So today’s blog is very important for many people, especially for beginners. If anyone is interested in option trading, then I suggest that you get it out of your mind for a minute that I have to make a lot of money from it as soon as it comes. You have come to learn first, so we will understand some safer strategies first.
In the last blog, we learned to find the range, so if we know that the market will be in the range, then what will happen, I will explain the basic concept to people once, so I will start from here’s in the sideways market that we talked about in the last blog, we will continue from here’s, as Annand said that the market is moving in the middle of support and resistance, you can see it moving.
As I said in the last blog, if the market is between 18,400and 70,600, then we can make money. How can we make money? You have to understand that 18,000 is at the money, this is the ATM option. If the market goes up to 18,400, then it is out of the money option for call.
And if the market breaks, where it has not yet broken at 17,600, then it is also out of the money option for put. Write CE and PE there. So this is CE for us and this is PE for us. This is important, what he said, write it because you are going to trade in this.
So now I will explain a little bit to you that if the market does not reach any strike price, especially out of the money, then this out of the money will lose its value like an ice cube, but on expiry it will be almost 0, why almost because 0.5 money is left, so it is 0, the money is over, so even if it was 100 rupees, it was 5 monies, it is over.
Now this is over and this will also be over, this will also be0.So what is our concept? Our concept is that if you would have bought, then your money would have become 0, but the seller will get that money. See, the option trading is a zero-sum game. If money comes out of someone’s pocket, then it comes to someone’s pocket.
When you are earning such a buyer, then the seller is suffering loss. And when money is coming out of the seller’s pocket, he does not want it to come out every time, then it is rare, that is why 75% of the time the seller is making money in the market. What is the added advantage of the seller?
That out of the money option will lose the time value anyway, because they do not have intrinsic value, we covered that in the first blog. There is an important concept in this, when you work out of the money, the main thing is that to put the market in loss, first of all, you have to move in the direction that is not yours.
Because you have to reach the market before 18,400. If you go above that, then your loss will start somewhere. So you have to work very hard to put the market in loss. Either it will have to break first, if it breaks a little, then it does not make any difference to you, because you have worked out of the money.
When it breaks a lot or increases a lot, then your chances of loss come there. But if the market does not move, then just keep one thing in mind, that with time, your premium is eroding. And see, if the move does not come in your direction, then itis a loss.
More or less is fine, it is an out of the money option, so it has only time value. That’s why, as Annand said, if there was so much money, then your premium would have eroded. It would have seen you a lot, because what will happen, the thing out of the money will be cheaper. At the money, it is 100, so you will see 20 rupees in out of the money.
So if it goes in the non-direction, it will be a little 15, but it is getting less. You have to understand this. Now because it is getting less, now we come to the point, what is our point? If you assume that this is a thing of 20 rupees, this is a thing of 20 rupees. This means that our calculations say that within a week it will be zero.
So the seller is going to earn 20 rupees. If Nifty’s one lot is of 50 rupees for example, then 50 into20 is going to be 1000 rupees on one lot. Now how many lots do you trade, totally up to you. For example, someone does it on 50 lots, someone on 100 lots, someone on 1000 lots. So if you do it into 100, then 1 lakh rupees can come from here,1 lakh rupees can come from here, but capital will be required for that.
Now if you just sell and the strategy that I am going to give now, there is a difference in it. If you sell both out of the money options as soon as you go, then it is called in technical terms, making a strangle and we are shorting the strangle. You can buy the strangle, you can also short the strangle.
Now when you do long up, it is a completely different thing. It also comes at a time, but it is not there for now. So what will you do now, you will short the strangle, but your capital will be more in its now I am going to give you a better strategy, in which your ROI will be more, your return on investment will be more and your loss will also be protected in its let’s understand that strategy.
Till now I will conclude some points for you. Here we are talking about weekly expiry, because the range that we took out in the last blog was of weekly expiry. The second market is sideways, so we are talking about selling here.
Third, we are talking about selling out of the money, go to call and out of the money go to put. But there are some additional points that Pushcart is going toad for you. Let’s go. Now let’s continue here, one thing you have to understand is that when you are trading, then in which expiry are you trading. I had cleared this point earlier, but this is a very important point, I will show you now.
So now we talk about strangle, just a second. So this is short strangle, now we have come to sensibull, So basically it is a strategy builder software. So what happens in strangle is that we just sell, now assume that the CM is expiring, which is our current expiry, we can change the expiry here’s we just talked about that for example, the market will not go up to 17600 and will not go up to 18400.
Now you will say that there is no premium here, 11 rupees, 4rupees are left, so today I am recording on Sunday, so you can see the rate of the last day. But if you understand this, then the max profit is 0.74%, Solet me show you something very important. If you just change the expiry, for example, you come to the expiry of 2 March, now you will see it is 38 and it is 18.
There is one thing that we can discuss a lot, there are out of the money options, we can leave it for the future, but still will tell you. So you can see one price of 38 and one of 18, you will say that there is a little difference here, because it is calculated according to Nifty, but assume that Nifty is at 18000.
