if the number of Put contracts are increasing, it means that
there are more people willing to buy Put options, implying that people are bearish. The same way for Call options.
¶Reply
◾ James says:
May 13, 2017 at 2:33 pm
Very sorry Sir,

But, concept is still blur for me.
1. Even bulls can choose (write) Put options to benefit & bears can choose (write) call options to make profit. We can’t clearly say that more
Put option OI indicates people are buying put options,hence they are bearish.
2. Put option OI of 200 would indicate that 200 new contracts have been introduced today. Means, 200 people opened long put positions
(they are bearish) & 200 people opened short put positions (they are bullish), hence making put market contracts (someone buy+someone
sell=market). So, even if PCR is 1.3 that only means that more people (both bulls & bears) are involved in Put instead of Call. It does not
show bears activity because contracts would also have been shorted by bulls at the same time.
Please clarify the flaws in (both of) my understandings as PCR might be a supplementary confirmation input in my trading system.
Thanks in advance
Regards
James
¶
◾ James says:
May 13, 2017 at 3:18 pm
Ohh !! sorry, I was in little hurry to post my query regarding OI PCR. I got all clear answers by Honorable Nithin Sir at
http://zerodha.com/z-connect/queries/stock-and-fo-queries/open-interest-maxpain-put-call-ratiopcr.
Please ignore my query now. Sorry again!!
Thanks Z-Team for such a kinetic ocean of dynamic thoughts on markets.
Regards
James
¶
May 14, 2017 at 5:25 am
Awesome
¶
80. Ankit says:
upload the PDF sir………….. its already lots of week passed away
¶Reply

Please email – nikhil.a@zerodha.com for the PDFs.
¶Reply
81. Praveen says:

is there a site where we can get last 1 year pcr value for stock options
¶Reply

I’m not sure Praveen.
¶Reply
82. amol says:

hi karthik, please tell me some strategy so that i can earn money daily from intraday trading.
¶Reply

Both our quests are similar my friend!
¶Reply
83. uday says:

Hi Karthik,
You have mentioned somewhere that for intraday, nacked options are better. Could you please explain bit about it. And please suggest some strategies or technics for
intraday
¶Reply

Although you can still go ahead and use multi legged option strategies, naked options are a lot more simpler and easier to handle for intraday trades. The reason
is that their payoffs are simpler compared to the complex pay off structure of multi legged options. Intraday is best done with the use of technical analysis.
¶Reply
84. avinah says:

hi
when we do pcr calculation, starring of the month , middle , expire day?
¶Reply

PCR is a dynamic ratio and can be calculated whenever you wish.
¶Reply
85. Ramya says:

Hi Sir,
I calculated maxpain today(21-9-16) for Banknifty and the max pain is coming to 20000. Adding 5% is 1000 points. Hence 20000-21000 is a huge range. How much
% can be added for Bank Nifty.
The module is a real eye opener. Thanx for the wonderful explanation.
¶Reply

Glad you liked the explanation Ramya.
Agreed it is a huge range, but if the premiums are good, why not write them ? Chances of retaining the premium is certainly high.
¶Reply
86. Bibhu says:

Hi Karthik, First up all many thanks for this nice material. I was trying to compute the max pain for a few stock indices over the last few days as we are very close to
this month’s expiry. However, in all the cases the least pain is coming out to be somewhere around ATM. Is it by chance that I am getting this or is it expected?
¶Reply

Could be by chance, you will have to try this for few expires.
¶Reply
87. Prabakaran says:

October 11, 2016 at 2:09 am
Sir, nice lecture in all modules,, thanks for teaching us, as per max pain strategy nifty October series expiry @ 8650-8700,, suppose if I writes 9100 CE and 8300PE,
I get premium of rs 1645,, is that profit worth of my work on investment 41000 rs
¶Reply

October 11, 2016 at 10:11 am
Well, that depends on how you view it. If you find a 4% return over 12 days sounds attractive to you, then maybe you should consider !
¶Reply
88. bbhalaji says:

October 13, 2016 at 3:06 pm
Hi Karthik,
this concept of Max pain looks so simple and very powerful. Thanks for making such a understandable material. I have a doubt in the calculation. While doing the
calculations, what is our assumptions in the premium paid and received by the respective parties. Are we ignoring them ? Thanks.
¶Reply

October 14, 2016 at 10:46 am
Premium is factored in by multiplying it with the strikes, so it is kind of factored in.
¶Reply
◾ bbhalaji says:
October 14, 2016 at 11:14 am
Ok thanks. One more question on the assumption that, it is always the option writers win. Is it because of the fact that you established during the
introduction of options, in the options trade they(writers) have a probability of 2/3 when compared to the buyer who has the probability of 1/3 ?
¶Reply

Yes, the odds of making a profit is more favorable for an options writer. For reasons stated earlier in the options module.
¶Reply
89. Vishal Javakhedkar says:

November 2, 2016 at 10:46 pm
Hi Karthik,
Have u tried max pain theory on weekly banknifty option. If yes then when one should calculate max pain.
¶Reply

I have not, but if I were to do this, I’d run this on Wednesday evening to take positions on Thursday morning.
¶Reply
90. Santosh says:

Low PCR means bullish market sentiment, but today i.e. 23rd Nov’16 the PCR is 0.5 and market has gone down beyond 500 points in last one week. Is it not
bearish? The PCR is showing it otherwise.
¶Reply

PCR of 0.5 is not really number you can consider…below 0.5 is considered bullish.
¶Reply
◾ Santosh says:
Dear Karthik
There is some confusion here. Let’s go by pain theory you have explained. Basis pain theory call and put writers are wiser people and they win the game
most of the time. Going by this if they have written more calls compared to puts (PCR < 1) means they have less fear of market coming up and hence the
sentiment is bearish. If the PCR is below 0.5 means sentiment is too bearish ( I am discussing these number from NIFTY prospective otherwise it could
be different for other derivatives). Since most of the people have bought the put and now since very few buyers left and value wise stocks now look
cheap, this trend may reverse. Probably one can look for buying calls or future at this point because the reversal is anticipated. That is how I understand
it….. Please amend the article if you are convinced.
¶Reply

Santosh – PCR and Max pain are two independent theories. Max Pain does not really get into the details of number of call or puts written in
isolation. It just identifies the point at which there are least number of options written. Further, this is purely derivative data and should not be
mixed up to draw inference on spot prices.
¶Reply
91. sumit says:

Hi,
Thankyou for the wonderful module. Everything is beautifully explain. I wanted to know where and how to back test these strategies .
THankyou
¶Reply

I’m happy to know you liked the contents here. For back testing, I’d suggest you have a look at this – http://zerodha.com/z-connect/tradezerodha/pi-
tradezerodha/eas-for-auto-buysell-signals-pi , good place to get started.
¶Reply
92. Sachin Mahajan says:

Respected sir as per our calculation of max pain nov-16 series expires at some where around 8200 or 8300 but this time nov-16 series expire below 8000 so how this
can happen please explain me.
¶Reply

Sachin – Max pain is a theory…and like any theories it has its own set of pros and cons…its upto you on how to interpret it and improvise it to suit your needs.
I guess I have even shared how I used to improvise it for my own trading.
¶Reply
93. chouhan says:

sir,any article on nifty option chain ,how to read open interest and change in open interest along with volume to get direction of market.
¶Reply

Here you go – On Option Chain – http://zerodha.com/varsity/chapter/moneyness-of-an-option-contract/
On Volumes – http://zerodha.com/varsity/chapter/volumes/
And OI – http://zerodha.com/varsity/chapter/open-interest/
¶Reply
94. Shyren says:

Hi Sir,
Today, for sunpharma, the PCR is 0.4 and min pain comes out to be 640 strike for expiry. future price is 629 and its underlying in at 628. It has climbed up by 14
points today. PCR suggests that it is over-bought and it will come down from 630. and max pain suggest expiry near 640.
So my question is what should be approximate view by PCR and max pain theory(both are giving kind of opposite view), whether it will go up more or come down.
29-Dec-16 is expiry..
Thanks in advance
¶Reply

Between the PCR and Max Pain, I would rely (if at I have too) on Max Pain. I would add few % points to the max pain point and consider it those values.
¶Reply
95. Yash Agrawal says:

Dear Karthik Sir,
kiya aap sab modules ke sabhi chapter ko hindi me translate kar diye.. jaise option theroy hai Modules 5.
Thank you
¶Reply

We will try and do that. Thanks.
¶Reply
96. Aniruddh says:

Hi Karthik, would it be possible for you to share a check list for options trading the way in which you shared for technical analysis? I do know that it would be
complicated but please see it if you can do it. Thanks.
¶Reply

Preparing a checklist for options can be very tricky as there are many permutation and combinations possible. Its not as straight forward as technicals…so it
may actually get misleading.
¶Reply
◾ Aniruddh says:
Thanks. I guessed as much!! But please see if you can give some broad bullet points. That will really help newbies like me. I find it very daunting and
confusing to trade options.
¶Reply

Sure, will try and do that.
¶Reply
◾ AK014 says:
February 27, 2017 at 12:39 pm
Hi Karthik, just trying to prepare flow of events/steps for options trading. Would the following be the right steps/thought process (have
covered only one leg as i can’t paste the flowchart here.)
1. Technical analysis >> 2. outcome bullish >> 3. Say Moderately bullish >>4.check no. of days to expiry 5/10/15/25 >>5. Check Volatility
>>6. Calculate Option Greeks >>7. based on it decide the strategy say bull call spread
Is the above OK? Should some of the steps need to be interchanged? Like step 6 first and then 4 or 5? Or anything else that you can think of
which is missing here. Please revert.
¶
I like your systematic approach. The flow seems right. Nothing needs to be interchanged.
¶
97. Ronak says:
Sir, will you please make a list of all the formulas & syntax used in ms-excel for calculating various stuffs mentioned in these 6 modules??
¶Reply

Will try and do that sometime
¶Reply
98. Sudipta says:

Hi Karthik,
I have gone through the entire modules in varsity in last few weeks – at a stretch. I am doing trading for nearly 8 years now. I have always been a fancy trader, and
never tried to be serious about it. But now I have started taking it seriously for a regular decent income and hence I thought of taking some education. I started
reading these modules with that intention. Man, you are great ! The level of details you went into, still the simplicity you maintained, the way personal experiences
you have shared – every bit of it is marvelous. If I ever make a remarkable success in trading, a good portion of that will be indebted to you. Really, you are an
awesome teacher. You have created a master piece.
I have come across many questions and now I will be shooting them, hope you dont mind. I will start with one question as below:
In this Max Pain calculation, I can see that you have summed up only the Loss part of the option writers for various strike prices. For a particular expiry value, if an
option writer is in profit, you did not include that. Only the Loss parts are summed up.
For example, let us say that the Max Pain calculation gives us Price Point A. So, if the underlying expires at this price, the total loss incurred by the option writers
will be at a minimum. But, we did not talk about the profit part. Not all option writers will incur a loss for Price Point A. If we adjust the total profit of the option
writers and total loss of the option writers for Price Point A, we will get the Total Impact (may be net profit or net loss). Now, there can exist another Price Point, say
B, for which this Total Impact will be greater than Price Point A. That means, if the underlying expires at Price Point B, the option writers as a whole will have the
highest profit. For Price Point A, the loss part may be minimum but the profit part is also not great. Hence an expiry at Price Point B is more probable.
I came to this conclusion because I started asking myself, why are we calculating the “Loss” part of the option writers, while we believe they are the one who make
profit. I did not understand why the profit part is ignored and only the loss part is calculated here. Can you please explain to me ?
Thanks !
¶Reply

Thanks for the very kind words Sudipta. I’m really happy you liked the content here.
Max Pain theory starts with the idea of identifying a point which creates least amount of loss to option writers. The simple reason for this is that, for option
writers loss can be unlimited and profits are restricted to the extent of premium received.
¶Reply
◾ Sudipta says:
Thanks Karthik for your reply.

