F&O learning

Derivatives

Includes Futures and Options

Financial Instruments

Nifty 50, Nifty Bank , Stock Options , Commodities , Soybean Futures etc

• Index h , joh ki top 50 indian companies ko track krta h ..
• Ye apne aap m khuch nhi hota toh isko khareed bech nhi skte
• nifty m trading krne ka matlab hota h , ki nifty k futures m trade krna

Futures

• No premium , just have to pay the margin
• 3 month in future , last thursday of each month ka dekha jata h aka near future and far-away future.
• Lot m kaam krta h ,multi-day kr skte ho and isme short kr skte ho
• Last thrusday of that month ko expire hoga mtlb agar aapne apna balance khtm nhi kiya uss din tk toh apka broker automatically apko uss din nikal dega ..
• Futures m you can go either go long or go short
• Long position : means you bullish on the stock price that it will go up
• Short position : means you are bearish that stock price will go down in future

Already leveraged prodcut h …

Future ka mtlb ki ha hm isko badme ( fixed date ) ko buy ya sell krenge

Agar you think ki haa ye contract ka price expiry se pehle he acha mil rha toh bech ke nikal jao .. ab woh uss buyer ki headache h ki expiry p kya hoga ..

Swing trade : iska matlba hota h ki stock ko ek 2 weeks ya 1-2 months tk hold krna

WHY IS CALLED RISKY ?

Future m entry li tune ,

lot size = 50 no of lots buyed = 20 price per lot = 10000

TOTAL POSITION VALUE = 50 * 20 * 10000 = 1Cr Margin paid = 1.5 lakh

Tune li long position ( ki bhai ye toh badega ) price per lot gya : 9500 TERA LOSS = 500 * 50 * 20 = 5 lakh

Tune trade li : 1.5 lakh p loss ho gya 5 lakh tera broker bola ki bhai ya toh 3.5 lkah accout m daal ya mai margin-call maar rha hu ( mtlb forced selling / mai loss m bech rha hu )

Agar margin call lg gyi toh 3.5 lakh ka loss aab tujhe broken ko dena h.. woh recovery team , legal ways sb lga dega ye paisa nikalne m tujhse!!

Agar SL k bina trade li toh, unlimited loss ho skta h

Interface se dekhna h abhi dhang se !!

Options

Index ke options hr week expire hote h Stock ke index hr month expire hote h

Instrument of trade

CE : Matlab Upar PE : Matlab Neeche

Strike price : Nifty ka spot price h 18500

In the money : 18400 CE isko read kro ki kya nifty 18400 ke upar h ? Yes toh ye in the money order h

Out of the money : 18600 CE isko read kro ki kya nifty 18600 ke upar h ?No toh ye out of the money order h –> rate km hota h usually

At the money : Joh strike price k bilkul pass hota h ..

types of Trader : Option buyer (CE) : small capital se ek decent amount profit krna chahata h , risk factor jyada h , loss k bhi chances hote h

Option seller (Put) : good capital se small returns banana chahta h with low risk

5 min, 15 min ka time frame: call option / call european ( CE ) : market badegi toh CE badega wrna loss hoga

PE : market giregi toh PE badega ..

Spot chart always study

Option : 100 Intrinsic value : Extrinsic value :

===> ACTUAL BUYING AND SELLING Lets make some option calling and execute some orders now !!

DELTA : Option kitna move krega agar underlying 1 rupee move kare toh

nifty bank APRIL MARKET ANALYSIS (TRADE DAY = 1ST APRIL )

support : 47900 delta = -7.31

** Delta diff between -15 to +15 is considered good !!

resistance 1 : 52019 resistance 2 : 53900 , delta = -7.74

*Call option = 53900 ka *Put option = 47900 ka

To make this an Iron Flag Strategy

47650 ka PE buy karunga 54000 ka CE buy karunga

STEPS FOR DOING DELTA NEUTRAL STRATEGY !!

CE Selling = you are a seller PE Selling = you are a buyer

This strategy works for OPTION SELLING

1. Make strong support and strong resistance for last months (dont consider the current month in action)
2. Here you assume the market will remain in a sideways motion and you sell a CE at resistance and PE at support
3. And make sure the delta difference is in between , -15 to +15 in this case
4. This requires large capital and arnd 4% of avg benefits
5. Market moves sideways / less volatile from 11AM to 2PM , so this is where this trade works
6. The side / tail losses in this can be minimised using IRON FLY Strategy where you buy CE above resistance and you buy PE above support.

ETF : exchange traded funds , basket of differnet underlying to diversify the portfolio, these replicate an index and are cheap to buy with the same exposure as of an index

Okay , but what the hell are ETF’s ?

