ITJEGAN's Workshop Aug - 11 PDF

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By Jegan,
Consistent 60-day Challenge Winner
(10 times) in Zerodha
2
Training
1. Why Option Selling and its Myths?
2. Market Analysis (Technical & FNO)
3. How to Identify/Capture Violent Move?
4. Option Strategies (Positional/Intraday)
5. Special Strategies for Expiry Day
6. Market View Vs Strategies with position size
7. Various Adjustment Methods
8. Handling Gamma/Expiry day Risk
9. Risk Management
10. Trading Psychology
What is the Edge in Option Selling?
 Option selling has a default edge (Time Decay).

 Statistics say that more than 80% options will
expire worth less.
 With adjustments, win-rate is 90%
 Make sure that 10% of the time, loss is limited
 Most institutional traders do option selling
Myths About Option Selling
 Unlimited Risk – It is only for naked option selling,
not for risk defined strategy
 Return is too less – Cumulative return is very decent
 Limited profit – It is good for health
 Special software for Greek and other stuffs – No
need to have paid software. Use premium value as
reference to sell options
 Only for big boys – People with 10L capital can do
How to increase my return?
 Better way to increase the return is to reuse your
money.
 As a first step, invest your money in any asset which
can be pledged to NSE.
 Asset can be Stocks, MF (Equity or Debt), Bonds
and FD
 Never ever leave money liquid in your trading
account
Various Returns from money
Source Type Example Return Whose Money
(Yearly)
Asset (Debt & MF, Stocks, FD, Liquid 12% Your Money
Equity) Fund, ETF, Bees
Option Selling using Option Strategies like 12% Collateral by

pledged Asset Strangle, Straddle pledging your asset
Option Selling Expiry Trading and 12-24% Broker money

(intraday exposure) other intraday trading
Total 36-48% For your money
 Full-time trader may target 48%

 Part-time trader may target 36%
Recommendation to Naked Seller
 Most retail option sellers are naked sellers.
 Should have the ability to bring more capital if capital is
wiped out
 Play only with limited capital (Not more than 25L)
 Target 5-6% per month
 Never accumulate your profit into your capital
 Shift to Risk Defined Strategies if you cannot afford the
loose the entire capital in black swan event
 Avoid Stocks
Trader Types
 Hedger – Aims to protect capital and minimize loss

 Speculator – Taking market view & betting
 Strategies to capture all views
 Trend-following
All will be done through option selling
Hedging Types for Investor
 Buying Put Option – Limit Loss

 Do this is “make or break” scenarios to protect your folio.
 Selling Call Option - Can compensate limited Loss
 Do this regularly to get rental if market is not moving up
 Future Short
 Do this at market price if there is a sudden bleeding in
the market
Market Analysis
 Technical Analysis
 FNO Data Analysis
 Volatility Analysis
Divergence (For Stock Option)
Click Here to Watch My Talk in Traders Carnival About
Divergence
Divergence (For Stock Option)
 A behaviour when price is not aligned with

indicator.
 Used for trend reversal and continuation.
 Apply divergence 3 indicators
 Force Index – Based on Volume
 MACD – Based on Moving Average
 Stochastic – Based on Supply and Demand
Classic Bullish Divergence
 A bullish divergence occurs when the underlying

security makes a lower low and Indicators form a
higher low.
 Indicators do not confirm the lower low and this
shows strengthening momentum.
Classic Bullish Divergence
Classic Bearish Divergence
 A bearish divergence occurs when the underlying

security makes a higher high and Indicators form a
lower high.
 Indicators do not confirm the higher high and this
shows weak momentum.
Classic Bearish Divergence
Facts about Divergences
 Divergence is not a holy grail of trend reversal and

continuation.
 It indicates only momentum lost.
 It is only for option sellers, not for future player and
option buyer.
 Use option selling with expiry date always.
 Go always protected while selling stock options
ADX Signal for intraday & expiry
 Settings
Time Frame ADX Force Index WMA
3-5 minutes 13, 8 13 100
 Conditions
Long Short
ADX rising below 25 ADX rising below 25
DMI + > 25 DMI - > 25
DMI+ > Previous Pivot Point DMI- > Previous Pivot Point
FI > 100K FI < -100K
Price > 100 WMA Price < 100 WMA
Example for ADX signal
Trading using ADX Signal
Long Short Expiry
Sell PE Sell CE Weekly Expiry
Do only on selected days after 1:30 pm for high RR
Tuesday Wednesday Thursday