I am not sure I understood the rationale behind ignoring the profit part. Of course I acknowledge that the losses can be infinite, so they are more imp.
What is was thinking is not to take profit alone or loss alone, but the sum of them. Anyway, I will take it just as a thumb rule and wont bother much on
this. Let me go to the second question.
–
I have calculated the Max Pain following this formula for several Nifty scripts (Infosys, TCS, SBI, Asian Paints, Nifty itself and Bank Nifty). What I see,
the Max Pain value is always close to the current market price for each of them. I have done this for 3 consecutive days. When SBI is at 245, the Max
Pain is coming at 250. When it is 242, Max Pain is 245. When Infosys is at 1008, Max Pain is coming at 1000. When Bank Nifty is at 18050, Max Pain
is coming at 18000. When Asian Paints is at 905, Max Pain is coming at 900. Without any exception, it is showing this behavior invariably.
–
The first thing that comes to my mind is, my calculation may be wrong. So I searched for some online sources to calculate Max Pain and I found few
sites which give the Max Pain value & chart. To my surprise, the value shown in those sites is also matching close to my observation (i.e. nearest strike
price w.r.t. the current market price of a script). So the calculation seems to be correct.
–
My question is, does Max Pain behave always like this ? If Max Pain is always following the current market price, there is hardly any use of it. When I
thought more on this, I feel this should be true. I remember the first rule of the market which you stated in the very beginning – Market discounts
everything. So, Max Pain – since it is easy to calculate or look at from any site – should be known to all traders and should be discounted already in the
market price. It is hard to believe that there is a formula to predict what range a script will expire at, and still the script is at present far off from that
range. At least Max Pain must be well known to everyone and if it does give a different result, the market will adjust itself to the projected point making
Max Pain value again irrelevant.
–
With this background, I would request your analysis & comment on this behavior. Please help me to understand what is happening.
–
Thanks a lot in advance.
¶Reply

Sudipta – I’d like to thank you for sharing the results of your analysis, I’m sure many will benefit from this. What you’ve seen is very true. In fact
this is the reason why, back in the days, I myself modified the Max Pain theory and adopted to a new trading strategy. I’ve discussed this in section
13.4. Remember, markets discount everything.
If you know or discover something, chances are 1000’s of people in the market already know it. You develop an edge when you add that extra (but
meaningful) ingredient to your trade process. You take on general theories like Max Pain and play around with tweaks until you get good results.
That’s how traders develop their systems.
¶Reply
◾ Sudipta says:
Thanks Karthik for your comment. Yes, we seem to be aligned, same thought process. To be frank with you, I started for only 2 weeks and I
have a positive closure everyday in the live market. The amount may be ridiculously small, but it is a positive figure even after deducting the
brokerage & tax. I am happy and my first motto is to not make a big loss. I know profit will come automatically, we just need to stop the
losses.
–
Everyday I am just making 4-5 trades at max. May be 2-3 are losses and 1-2 trades are only profitable. But overall it is a profit. And with
this 2 weeks experience I can say 1 thing for sure, although I am trying to apply all the rules, the candle sticks, the theta, vega, MACD,
support, resistance…. there is not a single thing which is sure shot. That is probably the beauty. More than often, it is the fundamental
strength of a script and little bit of tactics that results the fruit. And Risk Management is a big big thing.
–
Let me ask my 3rd question, sorry if this is a lengthy one. Well, I was trading in Tech Mahindra Options today. I saw the script has gone up
8-10 points in last session and hovering around 500. I know this company’s business well so I have a rough idea what it can or cannot do. I
sold 460PE and 540CE together (that is probably called a Short Strangle, anyway). My expectation was that the script wont run away so
soon, and it is not going to go down too much (just yesterday they made a joint venture in Europe and in talk with another MNC for a big
deal). So the script will remain range-bound and I will profit from the time decay ! I wanted to squareoff the positions by end of the day
where I could gain few paisa. The 460PE was trading at 1.6 and 540CE at 2.6 when I bought. I know that we should ensure zero delta. But I
deviated from that. Delta for 460PE was -0.09 and that for 540CE was +1.42 so it was positively biased. I shorted this positively biased
combo because I am a hardcore believer of your sentence – “Fear spreads faster than Greed”. It is so true and I have burnt my finger earlier.
So I thought, let 540CE short run little faster, I am not worried, it will come down eventually, but I cannot take much risk with the 460PE
short. After this transaction was over, what happened was completely unexpected. The script started downward journey and within 40-45
minutes it came down from 502 to 492. Now imagine the options prices. 460PE quickly went up from 1.6 to 2.85 (1.25 points move) and
540CE came down to 1.8 from 2.6 (0.8 points move). As per their delta, 540CE was supposed to come down faster than 460PE going up.
But the opposite happened in reality. Fortunately I had stoploss applied everywhere and hence just a marginal loss was incurred. But I could
not understand why it happened so.
–
There was no other big issues in the market. Overall market was quite bullish today till the end. There was no specific bad news in Tech
Mahindra or any IT company. The script ran up faster in last few days, so it was a natural retreat I believe.
–
Can you please help me to understand why the 540CE came down slower (with a higher delta) and 460PE ran faster (with a lower theta) ?
The Gamma or Vega I believe does not have much to play here since the range is very short, and time frame was also just 45 minutes.
Kindly help me to understand it from the theoretical perspective.
–
Thanks in advance.
¶
I’m happy for you Sudipta. Hope this is a start of a glorious trading career for you :). Yes, Risk management is big ingredient when trading,
and we will be discussing this in the next module.
I went through your entire Tech M options trade, I’d like to point out few things that you’ve mentioned, –
1) ‘I know what the company can and cannot do’ – this is a fundamental call. Effects of this roll out over a long time period. You cannot
make a fundamental call and initiate an intraday trade. Timelines (and therefore the conviction) for the trade does not match
2) You are talking about benefiting from time decay withing the day – this does not happen unless and until you are close to expiry. Best to
do these trade (with an expectation of benefiting from time decay) close to expiry
3) There was a fundamental event (JV, talks with MNC) – on days like this its best to avoid trades on TA. Reason is simple, FA has a greater
influence on the stock compared to TA
4) Yes, fear spreads faster than greed. So when the price came down, the put gained faster than the loss in calls. I dont see any issue with
this. Further, there is also the angle of volatility here which needs to be factored in.
5) Options is a completely different beasts. It has multiple forces acting upon it. The only way to learn options is to keep questioning
yourself…it many not be possible to justify every move in options…but so long as you get the overall idea of whats happening (justification
based on numbers and greeks) you should be good.
¶
◾ Sudipta says:
Correction of typo:
Delta for 460PE was -0.09 and Delta for 540CE was +0.42 (I wrongly mentioned +1.42 above). Overall a positive delta.
¶
99. Sudipta says:
Thanks a lot Karthik for your reply. I am unable to see any “Reply” button in your last reply above, strange. Anyway.
—
Thanks once again for your detailed analysis. Yes, I understood the mistakes & I completely agree. I will keep these valuable points in mind next time. Everyday is a
new learning The only thing which is still puzzling me is the delta. I will closely observe their values and correlation with the price movement to better understand
it over due course of time. One thing is for sure, I will be henceforth very very cautious about PE. It is safer to play with CE.
—
You may be happy to know that the loss making trade of yesterday came out profitable for me today. I had to square off the PE when stoploss triggered. But I did not
square off the CE (which was making a small profit yesterday). Took a chance and last night Trump helped me with his Visa news – today I gained good profit in that
CE option and still trailing.
¶Reply

Sudipta – You need to be indifferent to PE and CE. They are two sides of the same coin. You need to learn how to use it to your advantage.
Good luck and happy learning
¶Reply
100. sastry says:

February 10, 2017 at 11:04 am
Dear Sir,
I would like request you to kindly include in F&O segment live nifty options greeks scanner and portfolio greeks watch to enable to study option chain and to enter
into options strategies according to greeks.
Thanks & Regards,
R V N Sastry
¶Reply

We are working on it, hopefully we should have something soon.
¶Reply
101. Jay Arya says:

Hi Karthik
We don’t seem to have discussed the following strategies which were a part of our agenda as per the first chapter.
Call Butterfly
Straps
Strip
Long & Short Iron Condor
Long & Short Butterfly
Box
Are we going to discuss these?
Regards
Arya
¶Reply

I’m aware Jay, will try and put these up as supplementary notes soon.
¶Reply
102. VANKUMAR says:

Dear Mr Karthik Your lessons are excellent. I regularly read them. I request you to kindly clarify the following doubts.
2. I got a doubt on options chain analysis. We observe minus (-) symbol in open interest but the price of options calls or puts increasing. How to analyse it? Pl guide
me by your advise.
3. Nextly we frequently see minus in price on both sides. Can we conclude that the market is sideways and rangebound. Am I right?
4. On some occasions we see minus in price say on put side and increase in call price. Can we conclude that that the stock price goes up and we can a buy a call if IV
s more or sell a put if IV is less.
5. I request you to kindly clarify on my doubts.
Regards,
VAN Kumar, Vijayavada, AP
0866-2589106; 9490347419
¶Reply

Happy to know that you like the contents here
1) The +ve and -ve sign of IO only indicates how many new contracts have been added or reduced. Does not really impact prices
2) This happens when the volatility increases and then reduces
3) Again, this is due to volatility. I ‘d suggest you read through the chapters on volatility to get a better understanding of this.
¶Reply
◦ VANKUMAR says:
March 12, 2017 at 11:29 am
Dear Karthik thanks for your prompt reply.

