Future and Options

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  • Derivatives - Assets that derive their value from other assets such as - gold, oil, etc.
  • Do not buy any option at all, if VIX is falling.
  • Futures are available only in lot sizes.
  • Never trade next month future lots, because they have a lot less volume unless you are sure to hold it.
  • Futures are written as - Stock_Symbol Month FUT
  • Options are written as - Stock_Symbol Month Strike_price CE/PE
  • CE = Call (Bullish), if you think that market will go up, buy this.
  • PE = Put (Bearish), if you think that market will go down, but this.
  • If think that the market will go up to 200 you will buy SYM Month 200 CE. If it didn't each 200 by last Thursday its value will become zero.
  • Implied Volatility (IV) is one of the most important factors in options.
  • If volatility is very less, then you will lose money even if the market is in your direction.
  • For Option Buying, Risk/Reward should be at least 1:4.
  • Validity - Last Thursday of the Month.
  • We can do multiday short.
  • For option buying, Premium should be at least 100 (stoploss - 20to25), or 50 on expiry day.
  • You get to leverage on them against Delivery.
  • They are very very risky, especially options.
  • ITM - In the Money (already achieved), it is the safest.
  • OTM - Out of the Money (not achieved yet), riskiest.
  • ITM is more expensive than OTM.
  • ATM - At the Money (Just coming)
  • Value of the option deprives with time.
  • Nifty has weekly contracts.
  • Buyers of options can only lose the premium but the seller will lose much more than that.
  • Delta value indicates the amount of time affect on option premium. Option premium = amount + delta * increase
  • Delta for - ITM = 1, ATM = 0.5, OTM = 0.1.
  • Gamma is to calculate the change in Delta.
  • After half time before expiry, option decay increases by a lot.
  • Option Deprives with time, hence we will get money if we short them and the market goes sideways.
  • Option Buying is good only the situation is in our favor with great momentum (33%), have 1:4 R/R ratio.
  • Option Selling is good if the situation goes in your favor and also if the market is sideways. (66%)
Option Buyer - Limited loss and Unlimited Profit, will earn money if a premium is less and it increases which is done by volatility.
Opportunities - Budget Day, RBI meet, GST meet, Finance Minister press conference, a very bad or good result of the company, when there is high panic. Enter before the event.

VIX - Real-Time Volatility Index, 20 % VIX means that the market(index) can go up or down that percent in the next year and also the month. Change in a month = VIX / (sq(12)  * 2) (2 because the market is open only for around 17 days in a month.)
NIFTY


  • Bank, Finance, IT, and Energy are the biggest sectors in Nifty.
  • Nifty and BankNifty generally follow the same direction.
  • World Market also affects nifty.
  • Vix plays a great effect.

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