100 80 60
 Do it in two slices to pitch the right value

 Stop Loss is 20 points (in Premium)
 Make sure that you do not sell ITM options.
 Carry Forward the position with hedge if you are sitting
with good profit.
Position size calculation for intraday
 Capital is 10L
 Risk 0.50%. Risk amount: 10L*0.50%=5000
 Generally SL is 20 points in Banknifty
 Hence volume = Risk (Amount)/Stop Loss (Points)
 Ex: 5000/20 = 250
 Personally I take only 0.25% risk.
 Never have position size that can hurt more than 0.50%
of your capital
 For other scripts, you can do position size using the
same formula.
ADX Signal for intraday & expiry
 Book or Exit if force index comes to zero.
 Use short time frame below 5 minutes. Don’t use longer
time frame.
 Do not book profit when ADX comes down
 It is Gamma Finder. It helps to find the violent
movement in expiry.
 It is life jacket if you are doing expiry trading.
ROI for trade taken based on ADX Signal
Short Signal Long Signal
Capital 10L 10L
Risk 0.50% 0.50%
Risk (Amount) 5000 5000
Stop Loss (Points) 20 20
Day Wednesday Wednesday
Premium to Sell 80 (Sell CE) 80 (Sell PE)
Position Size 5000/20=250=~240 5000/20=250=~240
Hedging Cost (Premium) 0 5 (Buy PE @ 5 – Overnight)
Max Profit (Premium) 80 75
Max Profit (Amount) 240*80=19200 240*75=18000
Rate of Return 1.8% 1.75%
Risk Reward Ratio 3.8% 3.5%
How to manage naked options
 Assume that you sold naked 27000 CE at 100 for ADX
signal for short
 Since we have 25 points as SL, we do not need to keep
SL for 27000 CE at 125
 Instead we can sell in opposite side (Sell 27000 or some
strike price PE close to the premium for 27000 CE)
before it 27000 CE goes to 125
 Now your total positions could be either short strangle
or short straddle (SS)
 Manage your positions as we manage SS in intraday
(will be explained in intraday section later)
 If you had sold CE and Banknifty came down 400
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Option Selling using ADX signal
 It works for all high beta stocks.
 Never use this signal when there is a mega event
 Do this trade only from 9:30 am to 3.00 pm.
 Enable this chart in expiry day.
 Exit all sold CEs if you get long signal.
 Exit all sold PEs if you get short signal.
 Used this ADX indicator to exit my positions in expiry.
FNO Data Analysis
 Future Position – Current speculation of Nifty and
Banknifty stocks.
 MAX Pain – The point where most options will
become worthless.
 Put Call Ratio (PCR) – Indicates the mood of option
market for the market direction.
 Highest IO – Acts as support and resistance.
 Recent Winding and Unwinding of OI – Recent
pulse of option writers.
 Track all these data in our website
https://www.capitalzone.in/fo-data/
PCR and Max Pain don’t work?
 The value of PCR and max pain do not matter.
 But the change in PCR and max pain matters
Note on PCR
 Absolute Value in PCR doesn’t have weightage in
market view
 Relative difference in PCR will reflect the option
seller view
 Increase in PCR value (compared to yesterday)
indicates that it is bullish
 Decrease in PCR value (compared to yesterday)
indicates that it is bearish
Note on MaxPain
 Pain is calculated based on OI, not based on
premium
 It shifts usually 4-5 times in a monthly expiry
 In weekly expiry, it can move violently.
 Based on your positions (weekly or monthly), watch
weekly or monthly max pain
 All trend-follower can use this for confirmation
 Do not reply on max pain if big gap happens
because most option sellers would be in profit with
future which will not be discounted in max pain
FNO Data Analysis Key Points
 Consider OI changes near Spot.
 Strong trend will move along with MAX Pain, PCR and
high OI
 Weightage of each one in analysis as follows
Analysis Type Weightage

Future 40%
Max pain 30%
Change in OI 10 %
PCR 10%
Highest OI 10%
Analyzing the Implied volatility
Low IV High IV
VIX < 15 VIX >= 15
Horizontal Spread Vertical Spread
Each options will be in different expiries Both option will be in same expiry
Strategy: Calendar Spread Strategy: Credit Spread
Example: Sell 12000 PE in June & By Example: Sell 12000 PE in June & buy
12000 PE in July 11800 PE in July
Debit <= 60 Debit > 60
Diversification & Positional size (Positional)
 Big Boy Covered Call – Equal to Underlying