1. I have the following doubts on ATM Call and Put Charts.
2.For example if Hindustan Unilever spot price today is 865 and I want to buy a 900 March call. The charts available show only live and historical data for 860
ATM Call and Put. How to view the IV,Vega etc.,live and historical charts.for 900 call. In which site I can get option charts in a comprehensive manner, i.e.,
delta, gamma, theta, vega plotted in one chart for all calls and puts. Pl advise.
Regards, VAN Kumar
¶Reply

March 13, 2017 at 10:18 am
I personally think there is no point in looking at the chart of Options. Getting historical data of IVs etc are quite difficult, however you can look at the
latest values by punching in values in a B&S calculator. Here is one that we have put up – https://zerodha.com/tools/black-scholes/
Suggest you give it a try.
¶Reply
103. AK014 says:

Hi Karthik,
My query remains unanswered. Matter pasted below in quotes:
“AK014

Hi Karthik, just trying to prepare flow of events/steps for options trading. Would the following be the right steps/thought process (have covered only one leg as i
can’t paste the flowchart here.)
1. Technical analysis >> 2. outcome bullish >> 3. Say Moderately bullish >>4.check no. of days to expiry 5/10/15/25 >>5. Check Volatility >>6. Calculate Option
Greeks >>7. based on it decide the strategy say bull call spread
Is the above OK? Should some of the steps need to be interchanged? Like step 6 first and then 4 or 5? Or anything else that you can think of which is missing here.
Please revert.”
¶Reply

Replied.
¶Reply
◾ AK014 says:
March 1, 2017 at 11:03 am
Karthik, Thanks. I must say that with this initiative (Varsity), you, Nithin and team are doing a commendable job. Without this people like me have been
shooting in the dark and doing trading/investment but mostly losing money in trading. I keep on reading about F&O in various fora but nobody has done
it the way you have done. In many cases, if you act based on their “advice” you are bound to lose money consistently. Hope that you will keep on
improving various aspects of this initiative. Wish that i had come across this much earlier in my life. Better late than never. Anirudh
¶Reply

March 1, 2017 at 6:20 pm
Like you said, better late than never!
Good luck, Anirudh. Stay knowledgeable and profitable.
¶Reply
104. 9SR says:

March 14, 2017 at 9:57 am
Hi dear karthik,
Can you please suggest further reading on Max Pain, Leveraging Greeks and anything relevant to Option Strategies that will take us to next step of options trading.
Regards
¶Reply

March 14, 2017 at 5:38 pm
I really found this book quite useful – http://www.amazon.in/Option-Volatility-Pricing-Strategies-Techniques/dp/155738486X
¶Reply
◾ 9SR says:
March 15, 2017 at 8:07 am
Dear Karthik
Thank you so much for referring the book.
Regards
¶Reply

March 16, 2017 at 10:56 am
Cheers!
¶Reply
105. VANKUMAR says:

April 3, 2017 at 10:18 pm
Mr Karthik I request you to kindly guide me as to In which site I can see IV having different strikes loaded in one chart for vertical smile and skew analysis.
¶Reply

April 4, 2017 at 7:43 am
I’m really not sure if there are any sites which offer accurate info on IVs.
¶Reply
106. rajesh goel says:

April 11, 2017 at 7:41 pm
15 days are calendar days or trading days to calculate maximum pain? pls clarify
¶Reply

April 12, 2017 at 7:55 am
Trading days would make better sense.
¶Reply
◾ rajesh goel says:

April 12, 2017 at 10:58 am
it would be a bit of long gap between expiry and calculation of maximum pain price. won’t it.
¶Reply

April 13, 2017 at 8:02 am
Yes, I guess it makes sense to have this gap so that you can identify the right strike and benefit from higher premiums.
¶Reply
107. hanumm says:

April 12, 2017 at 5:42 pm
This is an honest job by author. it is nice to have the people like this. ok. max pain theory is definitely good clue for option trading . but this is certainly the contrarian
game and one should egile enough to become contrarian to contraian and vice versa. in a nut shull,, it is a no holds bar game. march 17 sbi max pain is at 280 and it is
there for all two prev. weeks amd also on 30/3/17 but sbi ended at 290…good luck guys.
¶Reply

April 13, 2017 at 8:07 am
Absolutely!
¶Reply
108. Mehul says:

April 18, 2017 at 2:01 pm
Dear karthik,
Greetings for the day.
I need your help.
Since one month I am tracking the nifty option chain for various strikes and different time frames on daily basis. ( both calls and puts) . And I wish to gather
information for 6 months.
My question is, which would be wise to track OI or change in OI ? As I have limited space on paper.
Also I wish to discontinue tracking volumes bcos whether market is up or down, volumes only tends to increase for the particular day.
Also kindly let me know what does it mean when IV column for particular strike is empty.
Your guidance will be very helpful.
Thanks & Regards.
¶Reply

April 19, 2017 at 10:44 am
I guess change in OI gives you a better picture on the market sentiment. Volumes help especially when you are looking at Eq spot/Fut. IV is for Implied
volatility of that particular strike.
¶Reply
109. VANKUMAR says:

April 20, 2017 at 8:43 pm
Mr.Karthik Will you pl guide on the difference between PRICE ACTION TRADING AND TECHNICAL ANALYSIS. In this context I bring to your kind notice an
excellent FREE site in my opinion HINDUSTAN BULLS.COM which gives BUY AND SELL SIGNALS, both INTRADAY AND EOD CANDLE STICK
ANALYSIS which I feel is PRICE ACTION TRADING. Am I right? VAN KUMAR
¶Reply

April 21, 2017 at 11:33 am
I personally do not believe in any entities giving out stocktips. You need to be doing your own research.
TA is based on price action.
¶Reply
110. Arpan says:

April 26, 2017 at 2:10 pm
Generally it is seen that higher PUT writing indicates up move and high CALL writing indicates down move. But right now at a position where there are chances of
war between US and North Korea. Of course, it may happen or may not but right now traders may not want to keep their positions open. So what they would do,
they’ll buy PUTs to hedge their positions. And due to this higher PUT writing is seen.
Now what I want to ask is “How to interpret such data?” Does it still indicate upmove as per max pain theory?
¶Reply

April 27, 2017 at 11:33 am
You really need to plot the Max pain chart to know what it is suggesting. Difficult to take a call without the data points.
¶Reply
111. Mehul says:

April 29, 2017 at 6:48 pm
Hi karthik,
1) what difference does it make whether i open zerodha account directly or from the different sponsors ?
2) when implied volatility in an option chain is empty – what to conclude ?
Thanks & Regards
¶Reply
May 1, 2017 at 9:46 am
1) By sponsor you mean partner….you can do that no problem.

2) It means that there are no trades in that particular strike.
¶Reply
112. Mehul says:

May 1, 2017 at 2:45 pm
Hi karthik,
Thanks for the reply.
As i have been tracking the nifty LTP for varoius strikes at diff times, i got these results :
On 26/04/2017 strikes from 9000 to 9300 IV was empty but LTP kept on increasing throughout the day. As you have said there are no trades, kindly clarify.
Thanks & Regards.
¶Reply

May 2, 2017 at 7:07 am
Ah, in this case maybe NSE had not updated the IV;s.
¶Reply
113. VANKUMAR says:

May 2, 2017 at 4:49 pm
Hi Karthik Can you pl guide me on the difference between Open Interest and Vol and Contracts in Option Chain analysis. And how to analyse them?
¶Reply

May 2, 2017 at 5:33 pm
Please read this chapter http://zerodha.com/varsity/chapter/volumes/ and then this one – http://zerodha.com/varsity/chapter/open-interest/ .
¶Reply
114. katthi G says:

May 6, 2017 at 3:19 pm
hi karthik anna,
thank you very much….!!! your words are my knowledge.Really you did an awesome thing in your life.cheers.
Thalaiva you are great,enna aasirvatham pannunga…!!!
¶Reply

May 6, 2017 at 7:34 pm
There is only one Thalaiva, and thats Kabali da…:)
¶Reply
◾ karthi says:
May 8, 2017 at 1:29 am
hi sir,
I am a swing trader but dont hold the stock more than 5 sessions. I am using 30 min time frame and ADX indicator. can you please suggest me two more
indicators and some valid candle stick patterns.. Thank you.
¶Reply

May 8, 2017 at 3:05 am
I’d would bother much on indicators. I’d rather look at the CS patters. Please have a look at this module –
http://zerodha.com/varsity/module/technical-analysis/
¶Reply
115. vinay kumar reddy says:

May 8, 2017 at 9:03 am
hai ,whoever it is related to – i want to learn about derivative – ‘SWAPS’.so please kindly do it .
¶Reply

May 9, 2017 at 3:19 am
SWAPS is not a retail product in India (yet), so have not included that.
¶Reply
116. anil bhasein says:

May 8, 2017 at 10:54 pm
sir ,
please can you give me the link from where i can get the daily volatility of nifty .i tried to search it on nseindia .com but could not find it
¶Reply

May 9, 2017 at 3:27 am
Please take ViX as a proxy for Nifty’s volatility.
¶Reply
117. VANKUMAR says:

May 19, 2017 at 10:03 pm
Hi Karthik In preopen the Indicative Equilbrium Price is shown as the probable opening price. I have read your lesson on how the price is set in Z-Connect. But at
9.15 a.m., when the market is open, high and low prices are also shown. Can you pl guide how these high and low prices are set as I could not find in any of the
websites.
¶Reply

May 21, 2017 at 5:48 pm
The prices are set by the exchanges on an logarithm which takes into consideration ‘Price and Time’. This is an exchange proprietary algorithm, and nobody
has access to it
¶Reply
118. VANKUMAR says:

May 21, 2017 at 5:19 pm
Hi Karthik I request you to kindly guide on VOLATILITY SMILE AND SKEW and how to use them. Regards, VAN KUMAR
¶Reply

May 21, 2017 at 6:22 pm
Check this – http://zerodha.com/varsity/chapter/greek-interactions/
¶Reply
119. Akash says:

May 25, 2017 at 6:46 pm
Sir, although the Option pain theory has strong logical piints. But the behaviour of the index and index driving stocks on the expiry day is too cumbersome to
understand. There’s alwats pinning in the last 30 minutes and if we take today’s session the market openky defied the Max Pain Theory and moved above beyond
everyone’s expectation. Sir, such unprecedental moves during expiry week with soo many whipsaws and volatility is not random and too many big players play an
active role in it. So I guess just plain logical based thinking don’t work for derivarives. There’s more to it and there has always been more to it as on the Expiry day
there is always a rush from big players to take control of the Market. I request a chapter to cover such obscured topics regarding derivatives trading.
¶Reply

May 26, 2017 at 5:18 pm
True, exactly why I modified the Max pain theory to suit my trading requirements.
¶Reply
120. YOGESH SURKUTWAR says:

June 11, 2017 at 7:26 pm
Dear Sir,
You have explained the concept of Max pain with very good manner. thanks for that.
I have one question that 5% safety buffer is added in calculated Max pain option strike. Always we have to add 5% safety buffer or depending on situation we have to
subtract also? Please clarify
Thanks & Regards

Yogesh Surkutwar
¶Reply

June 12, 2017 at 10:44 am
You can treat it as per the situation. Sometime you may want yo extent this beyond 5%.
¶Reply
121. KUMAR MAYANK says:

June 26, 2017 at 1:31 am
Hello sir
As on 23 June (strike, OI, change in OI)

Put Option
9500 58 L +2.8 L
9600 49 L -5.2 L
Call Option
9600 51.8 L +17 L
9700 82.4 L +12.9 L
The strike 9600 is crucial. As -ve change in Put and large +ve change in Call suggest that traders viewing the spot to remain below 9600.
The spot below 9600 also confirms Max Pain theory. I didn’t calculate but just by seeing the strike having noted crowd.
How is my analysis?
Thank you
Varsity student
¶Reply
◦ KUMAR MAYANK says:

June 26, 2017 at 1:40 am
Based on this analysis i would like to write 9650 CE @ Rs 20.80 with a margin required 46k.
¶Reply

June 26, 2017 at 10:24 am
Hmmm, please make sure you know all the risks involved before you take the trade. Good luck!
¶Reply

June 26, 2017 at 10:23 am
Ah! Remember, if calls OI has shot up, then there is an equal number of traders who believe that the markets may not go up further, hence they have written
the Calls. So its just too difficult to make any sort of assessment based on plain vanilla OI information.
¶Reply
◾ KUMAR MAYANK says:

June 26, 2017 at 1:03 pm
Yes, i am saying the same. The large increase in OI @9600 CE and decrease in OI @9600 PE confirms that there is a large section of people expecting
the market to stay below 9600.
Also, there is 17 L increment @ 9600 CE means there are big players involved in writing Call as it requires margin.
I want to know your view.
Thank you
Varsity student
¶Reply

June 26, 2017 at 1:37 pm
Well i have a strategy

Leg 1: Sell 9600 CE @39.80
Leg 2: Sell 9500 PE @16.50
Lower BEP= 9443.7 & Higher BEP= 9656.30
Reward= 56.30, Risk= uncapped
Rational
1. (TA) 2 times Nifty touched 9700 and miserably fell to 9560.
2. Last two weeks it is range bound b/w 9560 and 9650
3. For last 4 sessions it is closing on -ve note. Ans on June, 23 it closed at 21 sessions low.
4. Max pain confirms that it should close below 9600 to hurt minimum to option writers.
5. I guess to break 9700 resistance level it needs a big domestics cue and it is not going to happen before 29 June and for that matter may be after
July,1.
How is it?
Please comment
Thank you
¶Reply

June 27, 2017 at 11:57 am
I’d suggest you put these numbers down on excel and look at the payoff. Only then will you be able to visualize the risk. Check this video
for more info – https://www.youtube.com/watch?v=pVKfIxVw0Og
¶
July 6, 2017 at 1:15 pm
I would have got 56.30 had i executed this strategy. The market closed at 9504 on the June expiry date. I am feeling optimistic.
Thank you
Varsity student
¶
July 7, 2017 at 11:04 am
Good luck!
¶
June 27, 2017 at 11:54 am
Hmmm…17L is not really a big increase But yes, the fact that the strike is attracting so much activity indicates that it could be a vital trigger
point for market.
¶Reply

June 27, 2017 at 1:27 pm
Thank you, sir.

