Nifty weekly starting on Feb 11th, how does life change for me?

F&O
1

@Abid_E_H @Sensibull

I trade Nifty options quite a bit. With weekly starting, how does life change for me? What all do I need to keep in mind?

1 Like
2

The Good Stuff

Choice is always good. Let us see how

  1. If you are expecting a quick big move, it makes sense to buy options. So for buyers who are expecting a big move (I mean big), the weeklies are a good idea. This is because of the higher gamma and increasing delta of options with less time to expiry. Delta is how much the price of the option changes with the underlying price. And gamma is how fast the delta moves. Price is distance, delta is speed, and gamma is acceleration.
    Weekly options have higher acceleration than monthlies

  2. If you are a seller, this is extremely good news. Simply because weekly options decay at a higher rate of theta than monthly options. Let me put it this way

Premium of a monthly ATM option on Nifty at 11000 assuming 14% IV = 170 Rs
Premium of a weekly = 85 option.

In case that has not sunk in, 4 weekly ATMs give you two times the premium of a monthly. Or in other words, half of the decay of an option happens in the last 1/4th of the time.

So if you are betting on no move, I think the case is pretty obvious. Did I say betting? No I did not say betting, I meant calculated risk taking with ML and AI :stuck_out_tongue:

  1. You have more choice if spreads now, to do all sorts of calendar spreads

  2. If you are a retail investor, I am guessing that you do not like Vega and IV. Weekly options do not really have much Vega or effect of IV

Dos and Donts

  1. Please do not buy OTMs on these things with all your money. Like I said before, the high Theta decay will kill you for sure if something else doesn’t

  2. Again, do not buy OTMs because they are cheap lotteries. Lotteries are cheap for a reason. And that reason is that most of them never work out

Interesting comparison with Bank Nifty
Here is Bank Nifty top 5 and their % weights
Bank Nifty

  1. HDFC Bank Ltd. 35.2%
  2. ICICI Bank Ltd. 18.5%
  3. Kotak Mahindra Bank Ltd. 13.2%
  4. Axis Bank Ltd. 10.1%
  5. State Bank of India 8.7%

Top stock is 35% of it. Top 2 which are very correlated is 53%. Top 3, again highly correlated are 66%. I need to be really out of my mind to call this an index. This is betting on HDFC for all practical purposes :slight_smile: I heard SEBI is going to restrict the weightage of one stock in an index to 25%. So may be soon, this is will somewhat be an index. May be

Nifty
HDFC Bank Ltd. 10.3%
Reliance Industries Ltd. 9.7%
Housing Development Finance Corporation 7.3%
Infosys Ltd. 6.6%
I T C Ltd. 5.5%

That’s diversified. So you might not see the kind of wild swings in Nifty weeklies which you might see in Bank Nifty weeklies.

RIght then, good luck and Godspeed

9 Likes
3

Hi @Sensibull , I love sensibulll , I have few doubt in options (All are based on 1 min candles)

1.Does price of ATM or near ATM option moves according to index even if there is very less buyers and sellers ? I have seen price move up and down even with very low volume.

2.In weekly expiry options , when do time decay start taking place ? Does is takes out through out the day gradually or after 2.30 pm or when (on friday and thursday whats the difference) ?

3.Why does price goes up more than fall even during expiry day sometimes (1 minute time frame) , When do time decay actually take place (I am scalping 1 min candle , selling)

4

THanks Vishnu

It is very difficult for index options to move independently of the index. While what you said can happen in stocks, in Index the prices are fair almost always

Time decay is an exponential function. Intraday decay is not very significant till Tuesday morning. To see what happens after that you can use this tool
https://web.sensibull.com/analyser

Didnt get this

5

I mean during expiry day , when spot price is 27000 , when spot price increase 10 rupees , 27100 CE increase 3 rupees , and when spot price decrease 10 rupees , 27100 CE decrease only 1.5 rupees , it should be reverse due to time decay right , that too this happens only few times , Why is that ? is it because there are more buyers ?

7

The Theta & Vega value is too sensitive on expiry day, as the spot moves nearer to the target price the option value becomes too sensitive, what you observed could be just an individual situation based on where the traders thought that the market will close.(In the money in this case) Option prices change as per traders intrest in options at particular price, black sholes formula calculates the fair price of that option and volatility becomes a derivative of option price.

8

You mean to say that implied volatility which is mentioned in nse option chain is derived from the LTP of option of that particular strike.Is it so?

9

Thank you