 Twisted Sister– 50%
 Calendar spread – 30%
 Call ratio – 25 %
 Credit Spreads – 25%
 Free cash – 10%
All numbers represent margin for option selling
My Premium in Nifty
 25 – First Week
 20 – Second Week
 15 – Third Week
 10 – Last Week
 5 – 2 days before expiry
 2 – On Expiry
It is a net premium if it is spread. Choose premium

based on ROI (2-3%) per month based on margin
My Premium in Banknifty
 60 – First Week
 50 – Second Week
 40 – Third Week
 30 – Last Week
 15 – 2 days before expiry
 5 – On Expiry
It is a net premium if it is spread. Choose premium

based on ROI (2-3%) per month based on margin
My Premium in Weekly Banknifty (Intraday)
 30 – Monday
 20 – Tuesday
 15 – Wednesday
 5 – On Expiry
It is a net premium if it is spread. Never do intraday in

Friday
Stop Loss of weekly Banknifty options
 50 – Monday
 40 – Tuesday
 30 – Wednesday
 20– On Expiry
Book the loss if your options hit this premium on

specific days mentioned above
Positional Option Strategies
 Big Boy Covered CE(Only Ultra HNI > 50L)
 Strangle/Straddle
 Call Ratios
 Credit Spreads
 Twister Sister
 Put Calendars
Big Boy Covered CE
Definition: Buy quality large cap stocks equal to FNO
volume size. Buy at least 8-10 stocks. Sell CE.
Strike Price: Sell CE equal to cash market value where
you get premium as 1% of same underlying value
Example:
Reliance Value Target Premium Option to sell
1200 12 1300 CE @ 12
Advantage of Big Boy covered CE
 Since you are long in cash market, selling CE is
totally risk free.
 Phycological advantage of holding sold CE if spot
comes to strike price.
 Selling CEs in many stocks will diversify your risk,
only few stocks will hit your strike price
 Total immunity from black swan event at any cost
 High probability of getting profit in cash market and
option selling
 Easily one can target 24% per Anum for the margin
used
 Tax and roll over For
charges will be very minimal
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Martingale Example
 Sold options Reliance 1300 CE @ 10
 It goes to 30
 Exit (Buy 1300 CE @ 10)
 Sell CE twice volume in higher strike price where
premium is available.
 Repeat this till all options go to 0.
 Sell additional CE if reliance is coming down
Short Strangle
Definition: Selling CE /PE in OTM strike price
When: IV is high, market is range bound
Target/SL: Leave to expiry
Volume: 10-20%
Exit: Roll up/Down CE and PE to match the premium
till it becomes straddle
Duration: 10 days or more away to expiration
Premium: As per the table given
Example: Sell 10000 PE & 11000CE when Nifty is at
10500
Managing strangles
 Roll up your PE if market goes up & Roll up your CE
if market does down only if max pain moves
 Make sure that the premium in CE and PE should
be equal after shifting
 If Premium triples in either side (CE or PE), book
the loss and go to strike price where 1/3 of premium
is available
 Sold an CE option for 50.
 It became 150. Book loss (100)
 Sell an OTM CE option for 50 again
Short Straddle
Definition: Selling CE /PE in same strike price - Short
straddle
Target/SL: Leave to expiry. Exit if max pain moves
Volume: 10%
Exit: Create more SS if market comes down, add more
call ratio. If market goes, book profit in SS
Duration: 45 days or more away to expiration
Premium: above 350 (nifty) and 900 (Banknifty)
Example: Sell 10000 CE and PE when Nifty is at 10000
Managing short straddle
Create first SS for 10 % of your total portfolio
Do average in 200 points difference if Nifty moves
with max pain
Total volume would be 20 % after averaging
Create put credit spread or put calendars (diagonal or
ITM) if market goes up
Sell additional CE if market comes down and it can
be done in current month or next month
Go long in future if market touches upside break-
even, buy PE and exit all put strategies
Go short in future if market touches downside break-
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Ex: Managing SS in upside
Created SS at 11000 (400 premium)
Created one more SS at 11200 (market went up)
Average SS is at 11100 (premium 400)
Break-even is from 10700-11500
Created put strategies (if market goes up again)
put strategies include all PCS, put credit spread
Go future long in upside breakeven
Ex: Long at 11500
Buy PE to protect future long at lower strike price
Ex: Buy PE at 11000
Do all these adjustments if market goes up with
