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Options for everyone

Day 1

Mindfluential Trading
 Contents
Day 1 About Options
Strike price Selections in Options
Intrinsic Value of Options
How to read the Option Chain data like a Pro
PCR & Max Pain
Understanding the Premium Decay concept in Detail
Option Selling Vs Option Buying
About Option Greeks
Q&A Session

Day 2 Plotting important levels on the chart for Intraday

Understanding Trading View Tools & How to use the free trading view version in the best way possible.
Central Pivot Range - CPR
Institutional Zones & Its Importance in Intraday
Option Scalping / Intraday Strategies
How to Keep Stoploss in Options
Effective Stop loss management & trailing techniques
Q&A Session

Day 3 Directional View Option strategies like Bull/ Bear Spreads, Ratio Spreads & Adjustments
Bullish Option Strategies: Bearish Option Strategies:
Bull Call Spread Bear Call Spread
Bull Put Spread Bear Put Spread
Call Ratio Back Spread Put Ratio Back Spread

Q&A Session
 Contents
Day 4 Non- Directional View Option strategies like Short straddle / Strangle, Iron Fly & Iron Condor etc.
Neutral Strategies / Non-Directional strategies Strong Directional Strategies (Not so Imp.)
Short Straddle Long Straddle
Short Strangle Long Strangle
Short Iron Condor
Short Iron Fly
Adjustments & Firefighting Techniques
Margin Management
A discussion on Calender Spreads - Bonus Concept
Q&A Session

Day 5 Intraday & Expiry Day Option Selling Strategies

Understanding Long & Short Build-up & Covering
Important Bonus Concepts [ Related to Stocks ]
Covered Call & Cash Secured Put
Result Based Strategies or IV based strategies
Return Expectations from the Market - A Practical discussion
Maintaining Effective trading Journal
Discussion on How our Discord Community works

Q&A Session
Ab o u t D e r iv at iv e s
What is derivative

A derivative is a contract between two parties that derives its value/price from an
underlying asset. The most common types of derivatives are futures, options,
forwards and swaps.

The options market makes up a significant part of the derivative market,

particularly in India. I would not be exaggerating if I were to say that nearly 80%
of the derivatives traded are options and the rest is attributable to the futures
market.
About options
 Call Option
A call option is a bullish position
Stock must move up for the option to
become profitable.
If the instrument value goes up, call
option value increases, the buyer of
the call option makes a profit, and the
seller of the call option will be in
losses.
Options are zero-sum contracts
means if some make a profit the others
will be at a loss.
Put Option
A put option is a bearish position
Stock must move down for the option
to become profitable.
If the instrument value goes down, the
put option value increases, the buyer
of the put option makes a profit, and
the seller of the put option will be in
losses.
Options are zero-sum contracts means
if some make a profit the others will
be at a loss.
Contract Expiry
Options contracts have Monthly Expiry (last Thursday of the month)
1. Current month (Eg: January)
2. Next month contract (February)
3. Far month contract (March)

However only Index Options will have weekly expiry (every Thursday) as well as
monthly Expiry (last Thursday of the month)
St r ike pr ic e Se le c t io n
i n O pt io ns
Nifty OI Chain as of as of January 14th 2022
Now let's understand why a part of the data is highlighted in a shade while the rest is in white.
To understand it, we need to first learn ITM, ATM, and OTM.

In-The-Money (ITM)
A call option is in ITM if its strike price is less than the current market price of the underlying asset. A put
option is ITM if its strike price is greater than the current market price' of the underlying asset.

At-The-Money (ATM)
When the strike price of a Call or Put option is equal to the current market price of the underlying asset then
it is in ATM.

Out of-The-Money (OTM)

A call option is OTM if the strike price is greater than the current market price of the underlying asset. A put
option is OTM if the strike price is less than the current market price of the underlying asset.
 IN THE MONEY (ITM) OUT OF THE MONET(OTM)

OUT OF THE MONET(OTM) IN THE MONEY (ITM)

SO OF ALL THESE STRIKES, WHAT IS THE RIGHT STRIKE PRICE TO SELECT?

