क्या है Option Chain और कैसे Analyse करे? | #Options Trading-2 #Learn2Trade 34
Welcoming you to the Session 34 of Learn2Trade. I am Vivek Bajaj and I’m teaching trading alongside Annapurna. Hello Annapurna. -Hello sir. -How are you? -All good sir.
Fantastic. So, your training for options have started? In the previous session 33, I had told you about the basics of options. About Call Option, Put Option, Buyer of Call Option, Seller of Put Option What is the meaning of all these? In the money, Out the Money. Everything has been principally cleared? -Right Sir. Friends, if you haven’t watched the first video Options Trading 1 – Learn2Trade Session 33. If you haven’t watched it, watch that first and after that watch this.
Because this is a series of 5-6 videos Options oriented that is a part of Learn2Trade. Today we will go to the next level. Some concepts I will record singlely on strategies about what to do during boom and recession which we will learn about But I am clearing the Base for you. Let’s go to NSE’s site to know about the basic information about options Which we can take from NSE website.
Let’s select any stock that is under F&O which have Options contract. For example: Reliance. Lat time we had taken example of reliance. Let’s search for Reliance here. Reliance Industries. And under Derivatives we see Option Chain.
Let’s discuss about Option Chain today. -Okay Sir. What does Chain mean? When two links are joined it forms a chain. Correct. Gold chain, Steel chain. If you have seen 1 to 1 to 1. Option chain even means joining the link. So, you might have seen, last time we had discussed even, I had just introduced this. We will go deeply into it.
What is Options Chain exactly! On the left side we have call option, And on the right side we have put option. This is presented by NSE. Anyone can do according to their wants. Under chain what all can you see? Open Interest. Open Interest?
We had discussed sir? -Remember? -Yes Sir. Open Interest meaning how much position is standing under that contract. At every position there would be a buyer and seller. But we don’t know that this contract has buyer or seller. Might be both. But open interest is this many contracts that are standing in it.
Change in open interest meaning how many changes has taken place How much was yesterday and how much are today. If we go to exchange website, open interest change won’t be visible in real time In fact, open interest change doesn’t come in real time in NSE. There is a delay of some minutes. As far as I know it has a delay of 3 minutes. -Okay. Why 3 minutes delay? Because processing of exchange takes time.
That’s why there is a delay of 3 minutes open interest, and not necessarily only for us. -It is for everyone. Change in open interest meaning? How much change has been compared to the previous day! Volume meaning how much activity has been done in strike price. If you see, there is strike price which means you have the choice On which you have to buy and sell or buy and sell put. -Right. If it is away from the current market price then it would be in the money, Or out the money depending upon call & put. We remember this concept? -Right. If it is on this side of current price then it is in the money, call.
And if it’s here, then it’s in the money, put. So, open interest, change in open interest, volume, I V is the concept we will be learning. If you want to do Options Trading and if you don’t know I V then you are missing something. I V is Implied Volatility which we will discuss about it in later course. LTP Is last traded price meaning at what price it has been traded last. What is traded last under options? Premium.
Then you have change in the premium price. Bid Quantity – How many people are putting bid. How many people are willing to buy? How many contracts are to be bought at a price? Then, Ask price – what is the price people are willing to sell. Ask quantity Is this. Now you see, in reliance there is strike price of 1360. What is the price now? 2000. At strike price of 1360, if someone wants to buy call option at 646.
And if someone wants to sell call option at 823. What is the difference between both? It is known as BID & ASK spread. -Okay. Basically, ideally BID & ASK should be very tight.
If its tight it means it has liquid in the contract and if there is very much gap it means the contract is not liquid, Illiquid. Who is this that is taking or selling this share at this price? Only one person is doing this and is called Market Maker. Very Important concept. In options, market maker has a huge role.
What does Market maker do? It tries to create a fair price at every instrument. Cash Market or derivatives or Futures or Options. It tries to create a fair price and tends to buy it from far and sell it from here. Suppose if someone wants to sell these(B) option then he would sell to this(A) Sell at 646 then he received 646 and if someone else wants to buy, Then he would take at 823. So, he sells at 823. How does market maker earn?
