Amrut Batch VIVA exam - Q&A

Dr Ramachandran Govindasamy • September 26, 2022

Special Thanks to My G10 Global group & Trio group (Dr Aravind, Dr Abid & Dr
Angad)

Q1. Calculate extrinsic value percentage of options.

Example taken: NIFTY Derivatives Option chain

NIFTY Asset price is 17,016.30 As on 26-Sep-2022 15:30:00 IST

29 Sept Expiry

EV % = EV/Strike price * 100

For Call, IV = Asset - Strike price; EV = Premium - IV

For Put, IV = Strike - Asset price; EV = Premium - IV

For OTM, Premium = EV, as IV is only 0 or +

At strike price of 17000:

Call IV = 16.3 (17016.30-17000 ); Call EV = 144.2(160.50-16.3)

EV% = 0.8% {(144.2/17000)*100}

Put IV = 0 (-16.3);Put EV = 125

EV% = 0.73% {(125/17000)*100}

At strike price of 17300:

Call IV = 0; Call EV = 46.20

EV% = 0.26% {(46.20/17300)*100}

Put IV = 283.7 (17300-17016.3);Put EV = 24.3 (308-283.7)

EV% = 0.14% {(24.3/17300)*100}

Q2. If Nifty is at 18000. You want to buy 1 nifty future and keep leverage 1.2 X.
How much capital do you need?

Leverage = Contract value*No of lots /Total Capital

Contract value = Lot size (50) * Nifty cost

Total capital = Contract value / Leverage

Answer:

Capital needed = (18000*50)/1.2 = 750000

Q3 If you have 30 Lakhs capital. Nifty 18000 and you want to take 1.2x Leverage.
How many lots of nifty future are permissible?

No of lots = Leverage*Total Capital/Contract value

Answer:

No of Lots of Nifty future = (1.2*3000000)/(18000*50) = 4

Q4: What are the parameters to assess liquidity in options? Calculate ASK-BID
spread of ITM call or Put liquidity.

It is said Liquid in options, if:

(Ask-Bid/Strike)*200 <0.5% or Ask-Bid<Strike/200

OI > 100; Volume > 200

For Call ITM at 16800: {(295.45-293)/16800}*200 = 0.028 -> Liquid

For Put ITM at 17200: {(238.9-235.45)/17200}*200 = 0.04 -> Liquid

Roughly around ATM -> More liquid & Deep ITM -> Less liquid

Note: It is said Liquid in Other scripts, if: {(Ask-Bid)/(Ask+Bid)}*100 <0.5%

Q5. Why do we roll over on Tuesday of expiry week? What happens if you don’t do
roll over?

Do roll over on Tuesday of expiry week, for following reasons

a) The margin money needed gets doubled at end of two days

b)Volatility is high & hence chances of OTM option becoming ITM and going for
settlement is high

c)Illiquidity

In case of failure to do roll over, it may end up with settlement in the following order,

Margin call ->Netting off -> Delivery -> Auction

Q6. How much SPANEX margin is required to sell one ATM put of any one stock
{Reliance, TCS, Nifty, HUL, ITC)?

First go to NSE website determine what strike is ATM for that stock, then to Zerodha
Margin calculator
Reliance

HUL
NIFTY

TCS
 ITC

Q7. What are ABC plans of CC1?

CC1 to capture EV (Covered call): Sell Call at ATM and Buy shares

Plan A : Market goes sideways (Range of 10% for equity or 5% for index above and
below the anchor price) - Do Roll over of call & Don't touch shares.

Plan B: Market goes upwards beyond 10% for equity or 5% for index - Square off both
trade i.e., Book profit in shares & Book loss in call

Plan C: Market goes downwards beyond 10% for equity or 5% for index - Exit from call
by booking profit and hold on to shares (become an investor) till it reaches anchor
price. Then start doing CC1
 Credits to Dr Angad Sir (Amrut batch)

Q8. What are 12 commandments of TMP?

Flexible questions (Any two questions to be asked)

Q1. Demonstrate LOPA drawing

 LOPA drawing

Q2. Demonstrate Reversal Candle (Palat)

Green candle after an doji candle at Lopa

Q3. Demonstrate Fibonacci Retracement

Q4. Demonstrate One MPTDS stock analysis

Ex: Reliance

M - Market capitalization > 10,000 Crores (Reliance Market cap = 1608362 -> Ok)

P - Share Price should be uptrend (Reliance Share Price has increased over all in max
time frame-> Ok)
T - Tax paid should increase (Reliance tax paid is seen in cash flow statement - cash from
operating activity - Direct taxes in negative value is increasing year on year -> Ok)

D - Dividend paid should be increasing (Reliance dividend paid is seen in cash flow
statement - cash from financing activity - Dividend is in negative value & is increasing year
on year -> Ok)
S - Sales should be increasing (Reliance Sales has increased over all year on year -> Ok)

Inference : Reliance is MPTDS valid, as all are fulfilled

Q5. How do you manage FOMO, FOLM?

Q6. How do you reduce roll over cost?

The costs involved in Roll over are Roll over cost (Forwardation/Backwardation),
Slippage cost, Transaction cost, Premium difference

To reduce the costs : Do during quiet market - Lunch time around 2pm,(Reduces
slippage cost), Titrate orders to avoid slippage & Roll over cost, Take longer expiry
period & Income from liquid bees or arbitrage compensates costs incurred.

Q7. What is difference between Implied Volatility and Historical volatility?

Market price = Calculated price + Speculative price

Historical volatility - Annualised standard deviation of the return that happened in past
(Gives calculated price)

Implied volatility - Represents future volatility of 30days based on demand & supply
(Gives market price)

Q8. What are the determinants of Extrinsic value?

The determinants influencing EV are TVIDDDS

EV Directly proportional to (Time of expiry, Volatility , Demand , Interest rate & Dividend)

EV Indirectly proportional to (DAS -Distance between Asset and Strike & Supply).

Q9. Why do 99% traders lose money?

1. They don't have PDF

2. They do not manage their leverage.

3. They don't have entry criteria or exit strategies

4. They don't have proper FNO knowledge

5. They indulge in TIPS trading.

6. They don't have a strong support team ( Amrut group with guides) to guide them .

Q10. What’s is M2M settlement?

It is Mark to Market settlement, which is seen in Future. This settlement is a realised

P/L and it is daily cash settled.

Q11. What is the sequence of three buckets of margin?

ELCa in that order, Where Liquid collateral is Liquid bees

Q12. What is contract value of Gold M and how much is SPANEX margin
requirement?

The contract value of Gold M is 100 gram. The Spanex margin required for Gold M is
usually 9-10% of contract value, where contract value is 10(T/B)*Market price of Gold
M.