Mastering Options Trading: by Mentor - Ravi Chandiramani

Mastering
Options Trading
By Mentor – Ravi Chandiramani
Important Announcement
• Process to Join the Session is given in the Welcome kit
• Schedule of Sessions is shared in the Welcome kit (Refer that)
• It is advisable to Join the “Mastering Options Trading” telegram group
for important updates & be active in that.
• We will send reminders on App Chats, Emails, Telegram
• Queries will be resolved through Query form within 24 hours
(Query form is available in Welcome Kit)
• We will announce the final city names by 20th January 2023
Additional Bonus
for you
Every Session’s Test will be conducted
• Test will be conducted at start of Every Session
• Whoever get the highest Marks in the Test, will be Awarded at
the time of Meet-Up
• Test will be unlocked at 7:00 PM, you have to finish the test
before 8:00 PM
• Please watch “How to give Test” video in the Welcome Kit
Mastering
Options Trading
By Mentor – Ravi Chandiramani
Why Options Trading?
o Dynamic View Points Covered

o Mastery in 2 Scripts
o 90% Less Brokerage Charges
o Hedging Possible
o No Multiple Chart Readings Required
o Interesting & Thrilling
Definition of Options
An Option is Defined as the “RIGHT, not the
obligation, to Buy (Or Sell) an asset at a fixed
price on a Pre-determined Date.”
Let’s Have a Look at
that Definition:
 The Right, not the obligation
 To Buy or Sell an Asset
 At a Fixed Price
 On a Pre-determined Date
Lets Understand
Right to Buy
Mr. Dev is the
Owner of
5 BHK Bungalow
Mr. Mohit is a
Businessman
Right To Buy:
Today - January 2023
7th
Price of Bungalow is 5 Crores

Mohit expect that price of this bungalow
will rise in three months to ₹ 6 Crores.
But He doesn’t have funds Right Now.
Dev Wants to Sell his property Today

at Current Market Price (CMP)
Right To Buy:
So Mohit Request to Dev that
please wait for 3 Months I will
Buy Your House at ₹ 5 Crores
after 3 Months.
Dev will not do this
for Free
So Mohit is ready to Pay ₹ 10 Lakhs

against the “RIGHT TO BUY” CONTRACT.
They Signed a
“RIGHT TO BUY” Contract
on 7 Jan 2023
th
Thought Process of Dev & Mohit
while Signing “RIGHT TO BUY” Contract
Dev (Owner of Bungalow) thinks

that price will not increase & will remain
constant at ₹ 5 Crores or might reduce
Mohit (a businessman) thinks

that Price can come up at least
till ₹ 6 Crores
Task for You
click 10 secs small video on
Instagram and tag us
@tradelegend.in
On 31stMarch 2023,
Price of the House is
₹ 6 Crores
Right To Buy
ON 31st March 2023 – If Price Becomes 6 Crores
 Mohit will Exercise “RIGHT TO BUY”

 Dev Has a Obligation to Sell Bungalow at Rs. 5 Crores
 Mohit Got a Profit of Rs. 90 Lakhs (1 Crore – 10 Lakhs)
 Dev is in Net Loss of Rs. 90 Lakhs (1 Crore – 10 Lakhs)
On 31stMarch 2023,
₹ 4 Crores
Right To Buy (CALL OPTION)
ON 31st March 2023 – If Price Becomes 4 Crores
- Mohit will Not Exercise “RIGHT TO BUY”

- Mohit is in Net Loss of Rs. 10 Lakhs
- Dev is in Net Profit of Rs. 10 Lakhs
Right To Buy (Call Option)
Terms of Agreement:
1. Mohit (Call Option Buyer) has Right (Not Obligation) to Buy
Bungalow at Rs. 5 Crores (Strike Price) on 31st March 2023
(Expiry Date)
2. Dev (Call Option Seller) Has Obligation (Not Right) to Sell

