Hello folks! Hope you are doing good. Every week in our weekly expiry analysis post, We are trying to find the range for coming weekly expiry along with the options strategies we can follow in Nifty and BankNifty.
Every week, I’m getting so many questions from novice traders related to options trading. One most asked question is, “How to avoid losing in weekly expiry options?” Today in this weekly expiry analysis post, I will try to answer this question.
How to avoid losing in weekly expiry options?
Most of beginners thought that options trading is simple. Just buy a CALL if you are bullish or buy a PUT if you are bearish in any particular script. But It’s not that simple.
In this futures & options segment, there are 2 products. One is Futures and the second is Option. In nature, both are the same but the behavior is different. Both are giving you the power to hold specific quantities of that particular script. But for one product (Futures), we have to pay 1 – 1.5 lakh, and for the other product (option), we just need to pay 10k – 15k to carry one lot of that particular script where the value of that contract is around 10 lakh.
People think that when we can get the instrument with the same nature in just 10k - 15k, why pay 1-1.5 lakh? Some are taking because they don’t have that much funds and trading based on the hope that this trade will convert their small account into a huge one.
Here is one thing we need to understand very clearly, if someone is offering a contract, whose value is around 10 lakh, in just 10k – 15k, then there must be some factors behind that contract that will work against you, He is offering because he knows that probability to make money in this contract is very low. Out of 10-20 contracts, just 1-2 will make actual money.
So before we start trading options, we have to learn these factors first. These factors are Greeks and Implied Volatility. These are the foundation of Option pricing. And if you don’t know how to calculate option pricing (premium), you can’t make money here.
These factors will tell you the probability of making money in any particular strike. What is the intrinsic value or time value? and What will be the impact of an increase or decrease in Implied Volatility? I’m not going deep into these components in this post because I have already written a detailed article. You can go through it.
- Read here: How to trade options?
How to choose a strike for weekly expiry?
In this article, we will talk about just 2 options greeks that are Delta and Theta. Delta will tell you the sensitivity of that particular strike i.e. how much your option premium will move in respect of the movement in the underline asset. Theta will tell you what is the time value or how much you will lose in a day if you are holding that option.
Delta will start decreasing if you are going from ITM to deep OTM (out of the Money) options. So Lower the delta, lower the sensitivity. or we can say, Lower the delta, lower the probability to make money. So if you are thinking to BUY a deep OTM option because Premium is low, you have to understand that the probability to make money is also low.
- So before you choose a strike, always calculate what is the probability of becoming this OTM option into an ITM option. Because only ITM options have the intrinsic value (or real value) on expiry.
The second Greek is Theta. The higher the theta, the higher the premium you will lose in a day just by holding it. In simple words, this is the cost you are paying to have an option for one day. So before you choose your strike, always calculate what is the theta value of your trade.
Lower theta means lower the cost to hold that strike. Like, if you analyze that nifty will go 100 points up in the next 3 days. So to hold an option for the 3 days, how much you will lose because of theta?
Always subtract that cost from your position value and then calculate your probability based on the delta to know whether you can make money in that trade or not. Let us understand this with an example.
Let's say, you analyze that Nifty will go 100 points UP in the next 3 days. Now you are buying a strike with a delta of 0.30 and theta of 26.60. To calculate how much we will make or lose, first, we need to calculate the profit we will get from the movement i.e. (0.30 * 100) *75 = 2250₹. (here 0.30 is the delta, 100 is the price movement and 75 is the lot size)
Now calculate the loss due to theta i.e (26.60 * 75) * 3 = 5985₹. So, net P/L = (profit we get from movement - theta decay) = 2250 - 5985 = -3735₹. You can see that your analysis was right, nifty hit your 100 points target but you are still losing.
We discovered that our profit was reduced due to the low delta. If we want to profit here, we must select a strike with a higher delta. A higher delta will result in a higher profit, which will easily exceed our loss due to theta decay.
So always do these simple calculations before entre in any trade and choose your strikes based on the Greeks. In starting you may find it a little tough but believe me these are the simplest calculations you can do to take a high-probability trade. Just need to put a step forward to learn how to implement these terms in your options trading.
If you need any help, you can enrol in our unique Mentorship Program to learn and implement these terms in more practical ways. Where I will be there to help you in the live market.
Nifty Weekly Expiry analysis and Options strategy
After consolidating in a range for 2 weeks, we saw a good rally this week in Nifty. Nifty made a new all-time high and almost touched 20000 mark. Which a good sign for long term investors.
Now when trading at all-time high, we have two possibilities here:
- Either Nifty can go higher to touch the new all-time high
- or it may fall down due to profit booking.
To calculate the further levels, let us look at the range nifty is holding right now.
If you look at the chart, you can easily spot the around 19739 is the small support, currently Nifty is facing. Immediate support is around 19500 where Nifty was consolidating before giving this breakout.
A breakdown from 19500 will trigger further levels on downside. On the upside 20000 is the psychological level that needs to break for further upside level.