BEFORE GETTING INTO THAT, WE NEED TO UNDERSTAND ONCE

CONCEPT CALLED "INTRINSIC VALUE OF AN OPTION"

The intrinsic value of an option is the money the option buyer makes from an options contract
(after reducing the premium) provided he has the right to exercise that option on the given day.

INTRINSIC VALUE OF THE OPTION = SPOT PRICE - STRIKE PRICE

IT CAN BE POSITIVE OR ZERO BUT CANNOT BE NEGATIVE

In The Money Options ITM - More Intrinsic Value

At the Money Options ATM - Very Less
Out Of the Money Options OTM - Zero Intrinsic Value
Say Nifty is now Trading at 18255, You feel Nifty will go up and want to buy a call option, what strike price you will select?

STRIKE PRICE SELECTION DEPENDS ON HOW CONFIDENT YOU ARE BASED ON YOUR ANALYSIS
1. If you are very confident about the upmove then buy ITM call options for max benefit
2. If you are not so less confident about the up move then prefer taking the ATM call option
3. If you do not have a view but you just believe that it will go up. It doesn't have any logical basis, in these cases, the probability
of being right is less, and hence if you lose you should not lose much, so go for OTM
4. Never Buy Naked Deep OTM just because they are cheap, they most of the time end up becoming worthless
Let's understand the terminology that is generally used in Option chain data.
Open Interest (OI)
OI is an abbreviation for Open Interest. It is data that signifies the interest of traders in a particular strike price of an
Option. OI tells you about the number of contracts that are traded but not exercised or squared off. The higher the
number, the more is the interest among traders for the particular strike price of an Option. And hence there is high
liquidity for you to be able to trade your Option when desired.

Change in OI
It tells you about the change in the Open Interest within the expiration period. The number of contracts that are
closed, exercised or squared off. A significant change in OI should be carefully monitored.

Volume
It is another indicator of traders interest in a particular strike price of an Option. It tells us about the total number of
contracts of an Option for a particular strike price are traded in the market. It is calculated on a daily basis. Volume
can help you understand the current interest among traders.

Implied Volatility (IV)

IV is an abbreviation for Implied Volatility. It tells us about what the market thinks on the price movement of the
underlying. A higher IV means the potential for high swings in prices and low IV means no or fewer swings. IV
doesn't tell you about the direction, whether upward or downward, movement of the prices.
LTP
It is the abbreviation for Last Traded Price of an Option.

Change in LTP
It is the net change in the LTP. The positive changes means a rise in price while negative changes, decrease in price.

Bid Qty
It is the number of buy orders for a particular strike price. This tells you about the current demand for the strike price
of an Option.

Bid Price
It is the price quoted in the last buy order. So a price higher than the LTP may suggest that the demand for the
Option is rising and vice versa.

Ask Price
It is the price quoted in the last sell order.

Ask Qty
It is the number of open sell orders for a particular strike price. It tells you about the supply for the Option.
H o w t o r e ad t h e O pt io n
C h a in d at a l ik e a Pr o
Let's understand in-depth how to read Option Chain
1. The first rule to keep in mind when looking at the OI Chain is, always look the OI chain from Option sellers Point of View
2. Second rule is to focus mostly on the OTM data
Finding Support & Resistance based on Open Interest

High open interest in the OTM call option is considered as a resistance level.
Because there is a huge stake involved by call option sellers at 19000 & 18200, it means, that particular level breaks
the option sellers will lose money, so they try to keep the price below the resistance for most of the time.

High open interest in the OTM put option is considered as a support level.
Because there is a huge stake involved by sell put option sellers at 18200 & 18000, it means, that particular level
breaks the put option sellers will lose money, so they try to keep the price above the support for most of the time.