Plotting a graph of P&L of a strategy on excel is very important tool of planned trading, I think.
By your teaching and always arguing to look upon the loss before entering into a trade, one thing i can say for sure, you were never been a
scalper in your trading career.
¶
June 28, 2017 at 6:19 pm
Good guess I’ve had far better success in well planned trades as opposed to scalping.
¶
122. salim qureshi says:
July 28, 2017 at 11:23 pm
Max pain theory can be used for Stock option also or it is just for nifty option?
¶Reply

July 29, 2017 at 12:34 pm
All options.
¶Reply
◾ salim qureshi says:

July 29, 2017 at 1:20 pm
It is good to keep track of PCR on daily bases or it should removed once in a 15 day?
¶Reply

July 30, 2017 at 9:06 am
I’d suggest you look at 15 days before expiry.
¶Reply
123. KEDAR says:

Hi Karthik I am trying very hard to find what will be margin requirement for bull spread where I will buy one OTM call and sell higher strike price one , practically I
should only need to pay the difference but span calculator asks me to pay 43k for nifty spread for 10500ce buy and 10600 ce sell.Could you please help me
understand,thank you -Kedar
¶Reply

Kedar, I’d suggest you use the margin calculator available on our site – https://zerodha.com/margin-calculator/SPAN/ , when you add the positions, you will
know how much margin benefit you will get for the set of positions you have.
¶Reply
124. Aditya Sharma says:

Hello Kartik,
Thank you for the awesome explanation.

On a practival note, I was going through Yahoo Finance article “https://finance.yahoo.com/news/traders-betting-big-stock-market-101500637.html” where I saw that:
1) As per the article, VIX of S&P is at the lowest level
2) Due to this low VIX, analysts are expecting a shock in the market soon. Why? Low volatility means stability. Is it that they feel markets are at lifetime high and
still VIX is low thus there will be a correction?
3) One of the traders went heavily for “Bull Call Spread” strategy and another bought “Put Options” heavily. Aren’t the expectations completely different? Former
strategy is for moderate market and the latter for Bearish.
I am reading Options since few days and just saw this article and hence the questions popped in my mind. I hope questions make sense….
Regards,
Aditya Sharma
¶Reply

August 4, 2017 at 11:28 am
1 & 2 ) If VIX is low, then there is greed in markets and traders are happily buying. A natural counter reaction to this is a correction in markets.
3) Bull Call spread does not really involve a put option. A BCS is actually indifferent to market direction
¶Reply
125. Ashok says:

August 3, 2017 at 10:04 pm
Hi,
As for intraday option buying. Lets say if the bank nifty premium for 1 lot of Rs.7000. As soon as i buy 1 lot of bank nifty option, do Rs.7000 deducted from my
account?
Or how it works?
¶Reply

August 4, 2017 at 11:31 am
Yes, to buy options your need to have 100% of the cash available.
¶Reply
126. promit banerjee says:

August 9, 2017 at 11:53 am
hey zerodha,
earlier there used to be the pdf versions..

cant locate them know.. please guide
¶Reply
August 10, 2017 at 11:22 am
We will have it back soon, Promit.
¶Reply
127. vinay bansal says:

hello sir
we are unable to find pdf plz provide the link….
¶Reply

August 10, 2017 at 11:44 am
Soon.
¶Reply
128. Kotesh says:

Sir
In PCR analysis, u wrote that if PCR is 0.5, that means call buyers r more, extreme bullish hence reverse trend (bearish) may happen.
But I think it’s reverse n we have to consider the option writers not buyers.
Pls check n confirm.
ThanQ
¶Reply

This is based on the opinion that extreme bullishness can lead to a correction – mean reversion.
¶Reply
129. Arumugam says:

Dear Karthick,
You’ve done a excellent Job, I still wondered how come a professional in Capital market field shared everything what he knew. Because I’ve seen only nepotists here
and I learned lot from you and I am going to apply all these techniques in my trading life. I don’t know how to express my gratitude personally l’d like to have one
sitting with you to discuss about your trading life with some chilled Beers.
God bless you my friend.

Arumugam.
¶Reply

Chilled beers should nice
Anyway, thanks for the kind words. Someone said, your own knowledge grows when you share what you already know…and as a firm, we take this advice
very sincerely
¶Reply
130. Pankaj K says:

Don’t know if already asked…….

For options pain calculation… does the optimum strike value (i.e. Least pain strike value for seller) always arrive as the middle (or near to middle value). If so (and
since u are already applying 5% deviation) then would this calculation more or less work.
Optimum strike value = (lowest strike value in option chain + highest strike value in option chain) / 2.
Thanx.
¶Reply
Yes, when you plot the option pain curve, the strike at the center is where you will have the least amount of pain.
¶Reply
131. rajesh goel says:

how to calculate 15 days from expiry. Trading Days or all days including non-trading days
¶Reply

You can include all the days in the calendar.
¶Reply
◾ rajesh goel says:

October 23, 2017 at 12:28 pm
thx sir. also throw some light on gold options trading
¶Reply

October 24, 2017 at 10:30 am
Do check this – https://zerodha.com/varsity/chapter/commodity-options/
¶Reply
132. Brahma Reddy says:

October 26, 2017 at 11:44 pm
Sir,Can I use the excel page written by and replace the values as of today?If yes,
1.As Iam seeing for nifty there are many other strike prices.Can I ignore them and fixed to strike rates which are nine above and nine below the underlying?
2.You only write about the prices like 8000,8100 etc and ignored the strike prices like 8050,8150 etc.Is it okay?Me too done the same because helper column will get
distance if I altered it.Is it okay?
3.Finally,I have calculated the pcr of nifty.The value is 3.70.Why the value is that much big.Is there extreme bearishness?But october series market rallied to new
heights and the rally continued even today?What I can expect from 3.70 value?
¶Reply
◦ Brahma Reddy says:

October 26, 2017 at 11:45 pm
I mean excel page written by you
¶Reply

October 27, 2017 at 10:07 am
1) Yes you can use the excel and you can stick to 9 above and below
2) Yes, use the strikes which are relevant to the current market condition
3) You can also use PCR as a contrarian indicator
¶Reply
133. Narasimha says:

October 27, 2017 at 10:40 am
Can I reversly use Max pain for buying options rather than selling sir?I mean I will buy call option which cause minimum pain to option sellers ??
¶Reply

October 28, 2017 at 11:46 am
Yes, as long as you can quantify and backtest the process.
¶Reply
134. Brahma Reddy says:
In option chain, at the end the total OI of both calls and puts are provided individually.Can I simply divide put value by call value??I think it will have some
credibility, since Iam taking all the strike prices into considiration.
¶Reply
◦ Brahma Reddy says:

SIR
¶Reply

Yup, but please do backtest this once.
¶Reply
◾ Brahma Reddy says:

Thank you sir.Please give me the link to get historical data for back testing.Iam unable to get it through nse.
¶Reply

You will have to do that yourself manually, Brahma
¶Reply
◾ Brahma Reddy says:

¶
135. santanu says:
Would you please explain the “Helper Column” a bit more of the “Option Pain computation excel”.
Is it ok to use a calculation like “Current Strike – Lowest Strike ” instead of fixed values in “Helper Column”
¶Reply

I’ve used the helper column for data manipulation. YOu can use the formula – ‘current strike – previous strike’.
¶Reply
136. ravi says:

Thanks for your great initiative.
But I feel it does not give dealt of practical aspect
Please also include an example that the same like
What will be cost when you buy /write a call

what action/precaution you have do at the date of expiry
what will be extra cost when you will not take such action like increase in STT or brokerage etc.
¶Reply

Have you checked this, Ravi?

https://zerodha.com/varsity/module/option-theory/
¶Reply
137. Shankar says:

1. Is risking 500 on a spread option same as risking 500 on a naked option?

2. If I quantify my risks in naked options, is it necessary to go for a spread?
3. When i am going for premiums instead of expiry, is it necessary to go for spread?
¶Reply

1) Rupee wise, naturally it is the same. However, in a spread, you will know that 500 is the maximum loss no matter what
2) Not really, you just need to ensure you follow a strict stop loss
3) Really depends on the trading situation. Sometimes it is better to opt for the spread rather than a naked option position. For instance, if you want to play the
election news, where the volatility is invariably high -under such circumstances, playing naked options could be quite risky.
¶Reply
138. karthikjayasimha says:

Dear Sir,
I calculated the range for Nifty for certain strikes for 28th Dec expiry as explained by you. I arrived at a value of 10500 where the option writers would lose least
amount of money. But, I did not get the shape of the graph as you have in the above example. I thought that market’s upsurge after the Gujrath election result is the
reason for the same. Also, if we take 5 percent above 10500, then we arrive at 11025. But the markets expired at 10477.90. I also calculated the range of nifty from
normal distribution method and it landed between 10410 and 10622.
Correct me if I am wrong.
¶Reply
139. Karthik Rangappa says:

I’ve not checked the range myself, but I get a feeling these numbers make sense. Can you share more insights into your calcualtion? Max pain graphs are quite easy
to generate, not sure why you’ve not got it.
¶Reply
140. rajesh says:

Thank you for valuable lessons…

Kindly make a module on mutual funds also
¶Reply

In the list of things to do. Will put up MF content this year.
¶Reply
141. Nanjundaswamy says:

Karthik sir,as per max pain I have manually enter the OI of put and call strike price before 15 days to expiry and I got the max pain strike.
But my question is should I stop the OI update now? or should I continue for manual entry of OI till expiry date?
If I continue till expiry how to vary 5% buffer for calculate maxpain.
Please explain sir
¶Reply

January 21, 2018 at 10:54 am
I would suggest you run this 15 days prior to expiry and identify the max pain strike (which is what you’ve done), further give a buffer of 10-12% and identify
the strike to write. I’d suggest you stick to just the Call option.
¶Reply
◾ Nanjundaswamy says:
January 21, 2018 at 11:23 am
Sir as per max pain table 10700 was maxpain strike at exactly before 15 days to expiry after that I stopped the update of OI in table and just watching the
nifty by add the 5% of buffer to 10700.
Please tell me sir is this right way or should I continue till expiry date.
¶Reply

January 22, 2018 at 11:10 am
Yes, you can add 5% or more for as buffer to 10700 and consider writing.
¶Reply
January 21, 2018 at 11:33 am
Sir what it means of additional buffer of 10% to 12% will given.