ETF’s provide the same expose as the index, lets say bank nifty maintains an index of top 12 banks and you think the banking sector will go up but not know which individual bank might go .. so the best way would to trade in bank nifty’s etf that provide the same expose what the index would have provided you .. They maintain the same holding that the index holds and are available at much less price compared to the index price

REVISION

Buyer -> Right Call -> BUY Put -> SELL

Call option buyer means I have right to buy this @price Put option buyer means I have right to sell this @price

Premium = Intrinsic + Extrinsic value

Eventually option greeks ka kaam hita h to make Extrinsic value to 0 on the expiration date

Call Buy :

Intrinsic = max(Spot price - Strike Price , 0)

stock at 1000, I think it will go to 1300 , call buy at 1100 @ 150 premium

ATM of buying : intrinsic = 0 , extrinsic = 150

Lets suppose on day 4, someone says I also want a same contract as you : so it’s call buy at 1100 Premium that he will pay is : intrinsic + extrinsic => 150 + 20 = 170

Put Buy :

Intrinsic = max(Strike Price - Spot price , 0)

Option seller has to follow what the option buyer has to say ..

Option greeks :

What are these and who made them and why do they exist ? –> These are in market to favous buyers and seller . We have multiple greeks and they all work differently some favour buyers other favour sellers

Theta: This favours the seller.. and this is a time based factor in a premium and constitutes avg of 30% of premium value. The role of theta is to become zero at the expiration day (premium doesn’t become zero, theta becomes zero) reduces the value of the premium

Delta: This tells how much the premium will move if the underlying spot price moves by 1 pts ..

This is the most important value that reduces / makes up the premium

Vega: Implied Volatility index Its a market forecast of a likely movement in a security’s price.
India VIX : india’s volatility index
This tells how much stock market might move in next 30 days based on trader fear or clamness Its calculated using nifty 50 option prices

Its like a forecast for market mood

Before taking a position in a market always consider India VIX and for global prediction take in consideration overall US / europe / china VIX

Gamma: Rate of change of delta for every unit change in the underlying asset’s price

cause you are betting on fear

Example:

delta = 0.5 + (0.1 x 2) => 0.7 So, its more like owning 70 shares of stock instead of 50. That’s gamma , the position just got more directional ..

OI ( open interest )

We say their is huge OI ( open interest ) in Calls and Puts that bank nifty will stay above or below 49500 So the sellers to these buyers are institutional and they want to keep there premium and want options to expire worthless

There best interest lies in to keep the price at 49500

Strategies

Most important thing in this strategies is the risk : reward ratio

Credit spread aka bear call spread

Ek option ko sell krna and doosre option ko buy krte ho dono same expiry date ke hote hain, lekin alag strike price k saath.

Spot price = 100 sell put @ 95 -> premium milta hai 3 buy put @ 90 -> premium dena padta hai 1

3-1 = 2 * 100 ( 1 lot m 100 shares ) $200 ka paisa directly mil gya jeb m ab mai wish krunga ki price 95 se upar he rhe and agar neeche bhi aa gya toh mera 90 wala buy cap kr lenge 95 - 90 = 5 max loss = 5 -2 = 3 * 100 = $300

This is good , agar lgta h market neeche ya sideways rahegi

Short Put spread

Spot price = 1000 PE sell kro 900 @ 50 PE buy kro 800 @ 30

max loss = 100 - 20 => 80 per share in lot

Strangle

YOU THINK MARKET WILL REMAIN SIDEWAYS Spot price = 1000 Sell a CE at strike price 1200 Sell a PE at strike price 800

This makes a straddle strategy

Straddle

You are unaware where will market go .. so you betted on both side !! Spot price => 1000 Sell a PE -> 1050 Sell a CE -> 1050

Toh meri thought process h ki agar market upar gyi toh mera PE expire ho jaega Agar market neeche gyi toh CE expire ho jaega

But Agar jyada he directional trennd m chali gyi toh heavy nuksaan ho jaega .. and iss cheez ko mujhe hedge krna h

Iron Condor

Hedging a Strangle with buy options on both below and above makes an iron condor This is a good strategy is the market is sideways but requires adjustments when the market becomes trendy / trending in a direction

Iron Fly ( butterfly)

Hedging a Straddle with buy option on above and below the strike price makes an iron fly

How to avoid that max loss in a volatile market ? how to do that adjustments ? And then a a full backtested strategy ..

This can be learnt only when you play out this strategy in backtesting.

Started out with iron condor.. if the price remains in between the green range then its nice condition, profit condition, if it moves sideways to the top-most 2 points then we need to adjust the strategy ..

If the market moved upward aka the price increased take the premium on PUT Sell and take loss on PUT buy and settle there … and convert that to the Iron fly ..

Iron fly, here you sell the PUT at the same price of the CALL sell and hedge that PUT position by buying a PUT at below price

and if the market moves to one side in the fly you need to convert that to an iron condor as market is now showing a directional movement …

and repeat this till the end of the day !!