Change in OI - It can indirectly tell you the sentiment shift in the market
UNDERSTANDING HOW TO READ OI GRAPHS FROM SENSIBULL Nifty Spot @ 18255 on Jan 14th
UNDERSTANDING HOW TO READ OI GRAPHS FROM SENSIBULL Nifty Spot @ 18255 on Jan 14th
UNDERSTANDING HOW TO READ MULTI STRIKE OI FROM SENSIBULL
The general understanding from here is:
Nifty and Put OI is directly correlated Nifty Spot @ 18255 on Jan 14th
Nifty and Call OI is inversely corelated
UNDERSTANDING HOW TO READ MULTI STRIKE OI FROM SENSIBULL
A comparison between OTM (18400) & ITM(18100) Nifty Call option
Nifty Spot @ 18255 on Jan 14th
P CR & M ax pain
 PCR - PUT CALL RATIO
UNDERSTANDING HOW TO READ OI GRAPHS FROM SENSIBULL
PCR - PUT CALL RATIO
PCR COMPARISION FOR DIFFERENT WEEK EXPIRIES
Nifty Spot @ 18255 on Jan 14th
 MAX PAIN / OPTION PAIN
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.

Lets take Nifty Option Chain as reference

Nifty Spot @ 18255 on Jan 14th

Option chain for Jan 14 Expiry

Opti on Se l l i ng V s Op t i on
Buy i ng
WHY OPTION sellers has an
advantage over buyers
Time Decay Favors the Option Seller

The price of an option correlates with its time to expiration because of the greater
probability of the option becoming in-the-money. The more time until expiration, the
more chance the option can go in-the-money.

Let’s compare option contracts with car insurance policies. How much is the car
insurance for 1 year, Rs.2,000? What about for 1 day, Rs.200? Obviously, the more
time to the pre-selected end of the policy the greater chance that an accident will occur,
resulting in a higher insurance premium to cover the increased chances of accidents,
claims, and outlays.
Option Sellers Do NOT Have to Be Right in Stock Direction
Let’s take a look at selling a call option. When you sell one, you typically sell a contract
with a strike price that is above the current stock price. For putting on this trade, you
collect a premium as the option seller.

In this case, the stock price can move in any or all directions, except go above the strike
price (plus the premium collected) to be profitable at expiration. This means the stock can
go down, it can remain unchanged, or it can even move up by a little in to win.
Option Sellers Do NOT Have to Be Right in Stock Direction
If you sold an Rs.450 call option for underlying stock currently at Rs.430 and took in
Rs.20 as option premium, the following could occur:

Stock price Result

at expiration

Over 450 You may face a loss

Between Premium paid will be the profit. Rs, 20

430 to 450 per share in this case.
Option Sellers Do NOT Have to Be Right in Stock Direction

The stock price can move in 3 directions: Up, down, or sideways. When you sell options, you
can be profitable when the price moves in your desired direction, sideways, or even slightly in
an undesirable direction.

As can be seen in the above, the option seller wins as long as the underlying price is below
the strike price plus the premium collected. The option buyer can win only if the underlying
price goes above the strike price, plus the premium paid. it is a disadvantage to option buyer
and an edge for option seller.
Volatility Favors the Option Seller

In simple terms, implied volatility is a measure of the expensiveness of a given option.

An option price is expensive when implied volatility is high.
An option price is cheap when implied volatility is low.

Option buyers want to buy an option at a cheaper price and sell it at a higher price. This occurs
when a call’s or put’s implied volatility is low, then subsequently increases. Conversely, option
sellers want to sell when an option price is high and later buy it back when the price is cheaper.
This occurs when implied volatility is high, then subsequently decreases.
conclusion
When we are selling options, we are aligning all the factors of option pricing to our advantage:
time, stock-price direction, and volatility. The typical probability of “profit” for the average option
buyer is only around 25 to 30% – hardly a success! The only way the typical option buyer can win
is when the underlying stock price moves significantly in his or her direction. All other factors work
against the average option buyer.