I mean on which valve you have taken for reference for additional buffer of 10 to 12%.
¶Reply

January 22, 2018 at 11:12 am
Its basically the strike to 10%. For example 10700 + 10% = 11770, so you may want to consider the strikes around this range. If the premiums are
not attractive, then you may want to reduce the buffer. But I’d suggest you do not go below 5% buffer.
¶Reply
Thank you lot sir for your response.

Sir last question ,it means Are you suggesting me for stop the option pain table update after 15 days to expiry?
Actually I am bit confused about this
for calculate the option pain,that’s why I asked you sir.
¶
Yes, you need set a cut off – either 15 days prior to expiry or 10 days prior to expiry or even 5 days prior to expiry.
The lesser the time to expiry, the more lenient you can be with the buffer. For example with 15 days prior to expiry, I may be inclined to
have a 10% buffer, but with 5 days to expiry, I may choose to go with a 5% buffer. So on an so forth.
The point is to run the max pain algo, and identify a strike in a time-frequency you are comfortable with. Remember, as the markets move,
so would the max pain number, but the variation may not be much and the buffer will take care of these variations. Given this, sticking to an
agenda is quite important here.
Good luck.
¶
142. Nanjundaswamy says:
OK sir
Thank you for your suggestions…
¶Reply

January 24, 2018 at 11:07 am
Welcome!
¶Reply
143. karthikjayasimha says:

Dear Sir,
I calculated the range for Nifty a fortnight prior to expiry as suggested by you and I arrived at a range 10600-11130. Today market expired at 11069. But, as usual, I
did not get the shape of the curve the right way.
Also, I calculated the range for Nifty and Bank Nifty on a daily and weekly basis using standard deviation. On certain days both the index values exceed even
2-Standard Deviation (or 95% Confidence) values.
Thank you very much for all the inputs and making us think as professional traders.
¶Reply

Good luck and stay profitable
¶Reply
144. Mehul Karia says:

Hello sir,
Thank you so much for valuable lessons…sir I would like to know your view on covered call strategy…I have 600 shares of infosys, i want to keep it for long term.
Can I short OTM call option of infosys every month for additional income.
¶Reply

CC is a great way to make some passive income on long term holding. Give it a try, although I think the pay off may not be very impressive.
¶Reply
145. Arjun Rajwar says:

If the PCR value is above 1, say 1.3 – then it suggests that there are more Puts being bought compared to Calls. This suggests that the markets have turned extremely
bearish, and therefore sort of oversold. One can look for reversals and expect the markets to go up.
Low PCR values such as 0.5 and below indicates that there are more calls being bought compared to puts. This suggests that the markets have turned extremely
bullish, and therefore sort of overbought. Once can look for reversals and expect the markets to go down.
Sir Please help to understand 2nd and 4th line.
¶Reply

January 30, 2018 at 11:39 am
When traders accumulate a certain position (accumulate in large quantities), then there is a scope for the opposite to happen – hence I suggested look for
reversals.
¶Reply
146. Ram Niwas says:

Karthik sir good morning.

I m novice in option trading and lost so much money.
In option trading, there are so many strategies.
My question is that , which type of strategy most probably used in option
Thanks
Ram Niwas
¶Reply

January 31, 2018 at 11:58 am
I’d suggest you get very comfortable with Option basic before getting into option strategies. Over time, look for market neutral strategies. Good luck, Ram.
¶Reply
◾ Ram Niwas says:

Thanx sir for guidance
¶Reply

Good luck, Ram!
¶Reply
147. Rushabh Doshi says:
Am i the only one who felt upset have this module ended. :/
¶Reply

Options strategies can go on forever, Rushabh. You have to stop it somewhere
¶Reply
148. A Agarwal says:

Dear Sir
The calculation of maximum pain on the excel chart needs some modification. At every level the cumulative open interest needs to be multiplied with a cumulative
figure of notional loss. If open interest (CE) is 1 at every level and strike prices are 1, 2, 3, 4, and 5. The loss at 1 strike price would be zero. At strike price 2, the loss
would be one. At strike price 3 the loss would be 3. At strike price 4 the loss would be 6. At strike price the loss would be 10 … and so on.
¶Reply

Hmm, let me check this again.
¶Reply
149. Akhil says:

Hi Karthik… Great work… Amazed to learn from your knowledge…. Pls confirm if strike wise PCR has any significance in analysis. Thanks
¶Reply

Thanks!
I’ve explained PCR in the chapter, Akhil.
¶Reply
150. Somesh says:

March 11, 2018 at 4:04 pm
Hi Karthik,
When using the above max pain excel sheet to calculate maxpain data and graph, I got negative values Cumulative Call which was greater than Cumulative Put and
hence, the total went to negative, which again represented in graph shown me a negative value for OTM strikes. I created for TCS and INFY and both graph were
representing highly negative total for last OTM and decreasing from there. What can you comment about this result? I created the above with Mar 09,2018 EOD OI
data. Please clarify whether it is usual at the first week and will change at the last 10 trading days.
Thanks,
Somesh
¶Reply

March 12, 2018 at 11:09 am
I’m really not sure about this. You cannot get -ve values. If people are cutting positions, then the OI will drop or at the most stand still at 0. It cannot really go -
ve. I’d suggest you look at the excel sheet more carefully, I’m sure you;ll spot a silly mistake
¶Reply
151. Jayanna says:

March 12, 2018 at 12:03 am
Dear Karthik,
If I’am correct, I don’t find about Iron Condor strategy and spreadsheet. I would like to see about it on Varsity.
Thank You,
Jayanna
¶Reply

March 12, 2018 at 11:23 am
Yes, thats right. Will write about it sometime soon.
¶Reply
152. Nikunj says:

March 23, 2018 at 12:54 am
Hi karthik good job ! You make all strategies clear for reader.
I frequently trade in Banknifty so what you suggest when max pain should be calculated in weekly expire ? On Tuesday (2 days to expiry ) ?
And also suggest any strategies which can be use for day trading in weekly expiry options
¶Reply

March 23, 2018 at 11:01 am
I’d suggest you calculate this on Friday, the day after expiry followed by Tuesday.
¶Reply
153. santosh patidar says:

March 29, 2018 at 12:35 pm
In one of the chapter you mention your friends election trade and your short day in trading career.
What if similar news comes on expiry day and market makes high, upper circuit within 10 minute and close or lower circuit and close in 10 minute or less.
How the settlement will happen and at what price ?
Asking in last have gone through all the chapters and comments also. curious….
¶Reply

March 31, 2018 at 8:42 am
In such an event, the last 10 mins trading would be considered.
¶Reply
154. Satya Koneti says:

April 17, 2018 at 10:16 am
Hi Karthik sir,
I have gone through all the modules and understood 100%, I have never seen such a wonderful content any where. Is this knowledge enough to start trading? Do I
need to still need to go through any other books. If so, please suggest the books.
You are the best teacher I have ever seen.
Thanks
Satya.
¶Reply

April 17, 2018 at 12:43 pm
Satya, to be frank, no amount of reading will compensate the actual market experience. Go ahead and place your first trade with confidence. Don’t worry about
the P&L, remember this is an integral part of your learning and you have to keep learning to move ahead
¶Reply
155. Shankar says:

April 21, 2018 at 8:38 pm
Hi Karthik,
How does the margin for option seller work in Zerodha? Suppose if i sell ITM call & put option and buy slightly OTM call & put option, then my potential loss is
only the difference of the option value,right(ex:- for Nifty it is 75*50=3750). Does the margin requirement also of the same logic
Thanks,
Shankar
¶Reply

April 22, 2018 at 11:36 am
There is a margin benefit extended to positions where the risk is minimized. Enter the legs of your option position and check for the same here –
https://zerodha.com/margin-calculator/SPAN/
¶Reply
156. Hina says:

April 25, 2018 at 1:01 am
Undoubtedly this is the best material to learn about the options. Thank you so much sir for sharing this with us ?.
¶Reply

April 25, 2018 at 12:00 pm
Happy to note that, Hina

Keep learning!
¶Reply
157. Hemalatha says:

April 27, 2018 at 4:01 pm
Namaskara Karthik,
Hope everything’s fine, have doubt with respect to the number of strikes to be considered for computing max pain value, read few questions above regarding the
same
Considering Bank Nifty for analysis, there are a good number of OTM contracts(liquid) being traded.
The contracts being traded spans over 2000 points (2500 actually) that’s roughly about 1000 points above and below the current spot.
But there are contracts beyond the 2000 points range. How do we go about this? Should we consider the ones beyond this range or not?
¶Reply

April 28, 2018 at 11:55 am
Namaskara, Hemalatha! I’d suggest you consider 10 strikes above and below the ATM strike. So roughly 21 strikes.
¶Reply
158. Pradeep says:

May 5, 2018 at 11:54 am
Hi,
Based on the excel provided and the formula I’m arriving at option pain of 10600 as of May 4th 2018. This level is in agreement with various sites who shows this
max pain data in real time. But there is a difference in total value for call and put (And of course final total) i’m arriving at versus what all other are quoting. Mine is
significantly low than the number shown in these sites.
Needless to say, all other web portal data are showing exact same number. Example 10600 Call pain value from other sites is 8175615000. Based on the above
formula and the excel method i have got 77860080000.
In deeper analysis, I have seen they are first calculating sum of OI from top to the current strike where i’m trying to calculate the pain (in the above example 8550 to
10600) and multiply that by 10600 the current strike. Then they subtract the sum-product from this calculated value. If I do that, I’m also getting the same value.
The formula looks something like – IFERROR($C45*SUM($A$3:A45) – SUMPRODUCT($C$3:C45,$A$3:A45),0) . I know it doesn’t make much sense looking at
this formula, but why they have a different way of calculating the max pain?
Which one is correct?
¶Reply

May 5, 2018 at 3:45 pm
I’m really not sure about why they are doing this way, Pradeep. But please do note, if they are doing this on an intraday basis then it could be a problem since
intraday OI is not too reliable.
¶Reply
159. NAJEEB T P says:

May 21, 2018 at 7:48 am
Dear Karthik,
My passion for understanding pricing dynamics interested me to traverse an out of the box thinking.How , when, and whereto the price moves with passage of time
looking more into natural science theories connecting to mathematical theories than economic theories in lesser time lengths.To my limited understanding a futures
index movement and the index options movement derived from it is based on the underlying motion of the combined expression in prices of the individual securities
and not the other way round of normal thinking of individual underlying moving around the movement of index.So it is a natural flow based on a combination of
rational calculus and irrational randomness.Derivatives are structured to tick based on the underlying motion and where do open interest play a big part in option
pricing.Rather it is the velocity and the acceleration of the underlying motion that determines the option price.Combined expressions of the sigmas of the individual
underlying does the noise in index and normal(Gaussian ) distribution cannot be taken as a thumb rule for writing options.Butterfly effects matters more.
¶Reply

