एक Options #Strategy आपके Extra #Earnings के लिए। | #Options #Trading - 6 | #Learn2Trade 38
Welcoming you all to Learn2Trade video #38 and Options Trading #6 My name is Vivek Bajaj and I’m teaching trading to you and Annapurna Ji. -Hello sir. -What’s up? -All good sir. -So, how’s your journey till now going? Sir, the cash market is quite interesting right now and now many things are going on too. But I’m still catching up on options. It’s taking time sir but I’m catching up. I have gone through the basic strategies and I am looking forward to the next strategies.
Good. Fantastic. So, options will take time. You should not be in a hurry to trade options. Otherwise, it will take the full money. The cash market is what all the newcomers should start- Trade for 1-2 years. After you have made money in the cash market, then you should park some money in options.
Little bit. Okay? But what I’m doing in this series is not making you an options expert. My objective is, when you are working in the cash market, then by using options how can you enhance return. where we left last time. We are talking about option strategies where I said the basic options strategies, LONG SHORT, BULL SPREAD, BEAR SPREAD. Explained you in the last video. You might have practiced a little bit, after understanding. Made a framework on eLearn Options where we can practice and see too.
And I’m sure you have done your practice in Opstra too. We will discuss a little bit about Advanced Strategies, I will not go into deep strategies. Because there is no end to it. The more you will go in advance on your own, you will get better. Will cover some strategies that you can cover with cash market position and use with it. One of the actively used strategies in the market is called covered-call strategies. What is it? It means you have a share and you want to generate additional returns from it.
How will you do it? Do a wild guess. - It can be a dividend. -Fantastic. Very good. That share is lying and I’m getting dividends but when I will get a dividend, then that dividend is reduced from the stock price when it becomes ex-dividend. Okay. -Technically dividend that you are getting, will be removed from share price. That’s something different that share price increases and its impact is not known to us.
Technically happens that way. But more or less, the dividend is the right answer. What else? You have a share so you can sell the upper call. -Yes. -Become a seller. -Right. Because if you will sell the upper call and the price remains there only then that premium would come to your house.
Why did you sell? Because of the price rises then you know that you have the share So, If I have to give it because the buyer of the call option will ask, then you don’t have the fear What if he asks, will give it because have the share. This is called the covered-call strategy. You have a share lying and want to earn additionally then how can you do it? By covered call strategy. For example, of a covered call, in future, I have 1 lot of long and I have sold a call of 5000 at a premium of 70. What does this mean? If the price decreases then my money will be used.
Obviously, if you have a share and the price falls, then money would be used. Then you might have thought before buying the share that there is no problem in buying it fundamentally. Then I have taken it, it will fall then not a problem. If it falls, then the loss can be full. But if it increases, then after a point because you have sold call of 5,000. Then after a point, your profit won’t rise.
Because you have sold call of 5,000. One lot here and one lot there. Quantity is the same. What does this mean? If you have sold call, and the price goes above 5000 then the call buyer will say “I want” because the price has gone high. And you are bound to sell it. Then not a problem, we at least had a profit of this much. So, here we blocked the profit by selling the upper call.
What is the difference between this and short? -The difference is that premium comes in the call. If suppose we short the future or short the share, then the share goes from hand. If the price will fall, then only money will be made. But suppose in this the price remains there only.
Exactly there only, then the premium of 70 that we earned after selling, then those 70 rupees came in the home. Extra earning. So, what you had bought at 4900, a premium of 70 came, then our costing reduced of that. 4900-70 = 4830. So, the number of months you do this and share remains there only Then the cost of the share is reduced. Because additional income is being done. -Okay. Now you will say when I sold the premium then I will have to give the margin too, to the broker.
This topic of margin has not been discussed. Had discussed in the future, haven’t yet discussed options. Will discuss this in the next video. The interesting thing is that the share lying with you can give to the broker. Take this share and in case this gives me margin, you will not have to pay extra to sell that option. I have a share, and against it, I am selling options and getting margin and getting extra income. So, I can use shares as margin? – you can use shares as margin. The exchange allows that. you can contact your broker and tell them that I won’t share as a margin.
Obviously, IF the worth of the share is 100,000 then it won’t allow you to take the position of 100,000 Because every share volatility is different. The more volatility the more will be the haircut. Haircut meaning what percentage of amount will they cut and let you take exposure in the net. Suppose there is a 50% haircut of a share then 50,000 worth margins will be given to you. -Okay. In my channel, I had recorded a video on the margin system. Had you watched it? -Yes sir. Explained the whole margin in it. A-Z what systems are.