Came at 646 and goes at 823, then the market maker earns. The spread between BID & ASK is the earnings of market maker. -Okay.
This is a specific category of market participant. The Prop Trading Firms where own capital is traded, there are many firms as such that do market making in market… …whole role is to provide you liquidity but in that process he earns. When he buys and sell then is that at a single strike price? Look it’s standing at a strike price of 1360. Strike price of 1360 is an instrument in its own. Strike price of 1380 is an instrument in its own.
And strike of 1400 is a different one. We aren’t only talking about Reliance now We are talking about call option of reliance of 1360. It has its own ego. – Right. Reliance has its own ego. So, when you will be talking about it,
then you would have to talk independently and it has its own regulations. At what basis is it calculating that this is its fair value. I will talk about it. The concepts that we had discussed Intrinsic Value and Time Value, both has significance in it.
But let’s cross this for once. Have you understood Market Maker? Options in the market maker has a huge role. In futures too. But in futures liquidity comes as the buyer and seller comes. Natural buyer and sellers come. But to bring it in options is difficult. Specially in Illiquid options. Over here the market maker gives both the bid and ask and just keeps sitting, it’s a machine typically.
Have you heard about Algo Trading? -Yes sir. Algo Trading is basically trading using Algorithms. Algo’s are made in machines, coded in it and gives BID & ASK to the market.
And you can Entry-Exit on the basis of BID & ASK. Now you can ask, Sir this is too wide! This is very wide. It’s a loss for me. If I take it so high and sell it so low. So, you wouldn’t do it. Don’t do. Where the bid & ask is good.
Meaning the bid & ask spread is less that means Impact Cost is less. This is basically the Impact Cost between BID & ASK. Where there would be less, you would want to trade there only.
When impact cost would be more, you don’t want to trade there, As Entry & Exit cost there is high. At 1360 call option, there is such a big premium value. Similarly, if we would see put option, Then premium value is 0.25 & 0.40 because 1360 put option
Is out of the money, deep out of the money, why? Because price is 2100, put option of 1360 meaning Someone is trading at Strike price of 1360 that I’m buying Put of reliance at 1360 that reliance might go 1360 It’s a far away thing, possibilities of it happening are less Why? Because expiry is even of 29th July and today is 26th July. So, do you think reliance would go 1360 in 3 days? -Very difficult. But still there is a probability. I can’t say this can’t happen, or its impossible. Some chances are there that’s why its price is 0.25. -Got it. If you think it won’t go. Then sell off at 0.25.
But if you sell it will have impacts. I will tell why you shouldn’t sell this 0.25. And if you think it will go then you are getting this opportunity at 0.25 to take And if in 2-3 days, if you have any news that reliance would go home.
Then 0.25 is great investment. Because if it gets 20 rupees then what kind of return you can generate. That is beauty of Options, where if you can go right then you can generate Massive return on capital. Because with a small premium investment, if you go right, you can make massive money. But because premium is invested you will lose the premium, if price doesn’t react to that level. If it doesn’t go down then your 0.25 will get over. You will actually take at 0.40 Then this 0.40 will get lower so basically you are willing to bet 0.40
With an assumption that price will fall. It is nothing less than playing a lottery. Have you seen lottery tickets? -Yes sir. So there the lottery ticket of 10 or 50 for the ticket, people take it Assuming if lottery wins then how much they will get. So, these are lottery tickets. But there is some science. Because you can estimate whether the stock will go down or not Using these which I have discussed earlier RS and other Theories, Anyways let’s come back to option chain. We will discuss about it later on.
And the old study we have done, the technical study that we have learnt and from that How we can use options to earn money in market is the main objective! -Okay sir. If we see on the Put side, BID-ASK, CHANGE, LTP, IV. Over here IV doesn’t have any value because it’s very deep in the money. Let’s get a little closer over here where we can talk about 2080 Then 2000’s call option price is 0.85 and put option is 1.50 Why is the price of 2000’s call option is 0.85? Because call option of 2000 and reliance’s current value is 2088.
