Nifty option chain

Hi guys,

I was just analyzing the option chain with an expiry date 01- Apr-2020.

I want to ask a few questions.
1)Why Nifty’s call price with strike price 2,550 is trending at Rs 2.25, whereas with Strike price 1,500 is trending at 1,364.40…

Again with strike price 3,000 is trending at 1.25.

Why there is so much volatility in Deep ITM call option prices?

Could someone help me?

[https://www.nseindia.com/get-quotes/derivatives?symbol=NIFTY&identifier=FUTIDXNIFTY26-03-2020XX0.00]

(http://option chain)

image

No liquidity, hence these can show bizarre prices, one has to be alert while trading in those strikes.

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Avoid trading if volume or OI is less than 100

Actually true, should avoid trading in them.

Just from my point of view not trading them is not the option when the difference is very lucrative.

It’s not trending, it would be if trade would have happened at those prices. The price mismatch is because no one has placed bids above those prices, you can place 4950 or any quantity buy orders above that price and your order will be shown instead.

Liquidity is the answer but these are opportunistic people, they place the bids/asks at any price (usually way below/above) and look at the 2550 Quantity at 2.25 for the 7000 strike, or the two strikes above that, if by some miracle/issues some stupid person fills the order just imagine the profit for the individual and lose for the person who sold those contracts. Similar is the case for high priced offers in deep OTM options, retailers always get trapped in buying those deep OTM options.

Anyway the key to trading these Deep ITM options is to throw the Greeks in the drain, calculate the real difference (ie. Strike - CMP) for ITM options you are looking and if you find the offerings way way below that amount buy the options and place sell order just a few percentage below the reasonable prices.

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