Bungalow at Rs. 5 Crores on 31st March 2023, if Mohit Exercise
the “Right to Buy”
3. Mohit has Paid Rs. 10 Lakhs (Premium) for “RIGHT TO BUY” (Call
Option)
Why Right to Buy
is called as
“Call Option”
Price on 31-3-23 Profit/Loss of Dev Profit/Loss of Mohit
10 Crores (4.9 Crores) 4.9 Crores
6 Crores (90 Lakhs) 90 Lakhs
5 Crores 10 Lakhs (10 Lakhs)
1 Crore 10 Lakhs (10 Lakhs)

Lets Understand
Right to Sell
Mr. Dev is the
Owner of one more
8 BHK Bungalow
Mr. Mohit is a
Businessman
Right To Sell:
Today – April 20232nd
Price of Bungalow is 10 Crores

Dev expect that price of this bungalow
will fall down to ₹ 8 Crores in three months.
He wants to Sell his bungalow BUT after 3 months.
Mohit expect that Price of this

property will not Fall but might Rise.
Right To Sell:
So Dev Request Mohit to BUY his Property
at Today’s price but after 3 Months
Mohit will not do this

for free
So Dev is ready to Pay ₹ 15 Lakhs against

the “RIGHT TO SELL” CONTRACT.
They Signed a
“RIGHT TO SELL” Contract
on 2nd April 2023
Thought Process of Dev & Mohit
while Signing “RIGHT TO SELL” Contract
Dev (Owner of Bungalow) thinks
that price might fall down
to ₹ 8 Crores in 3 Months.
Mohit (a businessman) thinks that price will

not reduce but will remain constant or might
increase.
On 30th June 2023,
₹ 8 Crores
Right To Sell
ON 30th June 2023 – If Price Becomes 8 Crores
 Dev will Exercise “RIGHT TO SELL”

 Mohit Has a Obligation to Buy Bungalow at Rs. 10 Crores
 Dev Got a Profit of Rs. 1.85 Crores (2 Crores – 15 Lakhs)
 Mohit is in Net Loss of Rs. 1.85 Crores (2 Crore – 15 Lakhs)
On 30th June 2023,
₹ 12 Crores
Right To Sell
ON 30th June 2023 – If Price Becomes 12 Crores
- Dev will Not Exercise “RIGHT TO SELL”

- Dev is in Net Loss of Rs. 15 Lakhs (Premium Amount)
- Mohit is in Net Profit of Rs. 15 Lakhs (Premium Amount)
Right To Sell (Put Option)
Terms of Agreement:
1. Dev (Put Option Buyer) has Right (Not Obligation) to Sell
Bungalow at Rs. 10 Crores (Strike Price) on 30th June 2023
(Expiry Date)
2. Mohit (Put Option Seller) Has Obligation (Not Right) to Buy

Bungalow at Rs. 10 Crores on 30th June 2023, if Dev Exercise the
“Right to Sell”
3. Dev has Paid Rs. 15 Lakhs (Premium) for “RIGHT TO SELL” (Put
Option)
Why Right to Sell
is called as
“Put Option”
8 Crores 1.85 Crores (1.85 Crores)

How We will Trade Options
■ Options Itself has a Value.
■ Premium Amount is the Value of Options.
■ We will Buy and Sell Options to Make Profit from
the differences of Premium. (Options Value)
How We will Trade Options
■ We will Trade Options (Contract) not the Stocks

■ Same as Trading Shares/Futures through Demat
Account
■ We will not focus on Physical/Cash Settlement but
will Square Off Position before Expiry
Options
Premium
Time Intrinsic
Value Value
INTRINSIC VALUE:
■ Is only affected by a change in price of the

underlying.
■ It does not waste away or decay.
TIME VALUE:
■ Time Value is another way of saying “Hope Value”.