May 21, 2018 at 3:27 pm
Maybe you will have to simplify this a bit more for me, Najeeb
¶Reply

May 21, 2018 at 9:43 pm
It is an interesting topic to peruse if derivative market moves the underlying market or the underlying market moves the derivative market.To my understanding
futures price is mathematically structured to move by the combined dispersion of underlying stocks in index and not by mere open interest study or demand supply
concentrated in the futures and options segment.A sort of dynamic market making is happening between the cash, futures and option segment and to the variations in
the cash futures and options orders are structured to have trades executed in a relative manner .Put it simply derivatives just travels like the shadow of the underlying
index and the underlying index too has no entity of its own It is just a sum expression of the flow of the individual underlings which can have duffing oscillations and
not always standard. Could explain to you in detail if I could communicate to you direct.
¶Reply

May 22, 2018 at 11:15 am
Hopefully, one of these days, Najeeb
¶Reply
161. NAJEEB says:

May 22, 2018 at 8:02 am
For eg if the daily volatility of say Bank Nifty is for an example sake is 250 points .from there you can calculate a one minute volatility.It ought to be 12.9 points.But
in reality if bank nifty makes a random walk of 300 points a day may be 5 candles out of 375 would have walked 200 ponts and the remaining 370 minutes around
100 pointsSo the markets is all of duffing motions and the path of least resistance called butterfly effects matters more.In a nutshell market is a natural flow and not
bellcurve calculations.In such a case the role of open interests are of least significance.
¶Reply

May 22, 2018 at 11:29 am
Najeeb, not sure how you are interpreting this. Max Pain as a concept does not consider either volatility of distribution of any sort. We use Open interest to
assess the likelihood of where the option expires.
¶Reply

May 23, 2018 at 7:18 am
Karthik, I know what I mentioned above has no relevance with the idea of option pain but , I was highlighting my view that option pain which derived its underlying
idea from open interest and PCR ratio itself seems a gibberish idea to me and hence , may be not much academic work gone into it.To my understanding options
derived to be a hedge tool for the underlying. Better traders structure their trade seed capital in such away that either option as their seed and underlying as their
hedge or underlying as the seed and options as the hedge. It started giving me more insights when I moved looking into the scientific price motion rather than the
economic price action.
¶Reply

May 23, 2018 at 3:29 pm
I agree with you on this – both option pain and PCR are empirical. In fact, OI itself is empirical in my opinion.
¶Reply
163. Nikunj Purohit says:

May 29, 2018 at 9:52 am
Hi Karthik,
This chapter was a nice read. I was watching trading carnival videos, there some smart traders were talking about managing premiums by writing options on other
side in 1:4 ratio in last 2 days of expiry to counter volatility , specially last 3-4 hours on expiry day…can you suggest a resources from where I can look this and also
get some more examples of setting up trade in different situations like you gave 4 examples in last module
Secondly, from the module it seems like there is a zerodha resource of backtesting. Can you provide me a link to that and some sample code to understand platform
Regards
Nikunj Purohit
¶Reply
May 29, 2018 at 11:30 am
Nikunj, if a trader is writing options on the last day especially when there are few hours left to expiry, the play is just on the rapid decline of theta. Look for any
OTM option which has any residual value and write them. Usually, if you are lucky you may get 1.5 or 2 Rupees for an option which is trading 2 strikes away
from ATM (on Nifty).
For backtesting, check this – http://streak.tech/
¶Reply
◾ Nikunj Purohit says:

May 29, 2018 at 12:09 pm
Kartik , Thanks for a prompt reply.
For Max Pain — I have been calculating it for last 2-3 days on NIFTY and BANKNIFTY. It seems like value will be lowest around spot prices only. It
may give other strikes for less liquid and volatile stock options.
For PCR ratio – As option writing will be profitable 70% of time, so smart money will generally write put option so PCR will 1.3-1.5 will be bullish.
Short covering – how can I say that there is a short covering looking at change in volume and premium for put & call at particular strike price
Any particular book or blog that can be referred for improving option strategy.
Nikunj
¶Reply

May 30, 2018 at 11:25 am
Short covering happens when the prices have been hammered out and the system has excessively built up of leveraged trades. I think this is one of
the best books out there on options trading – https://www.amazon.in/Option-Volatility-Pricing-Strategies-Techniques/dp/155738486X
¶Reply
164. SATYA KONETI says:

June 5, 2018 at 4:13 pm
Hi Karthik,
Are there any strategies (combination of futures and options) which can give 1% consistent returns on monthly basis irrespective of market direction?
Thanks
Satya.
¶Reply

June 6, 2018 at 9:46 am
Nothing guarantees returns in the market, Satya
¶Reply
165. Nikunj Purohit says:

June 10, 2018 at 7:25 pm
Kartik,
I have been looking at bank nifty and nifty for sometime for max pain during expiry days. The point is always next strike to spot price. There was much volatility last
expiry of bank nifty, still OI were changing to make sure max pain is near spot. Am I missing something here?
¶Reply

June 11, 2018 at 11:09 am
Not really, Nikunj. I’d suggest you do this for a couple of expiries to get a full flavor of the theory.
¶Reply
166. Sumit Pradhan says:

June 15, 2018 at 10:16 pm
How much data should be taken for max pain calculatation.

example1 – I have taken BANKNIFTY(expiry-28JUN2018) data on 15JUN2018 for strike price of range 22500 to 28600(62 distinct values)
Output of max pain calculation = 25100
example2 – I have taken BANKNIFTY(expiry-28JUN2018) data on 15JUN2018 for strike price of range 25000 to 28000(31 distinct values)
Output of max pain calculation = 26500
BANKNIFTY index spot is 26417.40 on 15JUN2018. First example included all strike prices available on NSEINDIA while second example included subset of all
strike prices available on NSEINDIA.
Suggest how should I do analysis to get robust result.
¶Reply

June 16, 2018 at 11:20 am
I think its best to use Max Pain on monthly options. Use at least 15 days data.
¶Reply
◾ Sumit Pradhan says:

June 17, 2018 at 12:12 pm
Actually Above given example is for Monthly BANKNIFTY(28JUN18) Expiry and almost in the 2nd half data(after 15 days).
My question is that How many strike prices should I choose b/c output is different in both examples but I have taken same data(BANKNIFTY-28JUN18)
with different strike prices(ex1 has 62 strikes, ex2 has 31 strikes).
¶Reply

June 18, 2018 at 10:43 am
Sumit, I’d suggest you take at least 5-6 strikes above and below the ITM option. If there is liquidity beyond these strikes, then take those as well.
¶Reply
167. Shankar says:

June 26, 2018 at 10:50 am
Karthik Sir
This is a noob qn. Hence please pardon my ignorance. An OI can have 1 or more than once contract and each contract can have different lots like 75 or 40 for NF and
BNF respectively. Therefore, does OI reflect how strong the quantum is viz a viz a strike price? A 7800 strike put may have say 3 OI but the contracts under it can be
240 while a 7700 strike put can hae 5 OI but the contracts can sum up to 200. Hence, would multiplying the OI with points yield a realistic picture?
¶Reply

June 26, 2018 at 11:32 am
Shankar, OI is usually expressed as “lot size * Number of Contracts”, so if you see an OI of 150 for Nifty, divide this by its lot size i.e 75, to get a perspective
of how many contracts are outstanding in the market. So, in this case, it will be 150/75 = 2.
¶Reply
◾ Shankar says:
June 26, 2018 at 9:35 pm
Thanks a lot for clarifying.
¶Reply

June 27, 2018 at 12:30 pm
Welcome!
¶Reply
168. Chirag I Sharma says:

July 9, 2018 at 10:38 am
Karthik, you’re luring me so much into writing options. I think its time to loan 1L from my parents for margins
Anyway, my question is- How does the combination of SD/ Normal distribution Upper and Max Pain (whichever is higher +5% margin ) sound like for selecting a
strike to write?
¶Reply

July 9, 2018 at 11:40 am
Chirag, I hope I’m luring you to learn options
General advice – trading based on loan funds can be dangerous to your trading account, even if it is from your parents
I think it is one of the best ways to select strikes, but the assumption here is that there are fundamental factors affecting the market or the stock you are looking
at.
¶Reply
◾ Chirag I Sharma says:

July 9, 2018 at 3:48 pm
Oh yes, you sure are luring me into learning to fish and not rely on fishermen.
I feel I am getting there, slowly and steadily.
“…there are fundamental factors affecting the market…”

You meant that there is nothing unusual around the corner affecting the market like quarterly/annual results or Trump’s tweets, right?
If there is- then the probability of my chosen strike price going right gets low. Correct?
¶Reply

July 10, 2018 at 10:53 am
Yes, thats right. If there is a fundamental play, then you should avoid trading the scrip, unless you are in a position to access the fundamental factor
in great depth.
¶Reply
169. Kiran raj says:

July 11, 2018 at 2:13 pm
Hello Karthik..,
I was asking one of my colleagues to go through varsity for better understanding of the math behind Options trading. He said he has been successful with options
trading without knowing any math behind it. Halfway through our conversation.. he shared the way he operates. He basically operates on indices, keeps an eye on the
option chain to understand possible support and resistance for the month. All the buying he does is limited to the first week of expiry. He buys few lots of both put
and call (both preferably 1% away from spot price) with 50 % of the corpus he wishes to invest. Based on the movement of the underlying in the next few days.., he
decides what is to be done with the other 50% of his corpus. Say, If the index moves 1% upside, he then buys PE 1% away from the new spot. ( He is still holding the
contracts he bought in the beginning, where in CE contracts would have become ITM, PE contracts bought at beginning would become OTM, New PE contracts
bought would be slightly OTM. The moment index starts moving downwards, he will realize profits on CE, Starts buying PE conracts more aggressively. He was
saying, he also keeps an eye on NIFTY VIX to be clear about Voltality. He doesn’t monitor charts, doesn’t follow any technical analysis behind his strategy. He
cliams to close the month on a positive note every single time, 20K of the money gained using this strategy goes into his various SIPs, rest for his monthly expenses.
He claims to have hardly touched his salary for his expenses over the past 6 months. I wanted to know if this a strategy or if he is purely being lucky. After going
through all the technical analysis, if some guy randomly appears and claims that he is making money consistently with no application of TA, I couldn’t believe it. I
wanted an expert’s view on this, and so I’m writing. Hope my explanation was clear about the strategy.
Thanks in advance.
¶Reply

July 11, 2018 at 7:31 pm
Kiran, if your friend is saying the truth, then he maybe lucky and continue to be lucky for few more months. None of us can take a punt on that
But generally speaking, people in markets tend to exaggerate their profits and underplay their losses. No one wants to appear stupid.
From what I can see, the only smart thing he seems to be doing is that he is avoiding buying options closer to expiry, so with or without his knowledge, theta is
favoring him.
¶Reply
◾ Kiran raj says:

July 12, 2018 at 7:58 pm
Thank you. I was convinced that he was just getting lucky, I wanted your confirmation too. He is very content with the way he operates, is reluctant to
learn options theory. His take is, ” when something is working for me consistently, why do I even bother changing it? ” I believe, the biggest threat
behind a not so strong strategy is, when it starts working in our favor ( may be by luck ), we start believing in it way too much, get complacent and end
up taking bigger risk, which may eventually backfire. Luckily , I’m a Varsity reader. Thanks to Karthik and team
¶Reply