If you want to watch it, I will give you the link in the description, you will get a clarity of what types of margins are there and current changes in exchange related to the margin, you will get clarity about it also. Let’s take stock, I mean that evaluate the covered call strategy. Sir, there is a question. -Ask. – if you go back then in options, we do options with one lot size. -Sure. In shares, we might not have the same quantity. right? – you will have to have exactly the same.
If there is a lot size then the quantity is defined and you must have that much of quantity only. If you have 100 shares an option lot size is 200, then there is a mismatch. Then in nifty, we cannot do that? -Why? In nifty 1 lot and 1 lot options are equal only. In Nifty if we buy ETF then we buy share otherwise if we trade in nifty, we trade in futures only So, 1-1 lot is same, meaning the number of shares we have that much quantity we must have in options Meaning the 1 lot value of shares should be there. -Okay. -Alright? -Yes.
Now let’s talk about a stock that is famous too, make a strategy on it. And that shares name is ITC. Of our Bengal only. Do you have this share? -No sir. So, in ITC suppose I have taken a lot in the future. The price is 209 and I add it then I took 1 lot of ITC.
How will its payoff be made? If it will go down, I will have a loss, & if it goes up then I will have a profit. Any future contract has a payoff like this. -Right Sir. – assume future or cash, whatever. I assume that I have taken a lot in the future because I believe that this stock is underpriced. And will rise from here on and when it will rise no one knows it. So, my money is stuck in it. What should I do? I have to do something to take out the additional return.
I will look at the ITC chart now. Remember chart? Remember your template? Let’s look at the weekly chart of ITC. Look. This is weekly, this is daily. You remember this template, right? -Yes sir. -Relative strength and all. Stock is weak. Relative strength is low which means the stock is weak. The chances of the boom are low. But fundamentally I am convinced that the stock is nice. If we draw a simple line on it.
Draw simple trend lines on it, not making it much complicated, making it simple to understand. That this is a pattern and if the stock will go above it, then it’s possible that it gives movement. But in the upper, it is strong. Resistance is standing here only meaning there I am resistance at 230-235 And a small one in standing at 228. And another one at 218. Means it as hurdles that It will not let you go ahead of boom. But you have the shared lying with you.
You don’t want to sell it because your dad has told that ITC must be there Then what to do? Chances of generating an extra return. Then I can sell the upper call. Who’s call? whom I feel that there is resistance in it. Like 230 as a big resistance. Then call option of 230. In options, I’m looking at the monthly expiry. Like if it’s expiring on 26th august. Call option of 230. Why will I sell it? Because I have a share and I will sell its call option. I will sell it. What’s the price? 0.15
It’s too less. It’s not worth it. Let’s go a little bit more down. Let’s go to 220 instead of 230 and see what’s going on there. 0.45 A little bit more down and come to 210. 2 At 210, 2. What %? - 1% sir. Then if you sell its call, you will get a 1% return on it. 1% is not bad.
But 210 is too nearby. Very nearby. The current price is 208. If selling call of 210, then we are carrying risk. Because if it goes up then its payoff will be very limited. Then we’ll sell a reasonable option Sell a little far away from one. And when some premium comes then we will sell. As of now the volatility is very less, See OPTION IV 19% so this stock is of less volatility Because everybody is doing this taking share and selling it. Let’s assume that we are selling call of 220.
28% volatility which is good and getting 0.45. what percentage of 210 is 0.45? Almost 0.25% which is very less. But this is the free money. Extra return of .25% 0.45/210*100 = .2% ITC’s price is 210. Is the value being 210 then how much premium you are getting? .2% which is too little. In 1 month 0.2% meaning no additional return in it. Then this stock is probably not that good. For covered call because the premium has no realization.
Let’s look at some other stock. Let’s see reliance. Do you feel reliance is a booming stock? Currently, there is boom only sir. -Booming and want to hold in long term? -Yes sir. So, let’s take of reliance. Purchased one lot of future of reliance at 2172. Why purchased the future? Can do cash too but if getting in the future, will take it in the future. And will sell upper options of 28th august. Upper which one? Let’s look at it. Which has a resistance in it? Then in reliance weekly chart. Always look at the weekly chart for all this.
Because from the weekly chart you see a broader movement. And whenever we are doing Strategies of options! covered call. Please don’t do it on the basis of a daily chart. Requesting. Look at the weekly chart because due to this a big movement can be seen. look at this the relative strength has got weaken. Will never go up in the fast So, it’s not a bad idea to sell. 2270’S upper level is this. Sell call of this. The current price is 2170.