So, call option 2000 and price is 2088. 88 is the minimum value. Because that’s the intrinsic value because is someone would sell you call option of 2000 Then he would say that you are earning 88 right now. So, 88 is the bare minimum value, intrinsic value plus there will be a time value.
Time value will be dependent on how many days this contract will expire. Today is 26th July and will expire on 29th July. So, 3 days is only remaining. Time value would be very less. -Okay.
So, let’s go back to that call option of 2000 is having value of 88. & Put option’s value is 1.40p. Why? Because people don’t think so That 2080 will fall down to 2000. In the upcoming 3 days that’s why price is 1.40. But if you know, you study tells it will fall in the next 3 days, Then take it because investment is of 1.40. -True. If 1.40, stock falls then definitely 1.40 slightly will grow. How much it will grow?
I will teach you all that but at least it will rise some then you can earn money. Right. – So, what is the concept of option chain? What does it say? That how many people are standing with contracts, how much change open interest in having, and what price people are interested in call and what price people are interested in put. -Okay.
Now, one concept of options we have to discuss is that options are of 2 types in India One we have already discussed in classification, CALL-PUT. The basic classification. But options that expire which we say exercise too. In options language, we exercise it. Sir, one question. What is the role of Implied Volatility? And how do we evaluate that?
We will discuss about everything. But let’s cross that thought and talk about the next level of options in the next video. As of now, I’m clearing the basics more. So, whenever we talk about options, there are 2 ways to exercise. One is European and the other one is American. Ways of exercising. Americans are aggressive they want to do anything anytime.
Europeans are little subtle, they remain cool. According to the same analogy if you see in India the option contract the call option is CE. Put option is PE. -Okay. Earlier, many years back it was CA & PA. Before it was an American Option. But afterwards it became European. There is difference.
American Option can be exercise anytime. So today at end of day I can tell the seller that I am the buyer and I exercise it today. You give me the shares. If you are buying the call option and he/she is obliged to give you the share.
That’s American. What does European Option say? The day it expires is the only day you have the right you can tell the person to give you. So, European is always on the expiry date and American is throughout the tenure.
Before it was American which got closed. Now its European. What’s the principal difference between both? Under American buyer has an edge. Because buyer knows that he can anytime take it from seller. -Right. You will not make much noise; I will exercise today only. So, you can scare them.
He will be scared daily that you will exercise it. But under european seller has more edge. That go do whatever you want to do, we will see on the expiry day. -right. So, this open interest that gets build up has a believe that seller is heavier. Incase of european. And when these were American then it was believed that buyer is heavier. -Okay.
This is a principal assumption which you can argue upon. You can negate too. Presumptions are this is a general accepted norm which is presumed that it will be. And assumptions are explicitly assumed that this would be there only. So, the open interest standing in Options under CE is presumed that it is sellers Now with that prospective look that you can see open interest here Here change in open interest can be seen. -Right. So, at what strike price the open interest would be more? At strike price of 2100, open interest of 14,233 is there. So, can I make an assumption that seller of call option is more at this point? Yes. -If 2100 seller of call options are standing, Reliance’s price is 2088.
That means many people are selling at call options of 2100. Obviously, there is buyer. Because in every contract there is a buyer as well as seller. But as this is an european contract we can believe that seller is heavy. -Okay. If at strike price of 2100, the seller is heavy in call option then what is its interpretation? This means they are expecting that price would go more down. Correct. Or they are expecting it won’t go above 2100. Don’t say they are expecting price would go low. Because if that would be their expectation then they would sell call option of 2080 or 2050 Because as low the price of call option they would sell the more the premium.
Low call option meaning in the money which is more premium. -Right. And above put option meaning in the money which is high premium. So, if they seem that price would go more less then I would sell call option of 2000.
Because I’m getting more premium. What is the intention of seller? That I get more premium. And what is the intention buyer of call option? Work to be done is as less premium as possible. So, at 2100, there are many sellers.
So, the chances of reliance going more than 2100 is less. Now let’s look at put side. Where is the open interest? Even in put its 9000 and that too at 2100. But call is more compared to put. -Sir so in put the sellers are more like call? Because they too are european. Over here even the seller is more. -yes.