■ This Hope is based on the amount of time left
until expiration and the price of the underlying
asset.
■ It Decays and Becomes Zero at Expiration.
Formulas for
Intrinsic & time Value
for Calls
Call Intrinsic Stock Strike
= Price -
Value Price
• The
a Minimum Intrinsic Value is Zero
Call
Call Time Call
= - Intrinsic
Value Premium
Value
• The
Formulas for
for Put
Put Strike Stock
Intrinsic = -
Price Price
Value
• The
Put Put
Put Time Premium - Intrinsic
=
Value (or value) Value
• The
Options are Derivatives
■ A derivatives is a security with Price that is
dependent upon or derives from one or more
underlying assets.
■ The Derivatives itself is a contract between two or
more parties based upon asset or assets
■ Its Value is determined by fluctuations in the
underlying assets
ITM, ATM, OTM
■ ITM (In-The-Money) : An Option is called as In the
Money Option if it has an ‘Intrinsic Value’
■ ATM (AT The Money) : An Option is called as ‘At-
The-Money’ Option when its Strike Price is Equal
to underlying asset Price.
■ OTM (Out Of The Money) : An Option is called ‘Out
of the Money’ option if it has Zero Intrinsic Value
ITM, ATM, OTM
■ A Call is ITM when the underlying asset price is
greater than the strike price.
■ A Call is OTM when the underlying asset price is
less than the Strike Price.
■ A Call is at-the-Money (ATM) when the underlying
asset price is the same as the Strike Price.
ITM, ATM, OTM
■ Put Options work the Opposite way
■ A Put is ITM when the underlying asset price is
less than the strike price.
■ A Put is OTM when the underlying asset price is
greater than the Strike Price.
■ A Put is at-the-Money (ATM) when the underlying
asset price is the same as the Strike Price.
Risk
Profiles
In Option Buying: In Option Selling:
Risk is Limited Risk is Unlimited
Profit is Unlimited Profit is Limited
Long/Short VS Put/Call
Long Call Option Risk Profile
■ 12
Profit (+)
■ 22
■ 90
Breakeven Line
■ 64
■ 1
Loss (-)
■ 45
Asset Price

Short Call Option Risk Profile
■ 12
Profit (+)
■ 22
■ 90
Breakeven Line
■ 64
■ 1
Loss (-)
■ 45
Asset Price

Long Put Option Risk Profile
■ 12
Profit (+)
■ 22
■ 90
Breakeven Line
■ 64
■ 1
Loss (-)
■ 45
Asset Price

Short Put Option Risk Profile
■ 12
Profit (+)
■ 22
■ 90
Breakeven Line
■ 64
■ 1
Loss (-)
■ 45
Asset Price

Options are Derivatives
Memory Tips For Long and Short Calls
and Puts
■ Consider Call as a (+)
■ Consider Put as a (–)
■ Consider Buying as a (+)
■ Consider Selling as a (-)
■ Consider Support as a (+)
■ Consider Resistance as a (-)
Remember Your Basic Maths at School:
■ (+) + (+) = (+)

■ (+) + (–) = (–)
■ (–) + (+) = (–)
■ (–) + (–) = (+)
Remember Your Basic Maths at School:
■ (+) + (+) = (+) ■ Call Buying = Support
■ (+) + (–) = (–) ■ Call Selling = Resistance
■ (–) + (+) = (–) ■ Put Buying = Resistance
■ (–) + (–) = (+) ■ Put Selling = Support

Right To Buy (Call Option)
Lets See the Real Data of

NIFTY & BANK NIFTY
OPTION CHAIN
Options
Premium
Time Intrinsic
Value Value
INTRINSIC VALUE:
■ Is only affected by a change in price of the

underlying.
■ It does not waste away or decay.
TIME VALUE:
■ Time Value is another way of saying “Hope Value”.

■ This Hope is based on the amount of time left
until expiration and the price of the underlying
asset.
■ It Decays and Becomes Zero at Expiration.
Formulas for
for Calls
Call Intrinsic Stock Strike
= Price -
Value Price
• The
Call
Call Time Call
= - Intrinsic
Value Premium
Value
• The
Formulas for
for Put
Put Strike Stock
Intrinsic = -
Price Price
Value
• The
Put Put
Put Time Premium - Intrinsic
=
Value (or value) Value
• The
7 Factors that Influence the Options Price
1. The type of option (Call or Put)