Can sell of 2270. Let’s look at what is it of 2270 It’s 50? It’s in even. So, let’s look at 2260. Call 6.85 So how much is it? 2100 of 6.85 6.85/2170*100 You will get 0.3% extra Okay, sir. Extra income. -Anything extra income is not bad for us. If you want to take more risks? Assuming it won’t go more, you are worrying too much, don’t worry too much.
It’s become weak in weekly so it won’t go up rapidly. So, I will say Annapurna Ji confirms daily. So, in daily super trend is positive although relative strength is weak. Then chances are there the stock won’t rise rapidly because RS is still weak. We can come a little close. Let’s come at 2220. The more they close, the more is the premium. Similarly, our hearts will beat. You are there where there is mental peace. Getting 12.65
Then, let’s take out the calculator 12.65/2170*100 = 0.58% That’s not bad. How many days are remaining? Today is the 19th and the expiry being on 26th which is almost weak. If in 1 weak, I’m getting 0.5 0.6 extra then it’s not bad. But you are taking a risk If reliance increases by 50, then it’s your risk. You don’t have a loss. You have frozen a profit in your pay-off. No money will be used from your house.
Then a little bit farther, and do 2240 to save more risk. I’m selling this. Add position. Then you bought the future and sold the option, call option. Then look at the pay-off Remembered pay-off. We had discussed this only. The same pay-off is here now. It will stop after going up. If suppose reliance expires here only then how much will come in our home? 2300 will come. No. whatever premium we have put, suppose it stays here only, then premium earning that we made will come to our house, which is 9.30*lot size. Lot size of 250.
Then 9.30*250=2325 will come. This is the amount only. -Right. But to do this you must have 250shares*2170= 542,500 in cash if you dealing in the cash market. If you are doing this in the future, then this * margin of future. you can think is around 25% Then in this software margin is told. 1,38,000 is needed for this. 138,000 is there? -Yes. -Then do this strategy. Take future reliance and sell call.
But sir isn’t future riskier? -Why? You had sold call. But yes, if the price falls, then you will have a loss But you are mentally prepared to take reliance. If the price falls in expiry, then you will have to take delivery. Then you would have to get 5,50,000. Or else you roll over the future position.
After august expiry, bring it to September. Then October. Many people make a view on the stock Not take in the cash market, make a position in the future and keep on rolling over because you have a view of the boom Then why deal in the cash market? Because more capital is to be given in cash. -right. But who are they? The ones who are convinced to put money in this share and believe in taking leverage. Then if we roll over, do I have to give extra premium? -When you roll over, square up the current month Buy the next month. Then there is always a spread between the both. The current month and next month's price cannot be the same. Why? Because this is current and next is after 30-35days.
Then there might be interest on a daily basis. Then it’s called the forward curve. The price of the next month is typically over the current month because of the time value of money in the future. In options even if you see, the contract of next month, the strike price would always be more.
Why? Because there is time value in options. This is the covered call strategy that many people deploy. Now let’s look at their Greeks? -It is preferable to do in stocks which I feel are fundamentally good. Exactly. With whom you won’t have any problem. -Preferably NIFTY-50 Sir?
If you want to work in options, then there is liquidity in NIFTY-50 only. No liquidity in small stock options. Okay, sir. -How to find which stock option has liquidity? -Sir open interest? No. Liquidity meaning volume. Which has depth in it. How will it be found? Change in open interest which has more buyer/seller? -Yes, more buyer/seller or in which volume is more.
Then you can go to NSE’s website, over there when you go to market data, you will find the daily market reports. You remembered I had told you the concept of BHAW COPY. --No sir. – I didn’t tell you regarding it? This is a basic concept. BHAW COPY is whatever has happened in the market is defined by it. Then exchange throws BHAW COPY on daily basis. Derivative. Here it is F&O BHAW COPY (CSV) We will select it and download it. *Follow the steps*
This is the written part of whatever has happened in derivatives in the exchange. When we used to go to Calcutta Stock Exchange, their order book was CHOPARD, where it was written. And in the evening, the exchange used to make a diary and give in circulation that this is today’s summary of the market. In which stock how much was traded, what was the high price, close everything is defined by BHAW COPY. If I filter run this BHAW COPY. I’m teaching you a thing. INSERT > PIVOT, after selecting the data.
Now what I want? I want symbols over here, bring instrument above and I want volume. Where is volume? Value in lacs. Now in instruments, I will select stock options. And this is volume. Overall volume what is in a stock option? Now I will select this and sort it. Right-click > SORT > LARGEST TO SMALLEST Here it is. Then these are the stocks that have activity in options. Stock options. You might want to work in this only. In this, do you think there is any booming? Sir, Jubilant Food work. -Why? Pizza? Do you like Pizza? -Yes sir. But I have been tracking this stock.