So, sellers are more at put option of 2100. With that logic we should go above 2100. Yes. Right. – Now we are stuck then. At one side call option of 2100 has more so market should go down. And on the other side you say it’s more input then to go above 2100 in market. But where is it going?
Call’s Open Interest v/s Put’s Open Interest. Whose is more? -Sir call. This comparison of open interest between call and put is called PUT CALL RATIO. So, if put call ratio is high which means put has more seller meaning boom. -Right sir. And if Put call ratio is less it means call has more seller which means recession. In this case PUT-CALL ratio of 2100 is 14233 and 9028. This means call has more seller.
It means the possibility of reliance going above 2100 is less. - Right. Got it. So together how many concepts I have explained you. About option chain, implication of open interest and put call ratio. So, if you go below on this site, you will find cumulative call and put. In reliance the cumulative call options open interest is 1,28,000 and that of put is 86,000. This means cumulatively people have sold at reliance which means it’s a septimate indicator That people sell in options mostly. -in reliance. Right
If we are selling call option meaning price will go high or low? If we are selling then price option would go less. -Fantastic. It’s great teaching you. Very serious you are. So, I taught fundamental and technical analysis. This is known as derivative analytics. I had told you about a concept in the starting that sentiment analysis is done. Over there you tend to extract sentiment from the market. One of the data is Operator data which we had discussed how OI and delivery.
This is even one of the sentiments that at whichever stock put call ratio is high Meaning there are more sellers in put which means that stock will fall. Will go down? If sellers are more then put will go above. -Correct. And if put call ratio is less meaning call has more seller which means stock will go less. Now the thing is looking at Open Interest we are calculating Put Call ratio which is yesterday’s But the work is being done on Real-Time basis. So open interest will change too. This means that that change in open interest should be looked upon too because sentiments change too. If price change, accordingly sentiment will change because nowhere is written that it will be 2100.
The one who has made can be wrong too. He would even come to cut off his position. He will get tensed too. Everyone is scared. So, if there is any change in strike price of 2100 which means something is going on in market.
So, we have to focus upon. How will we identify that change? Through open interest change. Look, Open interest change has increased in call. And decreased in put. This is at the money. Focus on at the money, then we can above or below. Because most impact is on at the money. Open interest has increased in call.
And decreased in put meaning there is more selling in call and covering in put. Decreasing of open interest meaning covering. -Right. This means the one’s who have sold put is cutting. And those selling call might be increasing more. This means in the upcoming three days there is no boom in reliance because call is selling more and even for put is getting recovered. Now let’s go far, we have seen at the money.
now let’s add strike price for in the money, then open interest is getting build up for call option of 2080. Open interest for put option of 2080 is getting build slowly. Very less. Open interest is getting build at call of 2120 where as in put it’s getting minus. This means more or less its understandable that reliance won’t go above 2100. Because in call open interest is getting build in every stage above, And in put open interest would be less at every stage above.
This means I want to sell Reliance. -Right. This doesn’t mean I would sell tomorrow. Let’s see what our technical model is saying. My model. I had taught your model. Now let me teach according to mine. And this model has even been taught at Session #31. -Yes sir.
If you won’t follow that then, its very wrong. Now look at reliance, what’s happening now? RS is close to zero and is consolidating the price. In two hourly chart, super trend is positive but RS is negative. Then what will I do in reliance now? -Now I will wait. I can clearly say negative biased and is consolidating the price So, I can work on such a strategy that are range bound.
Such that if there is range in market then even, I would get money. That is possible only in options. When we will discuss strategies, Then you would know how to earn from options during boom and recession. And how to earn from standing market. Sir there is one question, when I am seeing that it’s in recession then, Will I sell a call option or buy a put option? What will a normal person do? -preferably BUY. -Buy a put option.
Premium is less. Investment is less. If it falls then ROE is better. What will a smart person do who has lot of money? Smart Capital. The other option. -They will sell because earning of premium is assured. So, if you have less capital you will buy. Obviously, you are not the smart capital. If you have more capital that means you are smart capital, you will sell. Selling has a natural advantage of time value that I will discuss. -Okay.