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Ex: Managing SS in downside
Created SS at 11000 (400 premium)
Created one more SS at 10800 (market came down)
Average SS is at 10900 (premium 400)
Break-even is from 10500-11300
Created call strategies (if market goes down again)
Call strategies include all Call ratio & Naked CE
Sell CE for the premium equal to the loss in SS
Go future short in downside breakeven
Ex: Short Future at 10500
Do all these adjustments if market goes up with
maxpain
Disclaimer about Straddle/Strangle
 Strangles/Straddles come under risk undefined strategies
 The loss is unlimited and vulnerable for downside risk in
black swan event.
 Never ever do more than 20 % total volume in
straddle/strangle totally put together
 If your capital is huge & you are very conservation person, I
would advise not to implement this strategies for positional
trading
 Better to replace with Iron Condor/Twister Sister
 Double Calendar is not advisable as both sides will be in loss
if there is a violent movement in one side
Iron Condor
Definition: Selling CE /PE in OTM strike price and
buying CE and PE 200 points away for protection
Greek: 20% delta in CE/PE
Target/SL: 50% of Total Premium
Volume: 25%
Time : Minimum 45 DTE
Adjustment: Roll up or Down credit spread
Example: Sell 10000 PE, Buy 9800 PE & Sell 11000CE,
Buy 11200 CE when Nifty is at 10500
Twisted Sister
Definition: It is same as Short Strangle, but there is a
protection only in PE (200 points away from short strike)
Target/SL: Leave to expiry
Volume: 50 %
Time : Minimum 45 DTE
Adjustment: Roll down sold CE or Roll up put credit spread
Example: Sell 10000 PE, Buy 9800 PE & sell 11000CE when
Nifty is at 10500
Big Boy Twisted Sister
Definition: It is same as Twisted Sister, but there is a
protection for PE in longer distance. Wings are broader.
Volume: 25%
Time : Minimum 3 DTE.
Adjustment: Roll up or Down credit spread
Example: Sell 27000 PE, Buy 26500 PE & sell 28000 CE and
buy 28500 CE when Banknifty is at 27500
Dynamic Big Boy Twisted Sister
 It is same as Big Boy Twisted Sister, but Buying PE for
protection should be done only after 3:15 pm
 In the morning, you need to exit your bought options as it
should not suffer time decay if there is no big gaps.
 In intraday, you need to manage as you manage short
strangles
 In short, day time it should be short strangle and during the
overnight it would be big boy twisted sister
 Job goers can do Big Boy Twisted Sister and full time trader
can do dynamic one.
Rules for Big Boy Twisted Sister
 Only for weekly options
 More effective from Monday post lunch to till Wednesday
 Never do this strategy on Friday as time decay will not help
 No need to hedge your positions in expiry day as it will come
under expiry day.
 Make your position size in such a way that you do not loose
more than 3 months profit if there is a big gap.
 CE can be unhedged if your strike price higher than 500
points in Banknifty and 200 points in Nifty
Long Call Butterfly
Definition: Buy near ATM call, sell next OTM call in
multiple quantities and buy far OTM call for
protection
When: IV is high, market is slightly bearish
Greek: 20-25% delta in CE
Duration: At 2-3 days before expiration
Volume: 25% of your folio
Target: 0
Exit: Make it double long butterfly if view goes wrong
Example: Long Call 25000 1 lot, short call 25200 6 lots
and buy Call 25400 5 lots. Works better in Banknifty
Long PUT Butterfly
Definition: Buy near ATM PUT, sell next OTM PUT in
multiple quantities and buy far OTM PUT for
hedging
When: IV is high, market is slightly Bullish
Greek: 20-25% delta in PE
Duration: At 2-3 before expiration
Target: 0
Exit: Make it double long butterfly if view goes wrong
Example: Long PUT 25000 1 lot, short PUT 24800 6
lots and buy PUT 25400 5 lots. Works better in
Banknifty www.capitalzone.in 55
Double Butterfly
Definition: It is a combination of Long CALL and
Long PUT butterfly, but first leg Long options should
be ITM.
When: IV is high, market is range-bound
Greek: 20-25% delta in PE/CE
Target: 0
Exit: If market moves up, roll Long PUT Butterfly up. If market comes
down, roll Long Call butterfly down.
Example: Long PUT 25000 1 lot, short PUT 24800 6 lots and buy PUT
25400 5 lots & Long Call 25000 1 lot, short call 25200 6 lots and buy Call
25400 5 lots
Broken Wing Butterfly