July 13, 2018 at 12:06 pm
Good luck, Kiran. Hope you find all the success. Stay profitable!
¶Reply
170. Kiran Thakur says:

July 13, 2018 at 8:46 am
Hi Karthik,
Before asking my query I would like to thank you for writing such a wonderful and easy to understand content. I have a doubt around the derivatives, Someone told
me that index futures can drive and lead the price movement of the underlying stock indices. Given my limited experience with futures, I am puzzled. My textbook
knowledge tells me that index futures are derivatives of stock indices. Therefore, futures prices are derived from stock indices. It should be indices that drive and lead
futures. Logically, there should not be price feedback from futures back to stocks. How does it really work, if there is no feedback from derivatives to stock / indices
then how max pain works…?
¶Reply

July 13, 2018 at 12:47 pm
Yes, Kiran…the stocks influence the derivatives. However, there could be brief periods where the other way round could happen, but this does not sustain
through for long (not more than an hour or so).
¶Reply
171. Prasanna says:

July 14, 2018 at 8:25 am
Hello sir,
Really useful chapters on options trading. Thanks for taking efforts for beginners like me.
I trade in banknifty regularly. I need ur guidance in following.
I sold itm call of 26000 & put of 27000 when the spot was 26500. After two days market moved 200 points on one side and my put sold is showing profit. ( Off
course call sold is showing loss) I want to book profit of 200 points so i squared off the put side. Now i have loss making side of call sold is in hand. What position
should i take to get insulation in both directions for call side making loss. I don’t want more profit. Happy with booked profit. Just want to retain it by taking new
position. May b hedging i guess. Pls suggest preferably options as i don’t want to trade in futures.
Your guidance will really help me.
Thanks once again.
¶Reply

July 14, 2018 at 11:45 am
Prasanna, I’d suggest you close the position and book profits. Usually, things get messy when you try to hedge and make other positional adjustments.
However, if you really want to hedge the open call short, then you will probably have to buy futures to offset the position.
¶Reply
◾ prasanna says:
July 14, 2018 at 12:07 pm
Dear Sir,
Thanks for the reply. If I close the position then I will not get any profit as I am short on both call & put.. Hence I was thinking for booking profit from
one leg & reduce loss from other leg. so overall P&L will be on plus side.
¶Reply

July 15, 2018 at 10:00 am
Yes, but do remember, when you close one of the positions, you will have a naked exposure to one of the legs. The risk element drastically
increases here.
¶Reply
172. Somesh says:

July 18, 2018 at 9:15 am
Hi Karthik, I have created a webpage in my personal blog to calculate Nifty and BankNifty max pain in realtime. Please have a look at it and let me know whether
the calculations are working fine. https://www.someshr.com/p/optionsmaxpainchartniftyandbanknifty.html
¶Reply

July 18, 2018 at 11:30 am
Somesh, looks like you have taken the content from Varsity, can you please give the necessary credits and a link back to the original source?
¶Reply
173. Kiran raj says:

July 26, 2018 at 4:02 pm
Hi Karthik,
I have a small doubt. Kindly clarify. I was closely watching Nifty 50 chart today as I was holding 16 lots of Nifty 11300 Aug CE purchased at 88 (cover order). Close
to the end of the day .. around 1445 the index went haywire.. I believed it was possible manipulation by option writers as this was the expiry day for July series. It
started dropping for no reason… there was no news.. no recognisable bearish pattern on charts.. option premium even dropped to 80 at a particular point of time.
Since I strongly believed that it was manipulation, I kept putting a steep SL. I have modified it to 75 at a point of time. (I know this is against what I have learnt from
varsity, but I believed it was just a matter of time before index breaks off the shackles). It eventually did.. in the last 45 min, index started gaining momentum ..
option premium surged back to 96. I have closed the trade at 95. I wanted to know if my interpretation was right about the whole scenario.. or if I was just lucky to
get out without loss. I have breached the stop loss rule.. but I have learnt one great lesson.. I’m never trading MIS on Options on expiry day. If I see clear opportunity,
I will look for CNC but not MIS On expiry day.
PS: Thanks to these few lines below

” Now if this statement is true, then we can make a bunch of logical deductions –
At any point only one party can make money i.e either the option buyers or option sellers, but not both. From the above statement, it is clear that the sellers are the
ones making money.
If option sellers tend to make maximum money, then it also means that the price of the option on expiry day should be driven to a point where it would cause least
amount of loss to option writers.
If point 2 is true, then it further implies that option prices can be manipulated, at least on the day of expiry.
If point 3 is true, then it further implies that there exists a group of traders who can manipulate the option prices, at least on the day of expiry. ”
These were the lines that helped in clinging on the trade and not lose confidence.
¶Reply

July 27, 2018 at 10:39 am
Well, I’d say you were both lucky and smart to have managed to get out of this position. Lucky, because there is no way to figure out what which direction the
index would move
¶Reply
◾ Kiran raj says:

July 27, 2018 at 1:12 pm
Hi Karhtik,
Thank you .. I was lucky, I admit. I also wanted to know if my interpretation about the scenario was correct.. Was that a possible manipulation by
writers which attributed to the index falling sharply in the last hour of 26/07/2018 ( July expiry) ? Or was it something else, (Have I wrongly interpreted
it) ?
Thank You
¶Reply

July 28, 2018 at 8:49 am
Kiran, I think you were indeed thinking in the right direction

Good luck and hope you continue to remain profitable!
¶Reply
174. SHyam says:

August 7, 2018 at 9:54 am
Hi,
It is always said that it is better to sell options with high IV . But what if IV is high and PCR is above 1 . Doesnt PCR above 1 indicate bullishness?
¶Reply

August 9, 2018 at 11:38 am
I’d suggest you pay more attention to the implied volatility, Shyam
¶Reply
175. SHyam says:

Dear Sir,
Today’s max pain was 28000 and bank nifty is at 28350 at 3.15
I was under the assumption that BN will expire approx 28100 level. I wrote 28300 calls .Then I realized there was huge put writing at 28200 and 28300 and banknifty
surged to 28387 level. Luckily i I closed my position little earleir.
I am confused here. Just unable to understand where did I go wrong

¶Reply

August 10, 2018 at 1:01 pm
Well, theories like Max Pain is just empirical, Shyam. There are no guarantees in the market. I have explained how I personally use Max Pain.
¶Reply
176. prakhar says:

August 11, 2018 at 8:00 pm
will you please explain steps invoved in calculating options max pain in excel .
¶Reply

August 13, 2018 at 8:05 am
I have done that in the chapter, request you to kindly go through the same. Thanks.
¶Reply
177. omi says:

August 11, 2018 at 8:15 pm
I want to ask wheather increase in open interest in some strike impliy more option writing or option buying because in some analysis increase in open interest is
termed as option writing and in some it is termed as option buying for example if we term increase in call option open interest of some out of money strike it could be
termed as more option writing which is ought to result in price stabilisation or bearishness but if we would term this increase as more option buying this would impliy
bullish view. So how would we interpret this contradictory view. I hope you got my point.
¶Reply

August 13, 2018 at 8:07 am
On a standalone basis, increase in OI means nothing, because there are both buyers and sellers for the same contract. Hence traders associate price movement
along with OI to make interpretations, this is similar to volume analysis.
¶Reply
178. Prem Kumar says:

August 11, 2018 at 9:07 pm
Sir,
How can I download PDF format of Module 10, All other Modules have PDF format. Could you help me out?
¶Reply

August 13, 2018 at 8:09 am
Module 10 is not really complete, Prem. PDF will be available once the module complete.
¶Reply
179. adhik says:

Sir,
where from we can get daily historical data for max pain and PCR
¶Reply

Adhik, maybe you should check with https://sensibull.com/
¶Reply
180. Muffadal Katheria says:

Dear Karthik,
Greetings for the day. Thanks for such a nice and simple explanation. I have below doubts.
e.g. Stock xyz current price is say 150, maxPainPrice is 185 and PCR is 0.27, in this case PCR says that there would be further downside and Max Pain say that the
price may rise to 185, what should we do in this case ? How do we interpret this ?
Generic question is like if Max Pain suggest rise in price and PCR suggest fall in price, than what should be the action ? Which is more powerful signal Max Pain or
PCR ?
Thanks in Advance.
Muffadal Katheria
¶Reply

This is a matter of personal preference, I’d pay more attention to the Max Pain
¶Reply
181. Sudeep Poswal says:

Hi Karthik , Not sure if this is the right platform with regard to a query on covered call on Nifty Futures.
I was just curious to know if it is worthwhile to write covered call on Nifty futures by selling deep in the money call say by 800 points below the spot price and just
focus on time value in the call which will although be low but going to be a sure shot profit as Nifty does not move that much in a month.
Please let me know if my understanding is correct.
¶Reply

Sudeep, how will this be a covered call? Also, selling deep ITM option can be scary.
¶Reply

Thanks for replying.

The covered call by buying a Nifty future and selling a deep in the money call so that the downside is protected by getting a huge premium and on the upside there
will be a limited profit…essentially the time value in the call.
Please also let me know as to why it is scary ? Does it have any risk attached to it even if we are long on future at the same time ?
¶Reply

Ah, I think I didn’t notice the buy Nifty future in your previous comment, thought it was a naked short. If you are long futures and short Deep ITM, it should
be alright in terms of containing risk. However, there is liquidity risk here in terms of exiting long ITM, you may not have buyers at the time of square off.
¶Reply

Thanks Karthik,
So what I understand is, there is a liquidity issue if I want to exit before expiry, however if I keep it till expiry I don’t need to find a buyer as exchange will itself
square it off. Is that correct ?
¶Reply

Yes, that’s right.
¶Reply
184. Edward aka Gulrose says:

October 16, 2018 at 11:14 pm
Good Morning Karthik Sir.

You may know me from twitter, the guy who sent you excel screenshot.
Today i got my first profit(obviously after many manageable losses).
I want to my one and only teacher whom i consider my GURU.
So i bought BN 25800CE 17 oct at 60R.coz of two reasons (Correct me if I am wrong)
1) Fundamentally WPI rate increases and that translates to rise in Bank Nifty (I may be wrong)
2) Technically due to formation of Bullish hammer that day.
Next day as my trade proved right I squared off the deal at 90R. of 2lot =80.
Booking 2400 by 10:00 AM next day.
I want to thank you sir coz as a medical student itbwas difficult for me to learn a different but Varsity is really good for a beginner noob like me.
Can you correct me if i was wrong somewhere in my trade.
I will accept if you tell me if i am wrong in my reasons behind these trades.
Thank you.
Here’s the hammer that formed that day.
https://twitter.com/edward_thought/status/1052253676385927168?s=09
¶Reply

Hey Edward, thanks for the very kind words and congrats on a profitable trade
The take on WPI and Hammer was right. I always think the best trades are the ones in which there are both technical and fundamental factors at play. Good
luck and hope you have many more profitable trades
¶Reply
185. Alok says:

Hi Karthik,
Just came across all this good work created and published by you. I cannot think of appropriate words to express my appreciation for the quality of content!!! Just
tooo… good.
I am naturally trying to download the material so that I could go through the same peacefully at my pace. However while I have been able to download a couple of
modules, but trying to download Modules 2, 3, 4, 6, and 10 just throws up an error message. Could you please look into it.
Regards and thanks again!

