Nifty Open Interest Analysis

[spkreddy]

Sridhar ji,

Thnx for your reply...

Volatiryly from NSE Option data means (IV you take) but call has diff IV and put has diff IV then how you will take...

in Option cal when you give strike price...etc it show the price of put and call then which IV you need to take ?

please clarify my doubt..can you share your exp in using calulator

I use Option calculator available in Zerodha Trader. I normally take ROI as 10%, volatility from NSE Options data & dividend as nil. I use the Delta value, that the calculator gives, for rough calculations only.

 

[Option.Trader]

I meant to ask you this question a while ago.


Selling options gives returns in two ways:

1) Favourable price movement
2) Time decay.

Point (1) is in favour of trading NF as opposed to selling options. As it is very clear that when it comes to capturing the price movements, trading NF is better than writing options as the return is, theoretically, unlimited.

NF does not cost or give benefit of decay to the trader. But, writing option does. However, the writer can ONLY take benefit of this gain IF and ONLY IF he gets the trend right. If he gets the trend wrong then time decay won't save him.

In conclusion, he will have to depend on catching the trend. So, why not trade NF then?

Furthermore, the people who are into the business of "eating" premiums, they play the game of Hedging.

They have RT softwares that flash the various greeks and the qualified person executes the hedges. Their only objective is to let the time decay (theta) work for them, and neutralize all other greeks. Since, this process keeps the Delta Neutral the trend is of no use to them.

They make the market, invest a lot of money, and hence get paid in time decay.

So I feel, a trend trader is better-off just trading the Nifty Futures, as opposed to selling one sided options.

I did initially trae with NF..but supplying money all the time was a headache, add to it the possibility of a huge gap up/down... this should theoretically remain the same, but if you catch the trend early, you will be spared the vagaries that come with Futures trading..Options does give you a decent exit if you are proven wrong... like in the recent bull run, i was short on 5600 Call @102(April series).. it went down all the way to 30 and then reversed back and hit my stop loss at my sell price... whereas in Futures.. it had run up more than i could afford to stay in game

Another important aspect is the ability to write one OTM and if trend supports, this is usually a no risk strategy...time decay takes care of all other aspects

 

[sridhar]

Sridhar ji,

Thnx for your reply...

Volatiryly from NSE Option data means (IV you take) but call has diff IV and put has diff IV then how you will take...

in Option cal when you give strike price...etc it show the price of put and call then which IV you need to take ?

please clarify my doubt..can you share your exp in using calulator

I enter opprox volatility of the concerned CE or PE as the case may be. I ask the calculator to use the underlying (ie. Nifty F1 price) & then look at Delta & theoretical price. So if my particular option has a delta of 0.3 & the next strong support/resistance is 60 points away expected increase in option value ( if price moves in the direction I have anticipated!!) would be 0.3*60=18 points. Very rough mind you!. Similarly if my expected movement is 300 points I would expect delta to improve to 0.5 & can expect around 100-120 points movement in option price. This is all very rough & I still have not got the exact hang of it.

See my post #601 on pg. 61. I had tried out someting like this by buying [email protected] and [email protected]. Now my postmortem:- Sold the 5200PE for 40% gain in a couple of days. And some few days later got out of the 6200CE.(will post exact values tomorrow). Am kicking myself for exiting 6200CE as I had convinced myself market will go down even though the charts were not showing it. IT HAS GONE TO A PEAK OF AROUND 45 & WILL STILL RISE. - This is the benifit of increasing Delta.

So I second Jamit- do not use ur own ego & learn to read the charts without emotion or bias.

 

[RtnVenky]

Thank you for this wonderful information...

 

[sridhar]

Am now also studying Bank Nifty Options data. My queries:-

1. Find volume traded to be a fraction of Nifty Options. Does anyone have experience of whether there is sufficient liquidity for taking positional calls over a time frame of a few days to 10-15 days?

2. Like 7 million OI level is a threshold in Nifty Options, what is the threshold in Bank Nifty Options?

Any views on this?

 

[sridhar]

I did initially trae with NF..but supplying money all the time was a headache, add to it the possibility of a huge gap up/down... this should theoretically remain the same, but if you catch the trend early, you will be spared the vagaries that come with Futures trading..Options does give you a decent exit if you are proven wrong... like in the recent bull run, i was short on 5600 Call @102(April series).. it went down all the way to 30 and then reversed back and hit my stop loss at my sell price... whereas in Futures.. it had run up more than i could afford to stay in game

Another important aspect is the ability to write one OTM and if trend supports, this is usually a no risk strategy...time decay takes care of all other aspects

Even I prefer Options, but am always buying PE or CE. This way my downside loss is predetermined & limited. I also find that if you get in @ the right time it is easier to ride the trend with options.

 

[jamit_05]

It only seems, but there isn't any advantage in taking up options, selling or buying. To trade a trend Futures are best suited.

It may only seem that options require less money, but that is because it has lower delta than NF. Lower delta means lower returns also.

It may seem that the risk is less, but that is because the return is also less. When spot moves 100 points, an ATM option only moves from 100 to 150 (0.50 delta).

From Trend Trading perspective, options do not fare well. They are instruments for hedging stock portfolio or futures positions.

 

[shivan]

From the beginning of the series 6000 pe saw 400% increase in OI and 6100 pe saw 294% increase in OI even though their net OI is 57 lakh and 16 lakh respectively so what does this mean/indicate.....kindly tell.

 

[sridhar]

It only seems, but there isn't any advantage in taking up options, selling or buying. To trade a trend Futures are best suited.

It may only seem that options require less money, but that is because it has lower delta than NF. Lower delta means lower returns also.

It may seem that the risk is less, but that is because the return is also less. When spot moves 100 points, an ATM option only moves from 100 to 150 (0.50 delta).

From Trend Trading perspective, options do not fare well. They are instruments for hedging stock portfolio or futures positions.

If you calculate the returns on Capital Allocated/Employed then Options gives better % gains. But it also gives higher % losses if you are wrong.
So I guess to each his own poison depending on risk taking abilities & temperament.

 

[jamit_05]

If you calculate the returns on Capital Allocated/Employed then Options gives better % gains. But it also gives higher % losses if you are wrong.
So I guess to each his own poison depending on risk taking abilities & temperament.

Options have one advantage but in intraday trading. Since, one does a smaller turnover the tax is much lesser. Also, might help while filing returns.

Otherwise, in positional it is a losing bet.