Definition: It is same as double butterfly, but last leg
option (for protection) should be bought in far OTM
When: IV is low, market is range-bound
Greek: 20-25% delta in PE/CE
Target: 0
Exit: If market moves up, roll Long PUT Butterfly up.
If market comes down, roll Long Call butterfly down.
Example: Long PUT 25000 1 lot, short PUT 24800 6
lots and buy PUT 25400 5 lots & Long Call 25000 1
lot, short call 25200 6 lots and buy Call 25400 5 lots
Facts about Butterfly Strategies
 Butterfly strategies work better very near to expiry
in Banknifty.
 Always buy options for protection while creating
butterfly because in intraday Banknifty can fall 400
points with no time.
 Historically broken wing butterfly will give return
than regular one. But risk is bit more, it is worth
taking it.
 In all butterfly strategies, the risk is defined.
 Make sure that you receive credits while creating
butterfly, hence form ratios accordingly
PUT Calendar Spread
Definition: Selling PE option in current month and
buying the in same strike price in next month.
Strike Price: One strike price below market.
When: When marker is slightly bullish.
Target: When market view changes to bearish.
Volume: 10%
Adjustment: Keep rolling short PE if market goes up.
Add call ratio spread if market comes down.
Duration: below 20 days to expiration
Example: market is at 10000. Sell 10000 PE in current
month and buy 10000 PE in next month
Managing Put Calendar Spread
 If market moves up violently
 Roll up short PE up to 2 times
 If market moves down
 Sell and additional CE. You can also roll down sold CE.
 You can start creating more PCS if market goes up
 Make it diagonal if you are bullish so that you can
avoid one role up.
Managing PCS (Example)
 Ex: Sell 10500 in current month & Buy in next
month.
 If market moves up
a. Book profit 10500 PE in current month & sell 10600 PE
 If market moves down
 Sell CEs to match with excess premium of 10500 PE.
Assume that you sold 10500 for 50, right now it is 80. Sell
CE which has 30 premium in current month.
 Manage the positions till your SL hits
Put calendars for various Scenarios
 ATM put calendar – Mild Bullish <–> Range-bound
 Diagonal put calendar – Bullish
 ITM put calendar – Bullish to Ultra Bullish
PUT Calendar (One Day before Expiry)
Definition: Selling PE option in current week and buying the
in below strike price in next week on Wednesday
Strike Price: One strike price below market.
When: When marker is slightly bullish and OI is high in PE
side
Target: When market view changes to bullish.
Volume: 20%
Adjustment: sell additional PE if market goes up. Sell CE if
market comes down.
Duration: 1 DTE
Example: market is at 26000. Sell 25900PE in current week and
buy 25700 PE in next week
What to buy PE (Next week or Month)
 It depends on your view
 If you are ultra bullish, buy in next week
 If you are slightly bullish, buy in monthly
contact.
 Generally if CE OI is high, I buy in monthly
options or Weekly options
Call Ratio Spread
Definition: Buy OTM call and sell more far OTM calls
to receive more credits
Strike Price: One strike price above market.
When: When marker is bearish.
Target: Credits received
Volume: 10%
Adjustment: Book profit if market comes down. Add
put calendar or long PE butterfly if market goes up.
Duration: below 10 days to expiration
Example: Market is at 10000. buy 10000 CE and sell
10200 CE
Call Calendars with additional CE
Definition: Selling CE option in current week and buying the
in same strike price in next week & Sell OTM Call in next week
Strike Price: One strike price above market.
When: When marker is slightly bearish and OI is high in CE
side near ATM
Target: You can leave to expiry
Volume: 10%
Adjustment: Sell additional PE.
Duration: 1 DTE
Example: market is at 26000. Sell 26000 CE in current week,
buy 26000 CE in next week & sell 26500 CE (twice in next
week)
Intraday strategies
1. Earning Trade – Earning Month
2. Expiry Trade – Every Thursday
3. Strangle
4. Straddle
5. Straddle (Expiry)
6. Iron-fly
7. Call Ratio or Put Ratio
Earnings
Click Here to Watch My Talk in Traders Carnival About
Earnings Trade
IV Rank and Percentile
 IV Rank - Implied volatility rank (IV rank)
compares a stock's current IV to its IV range over a
certain time period (typically one year).
 IV Percentile - Implied volatility percentile (IV