Option selling is an art in itself and has an immense edge in trading but an understanding of many
concepts is essential before you start option selling and a slightly higher capital is required
compared to option buying.

Option buying is better for scalping, they will not have much time, should book profits quickly.

Option sellers should have much patience they should wait till the expiry to gain full profits.
 DELTA

GAMMA

Opti on Gre e ks THETA

VEGA

RHO (NOT IMP)

LET'S UNDERSTAND AND STUDY OPTIONS USING OPTION GREEKS. HERE IS WHAT THEY ARE:

Measures the rate of change of options premium based on

DELTA the directional movement of the underlying

OPTION TYPE DELTA VALUE

CALL OPTION 0 TO 1

PUT OPTION - 1 TO 0

Say you bought Nifty 18300 Call Option which has a Delta of 0.22.
Now Multiply it with lot size which comes to (0.22*50 = Rs.11)
It indicates that If the Nifty move up by 1 Rupee, Your call option value will increase by Rs.11
If the Nifty value decrease by 1 Rupee then the call option value will decrease by Rs.11
Reverse is the scenario if you sold the call option. Means option value decreases by Rs.11 if Nifty goes up by
Rupee 1 and vice versa.
DELTA
CALL OPTION DELTA
NIFTY CALL OI CHAIN 20TH JAN EXPIRY AS ON 14TH JAN
FOR ITM CALL OPTIONS
Delta vaires from 0.6 to 1

FOR ATM CALL OPTIONS

Delta will be 0.45 to 0.55

FOR OTM CALL OPTIONS

Delta will be between 0 to 0.45
DELTA
PUT OPTION DELTA
NIFTY PUT OI CHAIN 20TH JAN EXPIRY AS ON 14TH JAN
FOR ITM PUT OPTIONS
Delta vaires from [-0.6 to -1]

FOR ATM PUT OPTIONS

Delta will be [-0.45 to -0.55]

FOR OTM PUT OPTIONS

Delta will be between [0 to -0.45]
LET'S UNDERSTAND AND STUDY OPTIONS USING OPTION GREEKS. HERE IS WHAT THEY ARE:

Measures the rate of change of DELTA with respect to

GAMMA
price of underlying asset.

Gamma is higher at ATM and becomes less as it moves away from ATM on
both sides which means Delta for ATM strikes will change much as
compared to OTM & ITM strikes
THETA

It refers to the rate of decline in the value of an option due to the passage of time.
It can also be referred to as the time decay of an option.
This means an option loses value as time moves closer to its maturity, as long as everything is held
constant.
Theta is generally expressed as a negative number and can be thought of as the amount by which an
option's value declines every day.
VEGA

Vega is the measurement of an option's price sensitivity to changes in the volatility of the underlying
asset. Vega represents the amount that an option contract's price changes in reaction to a 1% change
in the implied volatility of the underlying asset.
Option value rises as Implied volatility rises and vice versa
Implied Volatility indicates uncertainty in the markets. If Uncertainty in the market rises, IV value will
rise it can be generally observed during RBI policy announcements, Budget announcements or
Company Results / any important news related to the company etc.
Vega loses its value sharply when it is near expiry.
Option sellers will take advantage of this fact and sells options before results etc when vega is high
to get more premium and square off immediately after the results and if it comes as expected there
won't be any more uncertainty so the vega falls and so the option value. So they now buy the
options when vega is less and make money.
PUT IT GOGETHER OPTION BUYING VS SELLING

Lets take Nifty call option as reference at same strike price

Nifty Spot @ 18255 on Jan 14th

# these values are per 1 lot

And Bank Nifty Put option with different strikes
As of 14 Jan - Bank Nifty Spot at 38,370

# these values are per 1 lot

q&A Session
 End of the Session
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Mindfluential Trading
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