But this would be your example of 35 and this would be of 20rupees, so why is it so much, sometimes you will see that itis in the middle of the same distance, but you see one optional lot. So if you demand, then we will make a blog on it.
This demands there, I am very sure, you still comment and make Pushkar happy, he will know that you actually want, So we will write a blog on it and that is actually a very interesting concept, we have covered it in one blog, but still if we covert, you will enjoy it more.
And it is very important to know that concept, to work in options, to clear the mind, otherwise there will always be doubt. So now we will go to the strategy, so if you were selling only one leg, then your fund needed was 82000, if you sell both legs, then your fund needed is 1 lakh rupees.
Now your broker will ask you for a margin of 1 lakh rupees, if you go to sell only one lot, in which you have only changed the expiry, so now we are coming to the current expiry. So again, the fund rate is almost the same, you are earning only0.74% and here you see one thing, what is the probability of profit? 94%So the first thing I am giving this strategy, the reason is thatI want people to make money,
I want people to make money, I don’t care that now he wants to make 1 lakh to 1 lakh, what do you want, you take it to your house, I am not sitting here for that, we will cover that too, but first clear the basic, not today, until you are making money from the stock market for at least6 months,
you should not go to the risk, because if your initial losses have started, your big stock losses have happened, your capital is over, then you are going to abuse the stock market for life and not only the market comes in it, all the people of the market come in it.
If you and I are explaining something good, then people will feel that the stock market is such a thing, it destroys people, there is only gambling going on in i.e. have seen people like that, so people do not understand what is happening, what is happening with them, so in the starting if people use such setups in which their probability of profits very high,
it doesn’t matter how much money he has earned, he has earned5,000 rupees by investing 1 lakh, I say that you have earned, the confidence that will come from it, that you are earning continuously for 6 months, sometimes you are managing the loss, learning, doing adjustments, when you start learning all this, after this you will understand in which instrument you are trading,
because the more lucrative options look, you already know that it is as volatile, money comes at the same speed and goes at the same speed, and your psychology has a lot of effect, because when you are trading options in the intraday,
every second your mind is taking a decision, but when you sell and sit, then you know that how far this horse runs, I know where to reverse from, so you know a range, till nothing is different, nothing will happen, now we are going to increase ROI in this,
But you said a very good thing. If there is a socket here, it is getting current. First time it will be pain, second time it will be double pain, Fear of pain is so much in our mind that we stop working. Third time it will be more pain. So our courage will be over if we touch it or do any work in the market.
So fear of pain breaks a man’s courage. And courage is the only thing that makes money in the market. You just have to stick to the crease. Look, I am not saying this, you have to do only this. No, you should know every strategy. What to use in which market, when, what to use, this is what you have to learn. You have to play cricket like Rohitha Sharma.
He doesn’t hit six on every ball. He can hit, but he doesn’t hit because he has to save wickets. If wickets are saved, then centuries will also be hit. Otherwise, if you find out that you hit six on one ball, hit on the other and got out. So twelve runs are good or hundred runs are good. We have to go long.
We just have to understand one thing, I don’t want to get out of the market. Don’t throw me out of the market. And the market wants to take money from most of the retailers. Who wants it, you will understand now. Now what have we done? We had to come here 0.74 by investing ₹ 1 lakh. Now there is a concept called hedging. You understand carefully here that Max is unlimited.
As loss is unlimited. Means loss can be unlimited. How can it be a loss? You are selling so far, how can it be a loss? Because no one knows how much the market can go up. The market has gone crazy. So if it goes from ₹ 18,400 to ₹ 500,then you can have a very good loss. Similarly, our range is quite large.
So you will see that your profitable range is very large. But still if you see that it broke a lot, suppose something happened in the market suddenly from here and it went to ₹ 16,000.So you can have a lot of loss.
So we have to protect that loss and for that comes hedging. So there is a beautiful strategy. I basically like to explain the iron condor to people before the butterfly or iron fly. Because this is one of my favorite strategies.
And this strategy makes me money continuously. And this strategy makes people money continuously. And only a new person wants to understand it. Because it looks complicated but it is not. It looks complicated but it is not. I will give you the answer to this. So now if you see your fund requirement, you will see four legs here. Here you will see that you are going to take four different trades.
But your fund requirement is directly 46,000 from ₹ 1,00,000.Max loss where it was unlimited is now 17%.But now we will change it. Now we had to sell 17,600 on put side. Now we are making it, we will make it ourselves. It gives you by default. And by default you see the probability of profit and everything.
Now we will, let’s say, basically you have to keep delta neutral. But still I give you a simple setup. You can change its if you see here now. So now you understand here. Our max profit is 0.81%.I have bought it by going up by 200 strike price.
There is a reason for that, I will tell you the reason for tattoo’s now we sold 600, sold 400.As soon as I change the expiry, the game will change. But still I am telling you. Sold 600, sold 400.And after that I bought it by going up by 200 points. And then I bought it by going down by 200 points. What happens by buying if you see here.
