After reading this blog you will be able to trade Bank Nifty like a pro on expiry.
This strategy doesn’t require any technical analysis and is a pure option chain based strategy.
Don’t know what an option chain is ?
Or even what options are ?
Don’t worry we cover it here as well.
What is an option ?
An option contract is simply a legal binding where one party agrees to buy or sell an underlying asset at a specific time and at a specific price.
This agreement is “sold” by another party that charges a small fee or premium for it.
There are two types of options.
Call option and Put option
A call gives the buyer the right but not the obligation to purchase an underlying asset from the call seller.
Put gives the buyer the right but not the obligation to sell the underlying asset to the put seller.
Didn’t get it ?
Most people don’t on the first try.
Watch our in-depth video series on options to understand them better.
Now that you have the taste of what options are, now it’s time to take it a step further.
Option chain
An option chain is simply a representation of the activities that are happening in all the options contract of any asset.
Here you have a look at what an option chain is :-
The left side contracts are calls and right are puts.
It might seem confusing at first, but bear with me.
The columns are named, and the rows are strike prices.
OI means open interest
That is the number of agreements that are made on any particular contract.
Remember this is not the volume but the number of parties involved.
And this is what we want to look for in our strategy.
The Juicy Part (strategy)
To those who just skipped all the way down here,
If you have a functional understanding of the option chain, then we can move ahead, otherwise it’s going to be a bigger bouncer than Kapil Dev.
Steps :-
1) Open option chain one day before expiry to do post-market analysis.
2) Check the strike prices with the highest OI
3) The prices on the call side with the highest OI acts as resistance.
4) The price on the put side with the highest OI acts as support
You might ask, but Akash, why so ?
This is because institutions are mostly short on those contracts and will move the market in their favor.
5)Now go on the spot chart of Banknifty and draw lines on the levels you got.
6) Let the market come to your level
7) Then, if it has approached resistance, let it touch the level and go 10–15 points lower.
8) Then we buy an ATM PE with a 100 pt sl and 150 point target and let it play out.
9) It’s vice versa for support because we buy calls.
10) Then we just wait for either our TP to hit or get stopped.
Backtest it for yourself before trading.
Summary/ Conclusion:-
Today you learned about the basics of options.
You also learned what an option chain is.
And lastly, the strategy which has made trading the expiry simple.
What would you do differently in this strategy ?
And learn how to Invest in stocks here
Disclaimer (for obvious reasons) :- I am not your financial advisor, so please consult him/her before taking any decision. This content is for educational purpose only.
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