Just mark this question for the next video. -Okay. But more or less my intention in this video was to tell about option chain. And its relevance. Let’s check NIFTY once. Let’s go to NIFTY. And if you haven’t seen our video on open interest as of now then we would give you the link below such that you understand it clearly. Let’s see NIFTY. At what price NIFTY is currently? NIFTY is 15,850.
So, what will be the at the money of this? 15,850. Where is OI build up the most in this case? At call option of 16,000. -Okay. And where is OI the most in PUT option? At 15,800.
So, if I want to ask you the NIFTY range? Then what will it be? Sir it would be from 15,800-16,000. Yes. – You have learnt. Simple concept. You got to know more or less through Option chain. Now let’s look at change in open interest. Then where is open interest change happening? Most change is happening in 15,800 and even on this and this. Everywhere open interest is getting build in the above strike. And on below, over here it’s happening. And here too.
This means that people seem that it would remain in this range only. Which means they are in a confusing state of mind right now? No, there is no confusion. There is a surety market would be here only. There is no confusion. Options has a power that it can give answers to every question that future cannot give. Like if you trade in future and a question will come that there is a confusion. Options has no confusion. It would stay here only. It has a clarity.
Because the big people who are building is saying that it will remain here only, that’s why they are selling. Big people always SELL. Small people take. Let’s see cumulative open interest. 11,00,000 CALL & 11,50,000 PUT. Close fight. -Right. Call seller is even good and same for put seller. both are getting sold.
This means there is an expectation from market that it will remain in a range. And seller of both sides has come in the market. -Right sir. Let’s see BANK NIFTY. Nifty you know. You know about Bank Nifty?
So, the price of Bank Nifty is 35,000. 35,000 would be at the money. The most OI is at 35,000 only. In call. And is increasing. At same level there is the most OI in put too. And this is increasing too.
At below even its increasing and over here the above is rising everywhere. This means that there is a believe that it would be in range. What is the expiry? 29th July. In the upcoming three days it is expected to be in same range. Possible even. Now let’s go far, far from 29th July. Let’s go the 26th August contract. You can see that there are range of contacts available, 5th, 12th ,18th & 26th of August.
I thought every month it expires. -it used to be that way. There is every month expiry in stocks and in bank nifty, nifty there is weekly expiry. Let us check Nifty once. Leave Bank-Nifty because I don’t want you to look at Bank Nifty. Because it’s extremely volatile and you can lose lot of money while trading bank nifty. If at all you have to do options, then nifty is better. Let’s go under NIFTY. 5TH, 12TH, 18TH & OF 26TH August. Let’s go to 26th August.
Option chain of 26th August is in front of us now. Let’s see where OI is build up the most in this? Most OI build up is in 15,800. Sorry. At 16,000. This means people have sold call at 16,000.
Then chances of it increasing more than 16,000 is less. And at below the most is at 15,500. People have sold at 15,500. So, what’s the range for 1 month? Because its expiry is 26th August, According to every expiry the range is defined depending upon the open interest in market.
Sir, so range keeps broadening. What does it apply sir? Big meaning period is huge as we are talking about 1 month thus time range is huge. The more the time frame the bigger is the range. And volatility of increasing is more in the big-time frame. In small time frame we know it will expire in three days so volatility would be less. And the bigger the frame, bigger range the volatility would be more.
Let’s conclude this Option Chain discussion for now. Because this is a good starting point to Start looking at the option chain, Where you will start looking at the premium value, 0I of both CALL-PUT. You would start feeling like what exactly is Option. In the next video we would talk about Implied Volatility. How does option price change and how is it designed…we will talk about it in next video! This was a basic introduction about Option Chain and now you do one thing Start looking option chain. Its available at NSE site very nicely and use that. And the active stocks, look at f&o stocks which have the most volume typically In those options are only active. Start looking at those options only.
And to start you can start from NIFTY, BANK-NIFTY because it has most activities. Start to observe the option chain of them and from there try to take out small interpretations Friends, thank you for watching this video. I hope you are linking and sharing my work. And this series is becoming the best. So, try to share this with our youngsters, who are new into the market, want to come into the market. The more you will share the righter knowledge will spread. Bye Bye friends. Take care of yourself.