Alok
¶Reply

October 22, 2018 at 12:36 pm
Thanks for the kind words, Alok. Glad you liked the content. I’ll check on this and get back.
¶Reply
◦ Faisal Mohammed says:

Guess few of the users were facing this issue due to download limitations from Dropbox.
We’ve moved all the PDFs to our own storage and the links have been updated.
PDF for Module 10 will only be available after all the chapters have been published.
¶Reply
186. Gokul says:

October 31, 2018 at 11:44 pm
Dear karthik
Commendable job by you sir …. I have gone through all of your modules.. and my journey from a newbie to a trader is started with varsity ..thanks A ton…
One module is really missing in varsity so I request you to add future oi analysis , option chain ,
So please look into it. Will be helpful
¶Reply

Glad to know that, Gokul. Wishing you all the very best!
Will try and add these lessons as and when possible.
¶Reply
187. Ghanendra Singh Rawat says:

Hi Karthik,
Thanks for wonderful lesson on option strategies.
I was going through the MAX. PAIN strategy.
I tried to calculate the strike price at which the option writers would lose the least amount of money using excel sheet as provided by you with different set of strike
prices for the Nifty Option Chain of 01-Nov-2018 using data from NSE website.
I found that the strike prices, at which option writer would lose least amount of money, are different for different set of strike prices as follows:
Strike prices set: 8800 to 10400 ………….and I get strike price with least amount as –10200
I used strike prices as multiplier of 100 only, sequentially, 17 readings each time ( Avoided strike prices like 9850, 10250, 11050 etc that are not multiplier of 100).
I think results for the option chain of same day should not vary with different sets of strike prices.
Can you please help me to find where did I go wrong? Is formula foolproof?
¶Reply

The formula used in the chapter is right. Remember, the formula is just about using the intrinsic value of the option upon expiry..the rest is simple arithmetic.
Can you double check the intrinsic value formula for both call and put?
¶Reply
◾ Ghanendra Singh Rawat says:

Dear sir,
I appreciate your prompt response. Thank you very much.
Today, I did the same exercise again for the Nifty Option Chain data of today, i.e. 02-11-2018.
End of the day data used after the normal market was closed.
Again observed the similar discrepancy tabulated as follows:
Sir, the same nifty option chain table will remain available up to Monday morning due to weekend.
Please cross examine and enlighten.
¶Reply

Why are you splitting the strikes? You need to consider all the strikes at once.
¶Reply
◾ Ghanendra Singh Rawat says:

Thank you sir.

I split the strike prices because in the excel sheet provided by you there is provision for only 17 entries/data points at a time. Hence I can
select only 17 entries at a time.
From 9000 to 12000 there will be 31 entries/data points. Since I myself do not know how to put formulas in excel, hence could not increase
entries more than 17.
Pls suggest.
¶
That will take some time, Ghanendra. Instead, I’d suggest you take a look at the way I have explained the process. I have given step by step
guidelines on it, follow the same. The number of entries does not really matter.
¶
188. Ghanendra Singh Rawat says:
OK.
Thank you sir.
¶Reply

Welcome!
¶Reply
189. Amit says:

Hi Kathik,
I have an account with Zerodha and i am starting to trade in options. I did paper trading for a while based on the virsity strategies and seems to work fine.
I have a question.
In banknifty, when does next week’s option trading open? Friday after previous expiry and not before that?
Also as soon as on friday when market opens, who decides the initial price of options? Option writers?
Are number of writers and buyers same? As during expiry everything gets squared off.
For eg. If a writer writes 2 lots at 100 Rs. 2 buyers buy 1 each. But overall floating options yet to be squared off = number of options written. Am i correct?
¶Reply

When a new month contract releases its weekly options are also made available. The initial price is set by the traders
No, the number of traders and buyers need not be the same.
¶Reply
190. Himanshu Kane says:

Does Max pain strategy work for both Nifty & Stock options ? Under what circumstances one can apply put writing exercise(s) in max pain considerations ?? Since
you emphasized mainly on call writing phenomenon.
¶Reply

Yes, you can apply Max Pain to all assets – Nifty, Bank Nifty, stocks etc. Put writing is a little scary because the markets can fall much faster than it can raise.
So you dont want to be stuck in a position where its hard to get out of.
¶Reply
◾ Himanshu Kane says:

Thank a lot , Sir !!
¶Reply

Good luck, Himanshu!
¶Reply
191. RUPA DEB says:

Dear Team , I have a confusion over the calculation of max pain. you are considering the difference point as amount but if the point difference is 100 or 200 then why
not loss is being calculated as per premium amount for that difference of point? how can point is being multiplying with open interest?
¶Reply

Rupa, remember the whole calculation is upon expiry. When you get upon expiry is the intrinsic value of the option.
¶Reply
◾ Rupa Deb says:

Dear Karthik thank for your quick reply.
I got your point.Thank you dor the clarification.
¶Reply

Good luck, Rupa. Happy learning
¶Reply
192. kiranintouch says:

Dear Karthik,
Thank you for providing varsity. There were many useful insights.
Request to provide typical day to day activities of an options trader. This will help us organize our day and arrive at a game plan for trading.
¶Reply

This is an interesting topic, Kiran. Will probably do this as a separate post
¶Reply
193. Akshay says:

Karthik,
How significant is NSE Currency Options Chain data ( OI, Strike with max Puts, Strike with max Calls, PCR, Max Pain etc.) to drive inferences about movement of
a currency pair?
I have found NIFTY Options data useful to some extent but not sure about currency options.
Thanks,
Akshay
¶Reply
◦ Akshay says:
And, are Currency Options really liquid?
¶Reply

USD INR options are quite liquid.
¶Reply

Akshay, I’m guessing its effective enough to help you develop a view with quantifiable data. But yeah, I’ve not used currency options data much myself.
¶Reply
194. Robert Yates says:

Where and how do I get the data for ticker symbol SPX (index for S&P 500) into the Excel spreadsheet, please?
¶Reply

Robert, you will have to download the historical data in either text or csv and open the same (import) into excel.
¶Reply
195. Akshat Joon says:

I always find study material by zerodha quite useful as it explains various concepts in simple language .
Great work for trying to enable others understand although just like everyone else i would appreciate more if you can share a profit making strategy .
Thanks .
¶Reply

Thanks, Akshat. We have shared everything that we can, one has to calibrate these to convert them into a strategy.
¶Reply
196. Narendra says:

Karthik – I wonder, Nifty has lot of open interest at all levels starting from strike price 3600 levels to 14100 levels. So my question is do we need to consider all these
prices while calculating max pain or do we go with a band say 1000 points. e.g if today Nifty is trading at 10750, so do I look at from 10000 to 11000, or is there any
standard inclusion criteria for this.
¶Reply

You can consider a 10-15% range either sides of ATM. This should take care of most of the possibilities.
¶Reply
197. Lokesh says:

Sir, where can we get option chain historical data for 1 or 2 years to back test PCR.
¶Reply

I’m not sure if this data is available in the format that you’d need, but I’d suggest you check this –
https://www.nseindia.com/products/content/derivatives/equities/historical_fo.htm
¶Reply
198. Alok says:

Hi Karthik,
Just want to understand why do many experts say that 90% options expire worthless, when they also say the most of the options are squared off and very few
exercised. Aren’t these two statements contradictory??
When the seller knows that he is making money and the market will not reach his strike price, he will not square off his position (since he is not affected by the STT
trap too) to pocket the entire premium. i.e If i had sold a 10500 CE in the beginning of the month and on the day of expiry the market is at 9900..i know the nifty
cannot move 600 pts in a day(normally)..and even if it reaches 10490…my profit is still the entire premium. That means there has to be a buyer on the other side for
such sellers..and if 90% sellers make money..that means that many buyers must also be there right??
Thanks,
Alok.
¶Reply

Just want to understand why do many experts say that 90% options expire worthless, when they also say the most of the options are squared off and very few
exercised. Aren’t these two statements contradictory?? ——->
Better way to put this is that only options which are above ITM have intrinsic value, rest all (including ATM) expire worthlessly. Yes, most of the time, traders
prefer to square off the position rather than letting it expire.
¶Reply
199. Alok says:
Ok..thanks…but where is that 90% coming from..or its just a ballpark figure??
What about those who make money and get out of the market..i mean a buyer could have made money n exited…likewise a seller may have entered on the day of
expiry and made a loss…
¶Reply

Its a ballpark and applicable to the market participants in general. No study as such to prove this. It is like out of every 10 option traders, 9 lose and 1 makes the
money sorts.
¶Reply
◾ Alok says:
January 10, 2019 at 11:26 am
Thanks a lot! I guess i won’t be digging too much into option pain
¶Reply

January 11, 2019 at 10:54 am
Nothing really wrong with it )
¶Reply
200. Patel Sr says:

Hi Kartik sir, Can you please translate all modules in Hindi language..How much time it will take to translate in Hindi?
¶Reply

January 20, 2019 at 10:21 am
Patel, the problem with translation is that it won’t be accurate. We tried this in the past, but we weren’t happy with the final output.
¶Reply
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Module 6 — Option Strategies

Max Pain & PCR Ratio

13.1 – My experience with Option Pain theory

So, let’s get started.

13.2 – Max Pain Theory

Strike Call Option OI Put option OI

Scenario 1 – Assume markets expires at 7700

= 200 * 2559375 = Rs.5,11,875,000/-

= 100 * 4864125 = Rs.4,864,125,000/-

7700 PE writers will not lose any money.

= 0 + Rs.511875000 + 4,864125000 = Rs.9,98,287,500/-

Scenario 2 – Assume markets expires at 7800

At 7800, the following call option writers would lose money –

Both 7800 CE and 7900 CE seller would not lose money.

The 7700 and 7800 PE seller wouldn’t lose money

Scenario 3 – Assume markets expires at 7900

At 7900, the following call option writers would lose money –

200 *1823400 = Rs.3,646,800,000/-

7900 CE writers would retain the premiums received.

So therefore the combined loss of option writers would be –

= 3646800000 + 344857500 = Rs. 7,095,375,000/-

13.4 – A Few Modifications

You can download the Option Pain computation excel.

13.5 – The Put Call Ratio

37016925 / 42874200 = 0.863385

The interpretation is as follows –

13.6 – Final thoughts

Good luck and stay profitable!

Key takeaways from this chapter

◦ Karthik Rangappa says:

◾ Karthik Rangappa says:

We are working on it Guru

◾ Ravindra Thakur says:

◾ Karthik Rangappa says:

Thank you! We would probably have a session sometime soon. Thanks.

◾ Pramod Kumar says:

◾ Karthik Rangappa says:

◾ Kumar N KristeR says:

◾ Karthik Rangappa says:

Cheers! The next module is on Trading Systems

Bhai, you can use Google translate..

Maja karo mota bhai

◦ Karthik Rangappa says:

Sure, we will do that shortly.

◦ Karthik Rangappa says:

Namasthe! Will surely try and do that

◦ Karthik Rangappa says:

Yes, its all done from our side

why this module couldn’t be downloaded in PDF format

◾ Karthik Rangappa says:

We are working on it, should be out soon.

◦ Karthik Rangappa says:

◦ Karthik Rangappa says:

Suggest you also use volatility and SD approach to this.

Sir, Thanks a lot for the simplified option course.

◦ Karthik Rangappa says:

Sure, we will certainly add as supplementary notes as and when possible.

◦ Karthik Rangappa says:

◾ Suraj pradhan says:

◾ Karthik Rangappa says:

No, nothing of this sort for now.

9. Khyati Verdhan says: