Stock

1. OPTION’S EDGE
“ trading is a game of probability , and it’s always
better to be on the right side of probability “

2. OPTION’S BUYING / SELLING
 First thing first , where is the edge ?
 Option selling has an edge as the odds are in your
favour.
 Remember one thing , option’s buying needs 10X
skills , so it is important to start small , test the
water and then scale up when it comes to options
buying
 There is only thing certain in market , and that is
time decay , and time decay works in favour of
option seller , and works against option buyers.

3. UNDERSTANDING THE EDGE
 When does option seller make money ?
1. When the market moves in his favour.
2. When the market remains sideways.
3. When the market moves against your entry price ,
but after long sideways move.
 When does option buyer make money ?
1. When the market moves in it’s direction with
momentum ( Sharp move )
 Conclusion – “ Option seller has a inherent
chances of being right close to 70 percent ’’

4. DID YOU KNOW ?
 Over the years since 2006 , the movement of
NIFTY / BANK NIFTY is as below
movement Range
( +/- 8 )
Range
(.8 to 2
percent )
Beyonfd
range
( 2 percent )
Days 2314 1004 365

5. CONCLUSION
 Market likely to remain range bound 63 percentage
of the times
 Market likely to remain trending 27 percent of the
time
 Market to remain highly trending only 10 percent of
the time.

6. SHORT STRADDLE – INTRA DAY TRADING
 Short straddle is basically , selling ATM calls and
puts
 Short strangle is basically engaging with OTM calls
and puts
 We’re talking about a short straddle / strangle as
we know we have an edge by selling options
 However , we’re going to be focused on short
straddles , and not strangles so let’s understand
why
 By selling options , we are trying to capture the time
decay that happens in options over the entire day.

7. TWO DAY TRADING SYSTEMS
 Bank nifty morning straddle
 Bank nifty / nifty straddle using CPR ( we have
introduced this as the margins are increasing
starting from september , and the conventional
passive income straddles can’t be hedged for
margin benefit due to slippaages )

8. BANK NIFTY – “ MORNING STRADDLE ’’
 We’re going to enter ATM straddle at 09:23 at CMP (
current market price )
 We’re going to be placing a SLM order of 40 percent on
both the positions.
 We’re going to exit either at 3:01 PM , or when both side
SL is hit
 Please note that , in cases where one side SL is hit , we
keep the other one open until unless SL is hit.
 We’re going to execute this straddle from Monday to
Thursday as the premiums are very high on a Friday
which may lead to bigger drawdowns , further time
decay happens very close to the expiry.

9. DEVELOPING A SYSTEM
 The first thing that you must look for in any system is ,
its Maximum Drawdown.
 Once you know the max Drawdown , you should now
know the Min capital required to deploy a strategy.
 Capital required shall be – “ Min cap required + Max
capital drawdown ’’
 Then check for return to MDD , higher the better (
ensure that your strategy has atleast a RMDD of 3:1 )
 Then apply stress test on your system ( Remove the top
5 profit’s generated by your trading strategy )
 Most important , know your system ( write down each
point on a paper and stick to your trading desk or
anywhere )

10. DETAILS OF NIFTY BANK MORNING STRADDLE
 Entry time – 09:23
 Exit time – 03:01
 Stop loss – 40 percent ( Always place a SLM order )
 Max Drawdown – 20,000
 Return to MDD – “ 7 to 8“
 Capital required – 1,60,000 ( 1,40,000 + 20,000 )
 Days – “ Monday to Thursday ’’
 Max winning streak – 16 / ( 6)
 Note – “ The Volatility is higher in the morning , so be
calm while placing orders , use basket order to place the
order’s , and yes make use of alarm to remind you to
take trades ’’

11. BEFORE STARTING THE SYSTEM , YOU MUST
KNOW THAT...
 This system requires highest amount of patience.
 It is very boring
 You must know the highest losing streak , to ensure
you don’t panic during bad performance by the
system
 Strictly follow the position sizing so that you have
enough cushion to deploy the strategy during tough
times.
 You may feel that the system needs high margin ,
but frankly you can deploy this by simply pledging
your holdings with your broker ( Few broker’s allow
pledging of some mutual fund as well )

12. INTRA DAY STRADDLES IN NIFTY / BANK NIFTY
USING CPR
( CENTRAL PIVOT POINT )
 CENTRAL PIVOT RANGE ( CPR )
 Authors have called the pivot range the “meat of the
market”, while others refer to the central pivot point as
the “heartbeat of the indicator”. In Frank ocho’s opinion,
the central pivot range is the Swiss Army Knife of
pivots. At any given time, the range can be support or
resistance, it can forecast trending or sideways price
behavior, dictate the day’s direction, or serve as an
integral part of a trend
 CPR , is the centre point of the chart , it’s like a magenet
, where market may spend most time
 We’re going to use this quality of CPR to create intraday
straddles , which may work as both directional and non
– directional trades

13. DIRECTIONAL OPTION SELLING USING CPR (
WITH AND WITHOUT ADJUSTMENTS )
 Rules
 ENTRY TRIGGER
 A 5 minutes candle should close inside the CPR

14. STRIKE PRICE SELECTION AND
FURTHER ACTION..
 Once a candle closes , inside the CPR , simply sell ATM
straddle
 As we know that PDH / PDL , is an inflection point , you shall
stay in the trade , until unless market stays inside the range
 For the purpose of safety ( to save yourself from any drastic
move ) , we will keep a SL as per the zone breakout range
 The purpose of putting the SL is to just ensure tht we’re
saved from any blackswan event..
 We’re also going to initiate a buy hedge for margin
benefit’s in this straddle so in worst case scenario we’re
taken care by the hedge leg
 Once the zone is taken out on a closing candle basis , you
MUST exit your losing position , and held on to your winning
position to eat maximum theta
 Nifty is less volatile than bank nifty , so you can first start
with nifty as it is much calm than bank nifty

15. MOVE OUTSIDE THE RANGE

16. ADJUSTMENT
 We’re aware , that 50 percent of the zone breakout
are false , and well we can advantage of that by a
simple trick
 We know that we’re suppose to exit the losing
position , once the market comes outside the range.
 However , what if the range breakout is Fake ?
 Well , once the market , again comes back inside
the range , you can Re – enter into the losing trade
( Which you had exited ) , by initiating ATM options

17. ADJUSTMENT TRICK ( SIMPLE ADJUSTMENTS )

18. OPTIONS SELLING ( HEDGE FOR
MARGIN BENEFITS )
 Spot the entry trigger
 Choose ATM option ( weekly option ) for “ Option selling
 Buy a far OTM for hedging purpose , trading between rs10 to
rs 20 ( No need to put a Stop loss , keep it open till day end )
 Margin required with hedge shall be 50K for day trading.
 Whenever you’re hedging , always initiate the buy leg first
, and then the sell leg
 When you’re exiting the trade , always exit the sell leg
first , and later exit the buy leg
 Trade shall close in the following ways
1. Market stays inside the range , and you get exit at 3:01 PM
2. Market breaks the range , and remains trending ( Exit
triggered in one leg , another position to be exited at day end
)

19. INSIGHTS OF THE SYSTEM
 This system works well in sideways market
 We’re choosing weekly expiry to get maximum
theta benefit
 You’ll make good money most of the time , just
make sure you don’t lose much in the trending
moves of the market
 Maximum profit’s are going to be made on EXPIRY
days.
 Always respect your exit trigger , don’t let hope
come in your trading decisions

20. BROKER SELECTION
 In order to take advantage of the hedging benefits
with options selling , please choose an alternative
broker to zerodha
 As zerodha doesn’t allow you to buy Deep OTM
calls / puts due to open intrest restrictions by sebi
 A good alternative is Angel broking for the same

21. LAST BUT NOT THE LEAST..
 Write down your observation , and conclusion of the
system
 Do a weekly review of your trades , and see
whether you’re feeling comfortable
 Start with one system first , and then move to
another system to get a grip on one system
 We will do live market session to deploy the same
in one of my trading account. ( Recording of live
market session will not be provided )