RULE-BASED

OPTION BUYING
Vivek Gadodia

@technovestor
 OPTIONS GREEKS
SCIENCE OF - AND HOW I
GAMBLING 01 02 (MIS) USE THEM

SYSTEM - 03 04 OPTIONS
SPOT V/S MONEY
FUTURES V/S MANAGEMENT
OPTIONS
SCIENCE OF
GAMBLING
 We are gambling everyday. Every moment.

Choosing a Red colored car v/s a Black colored

car is a gamble. Crossing the street is a gamble.
Fighting Covid19 is a gamble. Life itself is a
gamble.

—SOMEONE FAMOUS
 GAMBLERS
FALLACY
Jane loves playing BlackJack

After a losing streak, every 5th day she wins

Today is her 5th day after a 4-day losing streak. She is all set
source: to win. And win Big :)
https://thedecisionlab.com/

lost an
biases/gamblers-fallacy/
A few hours later, she is defeated. She has

enormous amount of money

The causal relationships may work when two events are related
Like if there are dark clouds, it may rain Aakhir Kyon ???
 THE LOTTERY EFFECT
BIG GAINS
When the top prize is very
large, ticket buyers appear
indifferent to the fact that
their chance of winning is
miniscule. A lottery ticket
is the ultimate example of
the Possibility effect
- Daniel Kahneman
https://mumbaimirror.indiatimes.com/mumbai/cover-story/veggie-vendor-wins-rs-1-11-cr-but-ticket-turns-out-
to-be-fake/articleshow/64548373.cms
DAILY LURE
Mumbai alone has 4000
lottery stalls and sells
tickets worth 15 Crores
every day
Suhas Kadam kaa galti sey
mistook ho gaya. Lottery
jeeta, par usme bhee scam
 THE POSSIBILITY EFFECT- WHY
LOTTERIES AND INSURANCE EXIST

AN OUTCOME
e.g 95% chance to win 10,000 USD

AN EMOTION THAT IS EVOKED

Fear of Disappointment

source: https://medium.com/@ameet/the-possibility-
THE TYPICAL BEHAVIOUR effect-why-lotteries-and-insurance-exist-
Risk - Averse 17a636cf3bd6
SOME FUN WITH MATH :)
1.61803
is the approximate value of the golden ratio

3.141592653
are the first ten digits of π (pi)

7
are the different letters used to represent Roman numerals
OPTIONS PRICING AND
GREEKS
If Not The Gods, Atleast Get The Odds On
Your Side

- Tushar Chande
OPTION PREMIUM (PRICING) COMPONENTS

STRIKE
SPOT
TIME
ROI - RATE OF INTEREST
VOLATILITY
STRIKE Selection Apne Haath Main Bhaa.
Baaki sab Bhagwaan Key Haath Main Hai.
 source: PolicyBazaar.com

TO UNDERSTAND OPTIONS PRICING - LOOK AT LIFE

INSURANCE !
source: policybazaar.com
 DELTA - EFFECT OF SPOT

CALL OPTION DELTA PUT OPTION DELTA

+ 0 TO +1 0 TO -1

Vica-Versa for Put

+ e.g. BankNifty (BNF) is 23000
Options
+ BNF 23000 CE Delta is 0.5
Delta -0.5 means
Option will fall by
BNF goes up 100 points,
Rs.100, for a 100
point fall in BNF.
23000 CE will go up by Rs.50
 MONEYNESS AND DELTA

As Moneyness increases,

Delta tends towards +1 or -1

go
Most of us will by Deep OTM options (lotteries), lose
and then say

“OPTIONS” bekaar hai

The OTM Options can serve a lot of use for hedging Tail
Risk

e.g. - Universa Investments

source: ZERODHA VARSITY
(a fund advised by Nassim Nicholas Taleb)
DOUBLE-DECKER RSI SYSTEM

An option buyer has to develop the

patience of a wild-life photographer
 RULES OF SYSTEM

LONG ENTRY SHORT ENTRY

RSI(14) > 50 RSI(14) < 50
AND AND
RSI(5) > 70 RSI(5) < 30

STRIKE
LONG EXIT SHORT EXIT
RSI(5) < 55 SPOT RSI(5) > 35
TIME

ROI
MONEY MANAGEMENT

Consistency

- Risk Max 2% Of Capital per

trade, on average

- Position size should be

function of volatility
- High Vol, Reduced Size
- Low Vol, Increased Size

- Timely breaks /pause in

trading is very important
 THANKS!
Does anyone have any questions?

vivek.gadodia@gmail.com
vivekgadodia.com