percentile) tells you the percentage of days in the
past that a stock's IV was lower than its current IV.
Earnings Trade
 Can be done only in result month.
 Do this trade for the stock for which result is coming in
market hours.
 IV rank should be more than 50%.
 Calculate ATM Short Straddle premium.
 Sell CE at Spot + ATM SS Premium and Sell PE at Spot -
ATM SS Premium
 Sell multiple lots in multiple time frame before result.
 Ex: Infy at 1000 with ATM SS premium 100. Sell 900 PE and
1100 CE.
 Exit all the positions once the result is out
 Exit if the premium doubles in either side
Delta Neutral Strategies
 Sell CE/PE in Opposite Side

 Exit CE/PE and go to next strike price
 Buy option one strike price below
 Buy option in the strike price in next month
 Go long or short in future
Sell in Opposite side to make
delta neutral
 If market moves in a direction significantly, sell

options in opposite side.
 If market moves up, sell more OTM PE. If market
comes down, sell more OTM CE.
 The premium should be same in CE and PE with
volume
 Don’t sell more than 4 times volumes in one side.
 Choose OTM options to make delta neutral
 Balance CE and PE till either one goes to ITM
DHN using Option Selling
 While balancing CE and PE, if either one goes to

ATM, then exit and go to next strike price.
 Risky trader can fight more by selling ATM option
in opposite side. Ex: If CE goes ATM, then sell ATM
PE and try to manage the position.
 Exit completely if you are closer to expiry.
 Check ADX signal and be ready to sell in opposite
side.
 Take lot of prevention action before it goes to ITM
DNH using Option Buy
 Only HNI (> 25L) can do this.
 Do all these as precaution steps before your strike price goes
TO ITM
 Buy options this month or next month gradually to hedge
sold out options.
 Gradual buying will save from sudden reverse.
 Will hedge sold options if market moves continuously in the
same direction
 If bought option profit compensates sold option loss, exit
both of them.
 Buy option in next month if you feel that market will go in
the same direction.
 Buy option one strike price below if market moves violently.
 Buy option next strike price to lock max loss if market slowly
DNH using futures
 Only HNI (> 25L) can do this.
 Do all these as precaution before your strike price goes ITM
 Go long or short in futures gradually to hedge sold out
options.
 Do this if market does break-out.
 If you are not clear, do only with option buy. It is preferred.
 Gradual future will save from sudden reverse.
 Will hedge sold options if market moves continuously in the
same direction
 If future profit compensates sold option loss, exit both of
them.
 Sudden reverse will hurt future position, hence have a SL
DNH Example for Short Strangle
Market is at 1000, Sold below 10400 and 9600
CE - 20 & PE - 20
Market went up, Now Premium
CE - 40
PE - 10
Balance positions - sell option it in opposite side –Collect 40 premium in
PE as premium in CE went upto 40.
CE - 40 -1 lot
PE - 10 - 1 lot
PE - 30 - 1 lot or (2 lots * 15) (Sell this additionally)
Buy option or go long future gradually if market moves up violently
10400 CE Already Sold 10 lots
For each 50 points move up above 10200, buy 2 lots option 10200 CE or go long
in future gradually
Expiry Trading
 Check how quantities (10K to me) can be sold in intraday.
 Divide it by 20. Approximately it is 2400 to me.
 Sell options slowly in both side one by one (I do 2400
quantities) and follow delta neutral hedging rule.
 Exploit weighted average price kicked in after 3.00 pm
 Sell options premium with the following values with time.
 Rs 5 at 9:15 am
 Rs 4 at 11 am
 Rs 3 at 12:30 pm
 Rs 2 at 2 pm
 Rs 1 at 3 pm
 Rs 0.50 at 3:12 pm.
Cardinal Rules for Expiry Trading
 Do not sell further CE if market goes up
 Do not sell further PE if market goes down.
 Never sell more than 4 times option than Opp0site.
 After 3 pm, have SL for all your positions.
 Avoid future.
 Better not to initiate trading after 3 pm initially.
 Always choose OTM options.
 Don’t play with ITM option. It will become illiquid near
expiry.
 Get more exposure and go far OTM to reduce the risk.
Exit rules for expiry trading
 Gamma period is a time where cheaper option can go ITM
and it can hurt you.
 There are two ways to find Gamma or trending signals
 ADX signals (80% of Gamma move will be captured)
 Price breaking day low/high
 Be alert once price crosses 100 WMA. Then the chance of
reversal/trending is very high. By this time you would have
sold options for cheaper price.
 Once you get trending signal, exit your positions slowly (25%
time at a time) in instalments.
 Exit all of your positions if you see 2% MTM loss.
 There is no point in trading more than 2% loss. Though you
get more profit after 2% MTM loss, it is highly dangerous
4 Exits for Expiry Trading
1. Premium higher than 20 should be exited and go to next
strike price
2. On ADX signal, respective CE or PE should be exited slowly
3. As soon as price breaks day high or low, respective CE or PE
should be exited.
4. Exit all of the positional if portfolio SL (2%) is hit
Time Decay Vs Gamma
 Generally it is advised not to enter in Gamma Period
 But time decay is faster in Gamma periods and the chance of
making money is higher. Risk can be easily managed.
 Though Gamma is risky one, it is very rare. Only 10% of the
time it will hurt you.
 Ways to handle Gamma
 Reduce the volume by half after 2:30 pm
 Exit if you are in super profit and premium comes down to 1
near ATM. This will reduce more volume.
 Respect trending signals and exit your positions
 Respect portfolio SL (2%)
 Use NEST software to exit your positions quickly irrespective of
how much quantities you have
 If you have more exposure, you can use it in opposite side to
some extend www.capitalzone.in 81
One Day Before Expiry
 Make sure that you used 80% or below of your margin
utilization or below.
 Sell options in both sides as we do for expiry with premium
 Rs 10 at 9:15 am
 Rs 8 at 11 am
 Rs 6 at 12:30 pm
 Rs 4 at 2 pm
 Follow all other expiry day rules.
 Book your profits wherever it is. Carry forward your position
which is loss.
 Tomorrow is expiry. Get intraday limit and defend your
positions as per expiry day trading rules.
One Day Before Expiry Example
 Your capital is 10L. Existing positions occupy 8L margin.
 Sell CE and PE from 9:15 am to 2.00 pm in both sides based
on market movements.
 Assume that you sold CE and PE with 2L margin each.
 Now you have taken position for 12L now.
 Suppose market went up at 3:15 pm. Hence PE will be profit
and CE will be in loss.
 Book profit in PE (2L is margin released) and carry forward
the CE position for tomorrow expiry. Hence only 10L margin
will be blocked.
 Don’t do much volume.
 Exit if it goes to ITM in the market hours.
Short Strangle (Intraday – Banknifty)
Definition: Selling CE /PE in OTM strike price
Target: Till we get trending signal from ADX
SL: Rs 25
Volume: 25%
Adjustment: DNH
When: ADX is coming down
Carry Forward: Make it Iron condor or twisted sister
Example: Sell 26000 PE & 27000 CE when Banknifty is at
26500
Short Straddle (Intraday – Banknifty)
Definition: Selling CE /PE in same ATM Strike Price
Target: Till we get next ADX trending signal
SL: 25 points
Volume: 25%
Adjustment: DNH, Convert in to strangles if needed.
Premium: ATM premiums
Carry Forward: You can convert into Iron-Fly
Example: Sell 26500 PE & CE when Banknifty is at 26500
Adjustment in straddles in intraday
 Book profit if market stays in range-bound
 Make it Iron-fly if you are in profit in expiry day
 Sell it in opposite side if market moves in a direction
 If it comes back to straddles
 Book profit in straddles
 Make it strangles by selling in opposite side
 Make condor if you want to carry forward your