2. The Price of the Underlying asset
3. The exercise Price (or Strike Price) of the option
4. The expiration date
5. Volatility
6. Risk-free Interest rate
7. Dividends
Fixed
VS
Variable Factor
7 Factors that Influence the Options Price FIXED VARIABLE
1. The type of option (Call or Put)
2. The Price of the Underlying asset
3. The exercise Price (or Strike Price) of the option
4. The expiration date
5. Volatility – Implied and Historical
6. Risk-free Interest rate
7. Dividends and stocks splits

For Options Trading,
we need to tackle
Variable Factors
How we will tackle
The Price of the Underlying
Asset
By Using Zero to hero Program’s
Chart Reading Technique
How we will tackle
The Volatility of the
Underlying Asset
Volatility Types:
Historical Implied
Volatility
Volatility Types
Volatility
What is Historical Volatility?
Historical Volatility is a reflection
of how the underlying asset
has moved in the past
Stock Price
OPTION
Strike Price
Type Of Option
Time To Expiration Theoretical

PRICING Option
Value
Interest Rates
Dividends
MODEL
Historical Volatility
What is Implied Volatility?
Implied Volatility is derived from
the actual premium price of the
option itself
Please Note:
Implied volatility (IV) does not raise the
price of the options, the rise of the
options premiums raise the implied
volatility. Everything is implied off the
premium, not the volatility.
Option
Premium Option
In Market
Stock Price
Implied Volatility
Strike Price Of Option Being
Pricing
Traded In The
Type Of Option Market
Time To Expiration
Interest Rates Model
Dividends
Based on Option Prices
Based On Underlying
(Premium Values)
Stock Prices in the Past
Measurement of Speed
Measurement of Speed in the Future
in the Past (Expectations)
Historical Implied
Tells How Fast or Slow the Volatility Volatility Tells the Future
Stock has been moving Movement
in the Last One Year Expectations of People
Past Stock movement Options Prices Derives

Derives the Value the Value
Implied Volatility & the Rubber Band Effect
■ 12
■ 22
■ 90
■ 64
■ 1
■ 45
34% 34%
68%
14% 14%
95%
2% 2%
0.1% 0.1%
Calm
5 15 25 35 45 50 55 65 75 85 95
Panic
• Low Expectation • High Expectation

Low Implied Volatility &
IV
Options Premium
 The Lower the Implied Volatility, the
Options are Higher the options premium for the
Cheaper
same move in the underlying.
 The Lower the IV, the LESS INFLATED
the options, the Options will be price
We should
be Buyer Cheaper.
Implied Volatility & High
Options Premium IV
 The Higher the Implied Volatility, the

Higher the options premium for the Options are
same move in the underlying.
Expensive
 The Higher the IV, the MORE
INFLATED the options, the Options
We should
will be price expensive. be Seller
Condition Low IV High IV
 Net Buyer of  Net Seller of

1. Asset in the
Call Options Put Options
Demand Zone
 Debit Strategy  Credit Strategy
 Net Buyer of  Net Seller of

1. Asset in the
Put Options Call Options
Supply Zone
 Debit Strategy  Credit Strategy
IV Rank (IVR)
Ranks the current Implied Volatility against
the historical Implied Volatility Range
(IV High — IV Low),
over a period of one year.
IV Rank (IVR)
Ranks the current Implied Volatility against the historical Implied Volatility
Range (IV High — IV Low), over a period of one year.
Example: IVR Calculation:

NIFTY5O IVR = (cIV –lIV)/(hIV-lIV)
Current IV (cIV) = 13 = (13-11)(28-11)
IV High(hIV) (Last One Year) = 28 = 11.76%
IV Low (lIV) (Last One Year) = 11
IV Rank (IVR)
This implies that the Higher the IVR Rank Options are Inflated & Expensive.
Similarly Lower the IVR Rank Options are Deflated & Cheap.
* When a stocks implied volatility falls after a spike in volatility, the IV Rank readings
may be flawed due to the volatility spike. This could lead to wrong IVR readings
and wrong selection of strategies.
IV Percentile ( IVP)
Tells the percentage of time in which the
stocks Implied Volatility was lower
than the current Implied Volatility
Tells the percentage of time in which the stocks Implied Volatility was
lower than the current Implied Volatility over a period of one year.
Example: IVP Calculation:

NIFTY5O IVP = Number of Trading days below
Current IV (cIV) = 13 current IV/250
No of Trading Days IVP = 35/250
below current IV = 35 = 14%
The IVP of 14% implies that the IV of NIFTY 50 was lower than the Current IV
of 13 for 14% of trading days in the last one Year
 Higher the IVP Value, Higher the Options Premium and hence Options are
inflated and expensive
 Lower the IVP Value, Lower the Options Premium and hence Options are
Deflated & Cheap
IV -HV Gauge
Ranks the currant Implied Volatility against
the Historical Volatility range
( HV High — HV Low),
IV -HV Gauge
Compares the currant Implied Volatility against the stocks Historical

Volatility range ( HV High — HV Low), over a period of one year.
Example: IV -HV Gauge

NIFTY5O
Current IV (cIV) = 13 6% 14% 25%
HV High(hIV) (Last One Year) = 25
HV Low (lIV) (Last One Year) = 6 Current IV
IV -HV Gauge
 If Current IV is closer to High HV Value – Options are Inflated and Expensive
 If Current IV is closer to Low HV Value – Options are Deflated and Cheap

Strike Selection Criteria
When Selling When Buying

Option Option
The Greeks
 The Study of Greeks allows us to measure how key factors might affect
the options premium. The Most important factors are:
• Underlying Script Movement
• Time Passage
• Changes in Volatility
• Interest Rate
 Greeks are Calculated using theoretical Option Pricing models.
(e.g. Black & Scholes model)
 The Greeks are simply sensitivities to options risk characteristics
“D”elta
• Impact of Direction/Scrip Moving
• It tells us how much will be the options premium change for 1 rupee
movement in the underlying price
“T”heta
• Impact of “T”ime passing
• Its tells us how much will be the options premium change for 1 Day
Passing
“V”ega
• Impact of changes in implied “V”olatility
• Its tells us how much will be the options Premium change for 1% change
in Implied Volatility
The Delta Greek
 The Delta option is the rate of change of option price compared with
the price movement of the underlying asset price.
 In other words, delta measures the speed of the option price movement
as compared with movement of the underlying asset.
Rate of Change in options Price

• Delta =
Rate of Change in underlying asset Price
The Delta Greek
 Delta is the probability of the option expiring ITM.

 Therefore, for every one dollar the stock moves, the call
will move at approximately 0.50 (that is, half the distance
of the underlying stock). Inevitably, as the stock price
moves away from the ATM position, the delta value will
change too, away from 0.50.
The Delta Greek
 ATM CALLS have a Delta of 0.5, meaning that for every one
point that stocks rises, the option will increase by 0.5
Points
 ATM puts have a delta of - 0.5, meaning that for every one
point the stock falls, the options price will increase by 0.5
points.
The Delta Greek
 If you buy an ATM call, then you have a delta of 0.5.

 If you sell an ATM call, then you have a delta of - 0.5
 If you buy an ATM put, then you have a delta of - 0.5
 If you sell an ATM put, then you have a delta of 0.5
 All bought calls have a positive delta
 All sold calls have a negative delta
 All bought puts have a negative delta
 All sold puts have a positive delta
The Delta Greek
 Longer-term Options will generally have lower deltas than

shorter-term options
 Delta is principally affected by the time left to expiration

and the price of the underlying asset
The Delta Greek
Delta measures the change in the options premium for a one point
change in the price of the Underlying Asset.
Calls have positive deltas ranging from 0 to +1
• Far OTM calls have Deltas approaching 0
• ATM calls have deltas of approximately +0.5
• Far ATM calls have deltas approaching +1.
Puts have positive Deltas ranging from -1 to 0
• Far OTM calls have deltas approaching 0
• ATM calls have deltas of approximately +0.5
• Far ITM calls have deltas approaching +1
Theta
 Theta is arguably the most important sensitivity of the greeks