Then you are interested in it? Then you can long futures and sell the upper call options. Quantity must be the same. If you are buying share then selling the upper call option, then the quantity should be the same. Like this stock is strong. This stock is strong. State Bank. Reliance is strong. TCS is always strong.
Bharti is strong. ICICI bank is strong. Then these stocks in which there is an activity in options. L&T is strong. You can select them and work on them in a covered call strategy. Then, let's to the previous example and look at the Greeks. We had long the future over here.
And sold the upper call. In the future are there any Greeks? -No sir. -0ver here delta is 100 only. This means if the price will increases money will come. In options we have Greeks. What do Greeks say? Firstly Delta. Your net delta is 79.1 this means if it increases by 100 Then in your position, there will be an impact of 79.1 because you have sold the upper call Then it’s delta you have sold. Theta. You will get money. 161 on a daily basis which is Theta. Gama is negative. Why? Because you have sold the Option. Remember I had told you?
Gama positive meaning you have taken it. Gama negative means you have sold it. And Vega negative meaning you have sold the volatility. If the volatility of options increases What is it now? 23.69 If the overall market volatility increases and this curve even shifts upwards Then you’re this much money will start getting used whose possibility is less.
Generally, volatility does not increase in 1 week. Then we are in benefit because Theta is more. Then we are getting this much on a daily basis. - Okay. - Understood Option Greeks of this position? Yes. Then I have to try that I be positive in net? When I add Delta, Theta, Gama, Vega! No, you cannot add only. This is the impact that you are understanding that due to what it can happen What you have to is done over here. Seen in pay-off. If I keep the position till the expiry then this much money would come and on daily basis this much would come because of Theta.
These Greeks, when I had told you last time whatever you are doing, talk to these friends at least. Understand what is their behavior. What is the behavior of Theta, Delta? Such that you have clarity on the back of your mind that I’m doing this. Such that I know what is the impact on change in price. -Exactly. Or change in time. Or change in volatility. Should know the impact. See, what is an advanced options strategy? What we are doing is a basic options strategy. If you are feeling complicated in it, then you should not fear because this is not complicated.
Advanced option training is I am trading for Gama only. Trading for Vega only. Then it has multiple strategies. Which targets a specific Greek. -okay. -Now what you are doing? Taking share and selling covered call. Because you think premium is available so earn this premium.
If the price goes down then you won’t be worried because I have to take this share then I will roll over my future positions if it goes down. If we do the same thing with next month's options, then let’s remove this once. Let’s edit and delete this. And this 2240, instead of August, I do of September then, it’s selling in 44.25
But in September 2240 won’t be too close? Let’s go a little far. Because risk increases, then let’s go to 2300. Getting at 28. Suppose if we want to go farther That I want to go farther then, I sold call of 2400 which is like 2400 meaning over here. Then this resistance can be there. Then the call of 2400 is available at 14.4
Then, 14.40/2170 No, if I’m going in next month, then I would sell future of next month too. Which is 2180 as the current future will get squared up. So, 14.40/2180*100 = 0.66% Meaning if you are opening the position for 45-60 days, then 0.66% is your extra return.
And how much margin will be used? Then let me add this. Sell. Add. The total margin required is 1,38,000. And the money made can be 3600. So, 2500 can immediately be available in 10 days. And 3600 when you keep the position till 45 days. So, what will you want to do?
If it's extra then why not? - Risk is less of what I’m getting now. Happening now only. Money is coming now only. For 3600, you will have to wait for 40 days. Take it now. Do current expiry. Because theta’s impact on far ones is less. Only getting 52. In the current one, you were getting how much! Now, you understood theta is good in current expiry.
And in far expiry theta’s impact is less. - So, The option strategy that I’m building a lot depends on the time I’m buying. -Correct. -The expiry I’m buying. -Correct. And, the strike price I’m buying. -Correct. -Okay. You have to create a setup using the right permutation-combination taking all these factors.
And that you will see through Greeks. -0kay. -let’s go slow. -You have understood the covered call. You more or less got the idea. In the next video, we will discuss more strategies. I hope it was good? Yes sir. -So, friends this was covered call strategy. A very common strategy of which a simplistic explanation. I hope you are liking my work, efforts. Share with people. Because covered call is a strategy, that if it’s done nicely then it can develop as a monthly income. Next video we will talk about more strategies then, definitely next Saturday, watch my next video till then bye-bye.