positions
 If it does not come back, keep selling in opposite till SL
hits
Short Straddle (Intraday – Expiry after
2:45 pm)
Definition: Selling CE /PE in same ATM Strike Price
When: When both premium is higher than 50.
OI: OI in Next strike price to ATM in CE &PE High OI > (30L)
Target: Leave to expiry
SL:
Volume: 10%
Adjustment: DNH, explained in next slide
Managing Straddle in expiry day
 Straddle can be averaged if market moves 100 points before
2:30 pm
 If straddle is in profit, covert into Iron-Fly
 If straddle touches break-even after 3 pm, it is better to go
short or long in future so that it may end up in no profit
and no loss.
Iron Fly (Intraday – Banknifty - Expiry)
Definition: Selling CE /PE in same ATM Strike Price and buy
CE & PE in both sides for protection.
When: IV is low and range-bound
Greek: 20% delta in CE/PE
Target: 10-25% of Total Premium
SL: 10% of Total Premium
Volume: 25%
Adjustment: DNH, Convert in to strangles if needed.
Premium: Total debit
Carry Forward:
Ratio Spread(Intraday – Banknifty -
Expiry)
Definition: Buy ATM or near OTM option and sell multiple far
OTM options
When: OTM option (Rs 6-10) has more than 30L OI. Near
OTM option may have premium 20-30.
Time: After 1:30 pm
SL: Have SL 30 for OTM options
Volume: 25%
Adjustment: DNH, Convert into double ratio and sell in
opposite side
Example: Market is at 28100. Buy 28200 CE at 25 and sell 28300
CE at 8 with ratio 1:8 at 2:30 pm
Covered CE or PE (Intraday – Banknifty
- Expiry)
Definition: Buy/Sell Future & sell multiple far OTM options
When: OTM option (Rs 6-10) has more than 30L OI. Near
OTM option may have premium 20-30.
Time: After 2:30 pm
Future Long OR Short: Based on ATM CE/PE OI
SL: Have SL 30 for OTM options
Volume: 25%
Adjustment: DNH
Example: Market is at 28100. buy Future and sell 28300 CE at
6-10 with ratio 1:20 at 2:30 pm
Iron-Fly Rules
 Never create Iron-Fly in the morning, it is costly.
 It works only in expiry trade
 Never create Iron-fly in single execution
 Always convert your short straddle to Iron-Fly if you are in
profit of Rs 20 in straddle
 Make sure that you get least debit less than Rs after
considering the ITM option discount premium
View Vs Strategies
 Bullish
 ATM, ITM, Diagonal Put Calendar
 Credit spread in PE
 Long Put Butterfly
 Bearish
 OTM Put Calendar
 Call Ratio in CE
 Credit Spread in CE
 Range-bound/Non-Directional
 Strangles/Straddles/Iron Condor/Iron Fly/Twister Sister
Implied Volatility Vs Strategies
 Low IV
 Butterfly (Range-Bound)
 ATM Put Calendar (Bullish)
 Call Ratio (Bearish)
 Iron-Fly
 High IV
 Iron Condors (Range-Bound)
 Twister Sister/Strangles/Straddles (Range-Bound)
 ITM Put Calendar (Bullish)
 Sell CE (Bearish)
Trading Goal
 Overall Goal – 3% per Month