and is certainly on a par with delta
 The Characteristic of Option Prices to change purely as result of
the passage of time is know as time decay.
 Theta is the measure of how time decay affects the option
premium . As such theta is nearly always negative for bought
options.
How can you mitigate Time Decay
 Sell options you don’t own as an adjustment to existing trades – We’re

not talking about creating naked positions here: the sold options is
complementary to your existing play (for example: bull and bear
spreads
 Buy short-term deep ITM options (for example, a deep ITM call will have
a big intrinsic value and virtually no time value) – if there is no time
value, then it can’t decay further!
VEGA
 Vega Starts with a V and stands for Volatility
 Vega measures an options sensitivity to the stock’s volatility

VEGA
 As implied volatility changes due to the dynamics of the crowd

Expectations. The Time Value Portion of the Options Premium Inflates
or Deflates.
 Vega tells us the impact of these IV changes on the options premium.
 Changes in implied volatility can have a greater impact on an option's
premium

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Mastering

o Dynamic View Points Covered

Price of Bungalow is 5 Crores

Dev Wants to Sell his property Today

So Mohit is ready to Pay ₹ 10 Lakhs

Dev (Owner of Bungalow) thinks

Mohit (a businessman) thinks

ON 31st March 2023 – If Price Becomes 6 Crores

 Mohit will Exercise “RIGHT TO BUY”

ON 31st March 2023 – If Price Becomes 4 Crores

- Mohit will Not Exercise “RIGHT TO BUY”

2. Dev (Call Option Seller) Has Obligation (Not Right) to Sell

9 Crores (3.9 Crores) 3.9 Crores

8 Crores (2.9 Crores) 2.9 Crores

7 Crores (1.9 Crores) 1.9 Crores

6 Crores (90 Lakhs) 90 Lakhs

5 Crores 10 Lakhs (10 Lakhs)

4 Crores 10 Lakhs (10 Lakhs)

3 Crores 10 Lakhs (10 Lakhs)

2 Crores 10 Lakhs (10 Lakhs)

1 Crore 10 Lakhs (10 Lakhs)

Price of Bungalow is 10 Crores

Mohit expect that Price of this

Mohit will not do this

So Dev is ready to Pay ₹ 15 Lakhs against

Mohit (a businessman) thinks that price will

ON 30th June 2023 – If Price Becomes 8 Crores

 Dev will Exercise “RIGHT TO SELL”

ON 30th June 2023 – If Price Becomes 12 Crores

- Dev will Not Exercise “RIGHT TO SELL”

2. Mohit (Put Option Seller) Has Obligation (Not Right) to Buy

14 Crores (15 Lakhs) 15 Lakhs

13 Crores (15 Lakhs) 15 Lakhs

12 Crores (15 Lakhs) 15 Lakhs

11 Crores (15 Lakhs) 15 Lakhs

10 Crores (15 Lakhs) 15 Lakhs

9 Crores 85 Lakhs (85 Lakhs)

8 Crores 1.85 Crores (1.85 Crores)

7 Crores 2.85 Crores (2.85 Crores)

6 Crores 3.85 Crores (3.85 Crores)

■ We will Trade Options (Contract) not the Stocks

■ Is only affected by a change in price of the

■ Time Value is another way of saying “Hope Value”.

9 Crores (3.9 Crores) 3.9 Crores

8 Crores (2.9 Crores) 2.9 Crores

7 Crores (1.9 Crores) 1.9 Crores

6 Crores (90 Lakhs) 90 Lakhs

5 Crores 10 Lakhs (10 Lakhs)

4 Crores 10 Lakhs (10 Lakhs)

3 Crores 10 Lakhs (10 Lakhs)

2 Crores 10 Lakhs (10 Lakhs)

1 Crore 10 Lakhs (10 Lakhs)

9 Crores (3.9 Crores) 3.9 Crores

8 Crores (2.9 Crores) 2.9 Crores

7 Crores (1.9 Crores) 1.9 Crores

6 Crores (90 Lakhs) 90 Lakhs

5 Crores 10 Lakhs (10 Lakhs)