OPTION TRADING WITH

BIJAY KUMAR SHARMA (CA)

INTRADAY TRADING STRATEGY
 AGENDA

• OPTION – BASICS
• INTRODUCTION OF INDICATORS USED
• MARGIN REQUIREMENTS
• GENERAL RULE FOR OPTION CHAIN ANALYSIS
• SPOTTING IRREGULARITIES IN OPTION CHAIN
• TRADE PLAN – EXAMPLES OF EXECUTION
 OPTION – BASICS
• CALL (CE) OPTION IS A CONTRACT THAT GIVES THE OPTION BUYER THE RIGHT TO BUY AN
UNDERLYING ASSET AT A SPECIFIED PRICE WITHIN A SPECIFIC TIME PERIOD.

• PUT (PE) OPTION IS A CONTRACT THAT GIVES THE OPTION BUYER THE RIGHT TO SELL AN
UNDERLYING ASSET AT A SPECIFIED PRICE WITHIN A SPECIFIC TIME PERIOD.

• OPEN INTEREST IS THE TOTAL NUMBER OF OUTSTANDING DERIVATIVE CONTRACTS THAT

HAVE NOT BEEN SETTLED FOR AN ASSET.
• VOLUME IS THE TOTAL NUMBER OF DERIVATIVE CONTRACTS TRADED FOR AN ASSET ON A
GIVEN TRADING DAY.
 OPTION – BASICS
• STRIKE PRICE IS A SET PRICE AT WHICH A CALL/PUT CAN BE BOUGHT OR SOLD WHEN IT IS
EXERCISED.
• SPOT PRICE IS THE CURRENT MARKET PRICE OF A SECURITY, CURRENCY, OR COMMODITY
AVAILABLE TO BE BOUGHT/SOLD FOR IMMEDIATE SETTLEMENT.
• IN THE MONEY STRIKES (ITM)
• AT THE MONEY STRIKES (ATM)
• OUT OF MONEY STRIKES (OTM)
Bank Nifty Spot Price : 34820.
ITM ATM OTM

CE Strike Price < Spot Price Strike Price near to spot Strike Price > Spot Price
< 34820 eg : 34700, 34600 etc ie: 34800 > 34820 eg : 34900, 35000 etc
Strike Price > Spot Price Strike Price near to spot Strike Price < Spot Price
PE > 34820 eg : 34900, 35000 etc ie: 34800 < 34820 eg : 34700, 34600 etc
 INTRODUCTION OF INDICATORS USED
• BULLISH STRADDLE IS A STRADDLE WHICH CONSISTS OF OTM PUT AND ITM CALL.
FOR EG. IF SPOT IS 34800 THEN ANY STRIKE WHICH IS 34700 OR BELOW FOR BOTH CE AND
PE IS A BULLISH STRADDLE.
• BEARISH STRADDLE IS A STRADDLE WHICH CONSISTS OF ITM PUT AND OTM CALL.
FOR EG. IF SPOT IS 34800 THEN ANY STRIKE WHICH IS 34900 OR ABOVE FOR BOTH CE AND
PE IS A BEARISH STRADDLE.
• VWAP (VOLUME WEIGHTED AVERAGE PRICE) IS THE AVERAGE PRICE OF A STOCK WEIGHTED
BY THE TOTAL TRADING VOLUME.
VWAP = ∑PRICE * VOLUME​ / ∑VOLUME
 MARGIN REQUIREMENT

Buying Option Selling Option

BankNifty Only Premium ~1,30,000

Eg 34800Ce ( 300*25 ) = 7500

Nifty Only Premium ~95,000

Eg 16000Ce ( 160*50 ) = 8000
 GENERAL RULE FOR OPTION CHAIN ANALYSIS

Bullish View Bearish View

Increase OI Decrease OI Increase OI Decrease OI

ITM PE OTM CE ATM CE ITM CE OTM PE ATM CE ATM PE

ATM PE

Very Very
Bullish Bearish
Bullish Bearish
 SPOTTING IRREGULARITIES IN OPTION CHAIN

• ABNORMAL INCREASE OF OI IN ITM CONTRACT

• ABNORMAL DECREASE OF OI IN OTM CONTRACT

 36000 Straddle – OI fall

This is Combined OI chart. BNF 36000 Bearish Straddle on 11/07/22 for 28/Jul Expiry. 36000 Straddle OI fall was very high. It was
Bearish Signal. Later BNF closed at 35480 on 11/7 and on 14/7 it closed at 34720, move of 800 points.
 35500 Straddle – OI fall

This is Combined OI chart. BNF 35500 Bearish Straddle on 13/07/22 for 28/Jul Expiry. 355000 Straddle OI fall was very high. It
was Bearish Signal. Later on 14/Jul Bnf fell 200points.
 16300 CE – Buy Example

This is the chart of Nifty 16300CE 22/Jul Expiry. Nifty was at 16150 and OI for OTM 16300CE started falling and Price crossed
VWAP. It was a Buy with VWAP as SL. Later price reached 84 from 56 in just 30minutes.
 35000 CE – Buy Example

This is the chart of BNF 35000CE 22/Jul Expiry. BankNifty was making high but OI of 35000CE was also rising, sellers not exiting
their positions something not normal. OI was around 37Lk too high. Once 35000CE broke VWAP at 10.20am. It was a of Sell with
VWAP as SL. Later VWAP was never challenged, and price became 0 from 105.
 35000 PE – Buy Example

This is the chart of BNF 35000PE on 14/Jul/22 for 22/Jul Expiry. After OI fall below day low around 11.15am shown with red line
and Price crossed VWAP. It was a of Buy with VWAP as SL. Later VWAP was never challenged, and price doubled from 200 to 440.
 BIJAY KUMAR SHARMA (CA) – DERIVATIVES TRADER

I AM A TRADER – NEITHER A BEAR NOR A BULL

I AM OPTION PLAYER – NEITHER A BUYER NOR A SELLER
TELEGRAM CHANNEL - @BJYBNF