 Positional – 1 per Month
 Intraday – 2% per Month
 Intraday (0.50 % per Week)
Notional Value
 The total contract value of naked sold option without leverage.
 Example:
 You have 10L capital
 You sold 10 PE Banknifty options
 1 Banknifty option notional value is around 10L
 Hence notional value of your positions 1 crore
 It is 10X notional value
 If there is a 10% gap down, your capital may be wiped out.
 Never ever allow your notional value more than 2.5 times
 Know your notional value before creating any positions
Cardinal Rules for strategies
 Always be protected in downside (PUT side).
 Make sure that you have 1 long PE for each short PE.
 Exception would be a short straddle because we collect high
premium.
 Be ready to accept 10% lower freeze.
 Create more broken wing butterfly.
 Deploy not more than 25% of folio in any strategy.
 Do call ratio spreads, but not put ratio spread. Instead make it put
credit spread or PUT calendar spread.
 Don’t use more 10% volume in strange/straddle for positional.
Instead make it, Iron condor or twister sister
 Never do lizards as downside is not protected
Risk Management
 Have Portfolio SL (2%)
 Diversify positions
 Generally don’t have much position during
weekend
 Don’t trade when there is a mega event
 Respect possible black swan event
 Concentrate on less premium
Trading Psychology
 Arrogance once profit is made
 Scan and Repair
 Reset your brain and do unlearn
 Draw Blueprint and Flow chart for your positions
 Draw Candle stick pattern for your brain
 Program your brain to get more of Dogis ☺
 Understand your divergence periods
 Be warrior to fight with market till your SL hits.
 Understand your Volume and Money Power
 Self Reflection
www.capitalzone.in
For all support, +91 9962143422 100
www.capitalzone.in
For all support, +91 9962143422 101

ITJEGAN's Workshop Aug - 11 PDF

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What are the topics that will be covered in the training?

What are the topics that will be covered in the training?

What are some myths about option selling?

What are some myths about option selling?

Before we get into session

1. Kindly put your mobile in silent mode.

 Option selling has a default edge (Time Decay).

Option Selling using Option Strategies like 12% Collateral by

Option Selling Expiry Trading and 12-24% Broker money

Total 36-48% For your money

 Full-time trader may target 48%

 Hedger – Aims to protect capital and minimize loss

All will be done through option selling

 Buying Put Option – Limit Loss

 A behaviour when price is not aligned with

 A bullish divergence occurs when the underlying

 A bearish divergence occurs when the underlying

 Divergence is not a holy grail of trend reversal and

Do only on selected days after 1:30 pm for high RR

Tuesday Wednesday Thursday

 Do it in two slices to pitch the right value

Analysis Type Weightage

VIX < 15 VIX >= 15

Horizontal Spread Vertical Spread

Strategy: Calendar Spread Strategy: Credit Spread

Debit <= 60 Debit > 60

 Big Boy Covered Call – Equal to Underlying

All numbers represent margin for option selling

It is a net premium if it is spread. Choose premium

It is a net premium if it is spread. Choose premium

It is a net premium if it is spread. Never do intraday in

Book the loss if your options hit this premium on

Reliance Value Target Premium Option to sell

 IV Percentile - Implied volatility percentile (IV

 Sell CE/PE in Opposite Side

 If market moves in a direction significantly, sell

 While balancing CE and PE, if either one goes to

 Make condor if you want to carry forward your

 Overall Goal – 3% per Month

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