Here is your loss, after this, its wings are attached. So if these wings are attached, then it will not let you have unlimited loss. So this concept is known as Iron Condor. Where you sell what you were making strangle.
You just buy a few strike prices above that. Now we have bought it by going up by 200 points for a general view. Now if you just change the expiry here. Now see the magic. Your loss is 18%. Your profit is 3.2%. Now we are not talking about the risk to reward ratio just now. Risk and reward ratio does not match according to many people.
Annand says that I work in those strategies where there is no risk and reward ratio. Not more than this. Because you are making credit strategies. You are getting money in the starting. Probability of profit is 78%.But what are we doing now? Annand, there can be a question. I am doing Iron Condor. My focus is only this week.
I am working by finding the range up to this expiry. But I am going ahead by one expiry. I am not selling the option of this expiry. Because this expiry option is already over. If you just see, so here it is of 38 rupees. But the current expiry is of 11 rupees. So it is already over. So what is going on in my mind, I will tell you.
What is going on in my mind is that I do not want to take this3.2%. For example, my quantity is, I am telling you a general quantity. So this is my minimum quantity in which I trade. Here I can see that my fund requirement is of 1.7 crores. I know that I have to get 5.5 lakhs. But I am not trading for 5.5 lakhs. Because I know that in this expiry, the option of the next expiry will be more than 50%. If it is in the range.
So if I just go one expiry forward, this premium will erode. That will be 0, this will not be 0. But this will also melt more than 50%. So what I want is, leave me 3.2%, I will get 1.6%. Because on this expiry, I am not getting even 1.6%. You just see. On this expiry, we are getting 0.8%.But I am taking double from this. By working in the same range. Okay, okay, got your point. Now I understood, now I understood.
You want to work for a week. Which was your initial mindset. But if I am getting 1%-1.5% per week, Then a lot of money is being saved. Understand again, I was stuck in the middle. What do you want to do? But a very interesting thing has happened. They have increased an expiry for you. But they are doing this work for this expiry. For the next expiry or the next week expiry, The work will be done in a fresh way.
But as soon as they took one expiry, They got a little premium better. Their safety net had increased. Interesting, this twist was good. So here also the probability of profit is 78%.You know, this is like a movie. At the end of the movie, you were thinking That this is going to lose, this is going to lose. And at the end, the twist came and you won. Something like that happened. It was fun. We will win maximum time.
Now you think, who is my focus? Who is learning now? All the beginners are sitting for me. Advanced people must already know all these things. But beginners take years to learn these things. No, no, a small twist and fun. I was a little upset heretic was thinking what is happening? What is this going to happen? Now it’s fun.
So what is it now? We are here, I know that they have a profit of 3 lakhs. At a capital of 1.7 crores. After 3, I will see what is happening. Is Wax changing? Is the range changing in the market? Is the support resistance changing? If nothing is changing, then let it go. The market was at 18000, it went up to 18200.
Okay, no problem, it is within my range. Then it came back to 18000.My expiry is at 18000.So I will see. Your premium will be almost over. That premium will be over. And if I have to continue it, then I can continue it. You can also roll over there. Your premiums will increase. I will do the roll over. I usually do the roll over.
But I am telling for new people. You have seen the entire expiry. The expiry is over. Okay, now Friday has come. The market opened at 70 points. No problem, it went from 18000 to 1870.No problem, it is within your range. You have taken out the range. You know Wix. You know support resistance. You know everything in a fresh way.
You left Friday. You left Friday too. If there is a gap up gap down on Saturday and Sunday, If it happens drastically, then there will be a loss. If it does not happen drastically, Then on Monday, you will get 70-80% reward. Between 9.30 and 9.30,Such premiums will fall out of the money. The seller will enjoy it. And this thing will make you money consistently.
So what we were understanding now, We were understanding an iron condor strategy. In strangle, just by taking a safety, You make an iron condor. Okay, and what is important in it? It is not important that I am getting 3% or 1.5%Important is 78%.Means my intrinsic probability of winning Is more than 75% of anything. If I take a bet, then I will win.
My system is telling me. My software is telling me. And my calculations are telling me that If you push this bet, you will win. So if you are so sure about something, then you take it in the starting. And when it fails, then there are adjustments. And even if it fails, will my entire capital go? This is 18% max side.
If the market goes in any direction like crazy, then there will be a loss. And increasing 400 points for the market, it is not too easy. Even after breaking 400 points, it is not too easy to break more. It happens only once or twice in a year. And if it happens, will we keep looking at the market? Will we keep looking at our position?
So when it is going in the direction, will we not catch the direction? So we have to catch the direction. So in the next blogs, you will also get directional strategies. so this is the strategy for you, In which you have to give very little time involvement. Once in a week or once a day, It is more than enough.
Once a week, make a strategy. Once a day, when you get time, Even if you don’t get it, You won’t have any tension. Because the majority of the time, The maximum loss is capped. Regular income is because you have sold it in the net. If we talk about premium wise, you will get its this is an amazing strategy for you.