Options Trading 🤹🏼- “Mission Options” -PRSundar🧔

0. Introduction : Syllabus📑

1. Derivatives in Stock Market📈

Derivatives : Derived from underlying product. Eg : Milk - Curd

Types of Derivatives

1. Forwards 2. Futures 3. Options 4. Swaps 5. Swaptions

Forward Contracts

Make contract for mitigating risks.
Not traded in stock exchanges.

2. Arbitrageurs & Speculators🗣️

Buy Sell difference.

3. Basics of Futures Trading🛂

People who trade in futures have no futures, People who trade in Options have plenty of options. P S Sundar

4. Futures Margin Explained🔖🛂

SPAN Margin : Standard Portfolio Analysis Margin
International exchanges charge span margin only.
Indian exchanges charge Exposure margin also.
Exposure margin is same. But Span Margin fluctuates.

Settlement happens everyday, If I am losing I am paying & if I am gaining I am getting paid. This is called M2M Profit / Loss.

5. Options Explained with Examples & History🤹🏼‍♂️

All over the World Options is sold more than cash market & Futures market.
Only in year 2000 Futures was introduced in India
Only in 2001 Options was introduced in India

6. Call Option Explained👍🏼

Important :==Here if Strike Price is ₹100, Premium is ₹20 then Break even is ₹120==*

In Cricket match example score can only go one way up⬆️. But in Stock market on can be profitable at one point and be at loss the next moment. It goes both ways ♻️.

7. Put Option Explained👎🏼

Seller always have UNLIMITED loss.
Think like this, Seller always claim first, buyer then buys against that claim.

🙂 CALL Buyer : 🆙 - ==“WILL GO ABOVE”== Optimist

👨🏼: ==I want to buy 🏚️ @17,000 next month==
👨🏼: ==What if it the value goes above 17,000 next month 😥 !==
👨🏼: ==I give a fixed INSURANCE money. !==
🟢: When 🏚️ Value ==GO UP - Get Paid==😄
😡: When 🏚️ Value ==GO DOWN - Loss 100% Premium Paid==😔
👨🏼: ==CALL SELLER pays me towards 17,000==
👨🏼: ==Limited LOSS when market goes down.==

☹️ CALL Seller : 👎🏼 - ==“WONT GO ABOVE”== Pessimist

👩🏼: ==I am sure 🏚️ will cost less than @17,000 next month==
👩🏼: ==I will pay, if it goes below @17,000 !==
👩🏼: ==Get Fixed INSURANCE money. !==
😡: When 🏚️ Value ==GO UP - Pay Them==😥
🟢: When 🏚️ Value ==GO DOWN - Take Fixed Premium==😊
👩🏼: ==CALL Buyer pays FIXED premium.==
👩🏼: ==Unlimited LOSS when market goes up.==

🙂 PUT Buyer : 🆙 - ==“WILL GO BELOW”== Pessimist

👨🏼‍🦰: ==I want to sell 🏚️ @17,000 next month==
👨🏼‍🦰: ==What if it the value goes below 17,000 next month 😥 !==
👨🏼‍🦰: ==I give a fixed INSURANCE money. !==
🟢: When 🏚️ Value ==GO DOWN - Get Paid==😄
😡: When 🏚️ Value ==GO UP - Loss 100% Premium Paid==😔
👨🏼‍🦰: ==PUT SELLER pays me towards 17,000==
👨🏼‍🦰: ==Limited LOSS when market goes up.==

☹️ PUT Seller : 👎🏼 - ==“WONT GO BELOW”== Optimist

👩🏼‍🦰: ==I am sure 🏚️ will cost more than @17,000 next month==
👩🏼‍🦰: ==I will pay, if it goes below @17,000 !==
👩🏼‍🦰: ==Get Fixed INSURANCE money. !==
😡: When 🏚️ Value ==GO DOWN - Pay Them==😥
🟢: When 🏚️ Value ==GO UP - Take Fixed Premium==😊
👩🏼‍🦰: ==PUT Buyer pays FIXED premium.==
👩🏼‍🦰: ==Unlimited LOSS when market goes up.==

Put means eg: “I am putting my house for sale”.
Call means eg: “calling in an auction house”.
On Buying 🛒

Price reduces as it is farther away from the current price.

8. Option Chain & Pay Off Chart⛓️

Index traded on Option Chain
- Nifty Index
- Bank Nifty Index
- Nifty IT Index
Nifty IT is very illiquid
Goto NSE Website Options for Price.
Use OPSTRA Options Strategy Builder , to estimate profitability.

9. ITM, ATM, OTM Explained🧑🏼‍🏫

There are 3 types of Call options

ITM
- In the money Call Option
- Pricey
- High Risk - High Reward
- High Winning probability
ATM
- At the Money Call Option
- Near the price the index is trading
- Medium Risk - Medium Reward - Medium Probability
OTM
- Out of the Money Call Option '
- Low Price
- Low Risk - Low Reward - Low Probability

Important Chart 👇🏼

10. Intrinsic Value & Time Value Explained⌛

Time Value : In time there is favourable change in the price.
Time Value maximum At the money.
In India, we are using European options. ( Cannot be exercised in between )
When the option expires in the end of the month, If forget to close exchange will close, then one will only get intrinsic value, No time value.