I follow Fibonacci tool and based on the tool my next target is 20500. That's need to hit for further consolidation.
So as per the current chart, 19500 - 20000 is the range that we can follow for the coming week.
One more thing you should keep in mind here is: INDIA VIX is increasing slowly. So next few sessoion would be highly volatile. Trade with proper risk management.
The overall trend is UP and there is no clear sign of weakness. I always say that we need to focus more on reaction instead of prediction. Right now, we are getting Uptrend that why we are bullish. Once we got a breakdown we can adjust our positions and change our views.
Do not try to keep yourself ahead of the market or don’t try to beat the market, let the market give a clear indication, then we can react accordingly.
Nifty weekly expiry analysis with option chain data
Based on option chain data, the highest Open interest stands at 19800 CE & 19800 PE, followed by 19900 CE & 19000 PE. PCR of all strikes is 0.84, which indicates a neutral market. PCR at 19600 stands at 4.46, which is acting as an immediate support level.
The Put-call ratio at 20000 stands at 0.20, which is acting as a resistance level. Equally, important indicator Option Pain is at 19800, indicating weekly expiry at 19800. A shift in option pain will provide further levels of expiry. So keep tracking max pain.
Significant open interest buildup on Call sides. Indicating that Nifty is facing good resistance from higher levels. So based on the OI, the possible range for this week should be 19500 - 20000.
Keep tracking change in open interest to analyze market participant’s behavior, so that you can adjust your position accordingly. If you don’t know how to analyze open interest for nifty and bank nifty weekly Expiry strategy. Just enroll for our Option Strategies – A Mentorship Program.
Nifty weekly expiry Strategy: Iron Condor
In the above strategy, the risk is high compared to the premium we got. So take a trade only if you can afford to lose that max loss.
I choose this Mouse Ear Iron condor this week instead of normal iron condor because I want to keep my range braod and minimise the loss if there is one side movement. Compare to iron condor this strategy will give you less loss if there is any breakout or breakdown from your breakevens.
Adjustments for Nifty Weekly Strategy:
Initially, you can keep a stop loss of 19500 & 20000 for this strategy. Means square off if you find nifty is giving a breakout or breakdown. Or you can do this adjustment too. ( Do not hold this strategy is loss is more than 4000₹ with 1 lot).
If you find that Nifty is giving a breakdown and sustaining below 19500, then square off call spread and bring it down to 400 points lower levels.
The same thing you can do with put spread means if you got a breakout from 20000. You can shift your put spread to 200 points up.
If you want to learn these Nifty and BankNifty weekly expiry analysis with options strategies and their adjustments in more practical ways with live mentorship, You can enroll in our Option Strategies – A Mentorship Program (20% OFF).
BankNifty Weekly expiry analysis with option strategy
From the last few weeks, BankNifty is trading in a range of 44500 – 46000. The more it consolidate in the range the chances of a fall will reduce. Same thing we saw on Thursday where BankNifty gave a breakout and made a new all-time high.
Now 46000 is the level that we need to keep on radar. If Banknifty manages to sustain above this level, we may see some more upside levels in the coming week.
Breakdown will fall again in the range of 44500 - 46000.
Right now Bank Nifty is trading near to its crucial resistance level. So we have to follow a proper risk management plan here. You can book profit in a long trade and wait for some clear indication.
You can book your seats if you want to learn the strategies that I'm following to trade Nifty and BankNifty in intraday:
Bank Nifty weekly expiry analysis with option chain data
Based on Bank nifty option chain data, the highest Open interest stands at 46000 CE & PE, followed by 46500 CE & 45500 PE. PCR of all strikes is 1.02, which indicates a neutral market. PCR at 45500 stands at 3.68, which is acting as an immediate support level.
The Put-call ratio at 46500 stands at 0.14, which is acting as a resistance level. Equally, important indicator Option Pain is at 46000, indicating weekly expiry at 46000. A shift in option pain will provide further levels.
If you don’t know how to do the banknifty weekly option chain analysis, Just enroll for our Option Strategies – A Mentorship Program.
Bank Nifty weekly expiry Strategy: Iron Condor
If you find that BankNifty gives a breakdown and sustaining below 45200, then Shift your Call spread to 600 points down.
The same thing you can do with put spread means if you got a breakout from 47000. You can shift your put spread to 600 points up.
Few more adjustments we will do to reduce the risk and increase profit in this strategy. So keep following TradePik's WhatsApp community.
If you want to learn these bank nifty weekly expiry strategy and their adjustments in more practical ways with live mentorship, You can enrol in our Option Strategies – A Mentorship Program(20% OFF).
Post your comments in the comment box if you have a query related to the Nifty and Bank Nifty weekly expiry analysis and options strategy. You can ask any question related to option trading in the comment box.
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*( Please avoid any questions like which Call or Put we should buy in the coming week).
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DISCLAIMER: – we are not a SEBI research analyst. Views posted here only for educational purposes. There is no liability whatsoever for any loss arising from the use of this product or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods. This information should only be used by investors and traders who are aware of the risk inherent in securities trading.