11. Buying Stocks vs Futures vs Options🥊

OPTION If we are BUYING Call option Example :
- If One Nifty 13500 pts Call option is ₹76.50, Nifty lot size = 75, You Pay 75 * 76.5 = ₹ 5738/-
- If market moves More that 13,500 pts you gain.
- Max loss ₹ 5738/-
- If Nifty goes 14000 Pts then 500 * 75 = ₹37,500/- Profit
- Paid only ₹6K, Profit ₹38K
- Can also sell anytime.
- Limited Loss, More Profit, Catch : Expiry Date
CASH Market ( Stock Delivery)
- SBI share = ₹ 245/-
- Want to buy 3000 stocks, 3000 * ₹ 245 = ₹ 7 Lakh 35 Thousand Only
- Pay in Cash = ₹ 7,35,000/-
- 💰Tax : ₹ 1,685/-
Futures Market
- Pay Margin Money = ₹ 2,33,000/-
- 💰Tax : ₹ 175/-
Option Chain
- Pay Premium = ₹ 1,38,000/-
- 💰Tax : ₹ 330/-

==Option Same profit but when stock falls high then less loss than futures & cash market.==
So if bullish, buy IN THE MONEY call option.
if bearish, buy IN THE MONEY put option.

12. Options Selling Explained🪝

#🧔PRSundar is a Option seller.
Option seller has more probability of profit.
See Pay Off Chart from OPSTRA Options Strategy Builder

13. Options Buying vs Selling🤼

Seller need to give significantly large money as collateral than what buyer pays.
==Biggest Advantage of Option seller is that Option seller can give money as collateral.==

14. What is Collateral in Options Trading🏦

Can check NSE Website for seeing the haircut for the collateral instruments.

15. How Margins Work in Options📇

In case of Futures both buyer & seller either gains or loses money. ( M2M profit/Loss)
In Options Buyer already paid money so there is no M2M transactions later.

16. Exercise & Assignment in Options🏋🏼

In India we use European Style.
- PE - Put Option European Style
- CE - Call Option European Style
Last Thursday of every month is Expiry.
Exercised Option will happen only on the intrinsic value

17. Expiry & Physical Settlement Explained📅

Indices has weekly options.
Every Thursday Weekly Expiry
Total 10 Weeks.
Total 3 Months.
Also Quarterly Expiry.
Half Yearly Expiry.
Stocks only Monthly ( 3 Choices ) Expiries.
going closer to expiry even for the buyer exchange keep increasing the margin money.
==Always trade in INDEX Options.== - #🧔PRSundar
Because margin keeps increasing as one would have to taker the physical delivery of the stocks.

18. Option Greeks 1 DELTA 📏

19. Option Greeks 2 GAMMA 🏎️

Bad/Good news triggers Gamma.
Closer to the expiry GAMMA effect will be more.

==Many professional sellers don’t take it till the expiry.==

Delta is like Velocity.
Gamma is like Acceleration.

20. Option Greeks 3 VEGA 📰

Vega : Volatility Index.
Volatile : Not moving in single direction.
Stable Government : Positive News : Buy Call option premium increase.
VIX : Volatility Index.
Global/Local Incidents increases VIX

GOTO India VIX Data , Check the Strike Rate & LTP, Find percentage using Percentage Calculator .
If India Vix ⬆️ then Premium ⬆️
If India Vix ⬇️ then Premium ⬇️
Option buyer buys when Vix is Low, Premium goes up.
Option seller sells when Vix is High, Premium goes down.

IMPORTANT : We don’t know how LOW is LOW & how HIGH is HIGH. Its relative. Vix also goes up & down.

21. Option Greeks 4 THETA ⌚ & RHO🪙

Theta ⌚

There is both “Point decay” & “time decay”.

For OUT OF THE MONEY options, as there is no intrinsic value only extrinsic value, as the day passes the buyer keep losing money if delta gamma Vega etc remains the same.
If the expiry is 2 Days then 50% of the time value has gone.
Don’t buy closer to expiry, as time decay is more.

Time value always decrease for buyer. Never works on favour of the buyer.
Seller will have an effect of gamma & delta but theta is a sellers best friend 💘.

Rho 💰

Effect of price due to change in the interest rate.
When interest increases in Bank FDs, then option business will be low.
Risk free business over Risky business.

As interest rate does not fluctuate much, we could ignore the RHO.

22. Implied Volatility (IV), IV Rank, IV Percentile Explained📉

Implied Volatility (IV)

Observation : Put Option more than Call IV. ( Reason : Things can go bad tomorrow than things good things happening.)
Far out of the money options have higher IV, hence lower premium.
IV high -> Market move higher
IV low -> Market move lower

IV Rank

IV Percentile

Problem with IV
Only one day it was trading for 550, but still it averages it. Hence we use IV percentile.
IV Percentile (IVPQ) : What % of days it was lower than todays IV.
Historical IV is used.

23. VOLUME & OPEN INTEREST in Options🔊

Everyday contracts are being traded.
Long built up - People buying contracts
Short built up - People selling contracts
Short covering - covering up losing position when market goes up.
Long unwinding - covering up losing position when market goes down.

————————–🏁Finished🏁—————————-

*🏷️Tags : #Investments💷/Options-Trading🎛️ #🧔PRSundar *📚Reference :

📅 Saturday, February 26, 2022 (09:18 PM) - Created

PR Sundar - Mission Options Full