1. Daily Derivatives Outlook
9 January 2013
Nifty( Jan, Feb, Mar)
Highest Call OI at 6200 Nifty and Bank Nifty Directional Option
Highest Put OI at 5800 Trades
Equilibrium and Short Straddle at 6000
Narrow Short Strangles
6100C & 5900P Buy Nifty 5900 PUT at 37
6200C & 5800P
Stop Loss at 18
Wide Short Strangles
6300C & 5700P Buy Bank Nifty 12500 PUT at 110
6400C & 5600P
6500C & 5500P Stop Loss at 55
Bank Nifty(Jan)
Highest Call OI at 13000
Highest Put OI at 12000
Equilibrium and Short Straddle at Directional Stock Option Trades
12700
Narrow Short Strangles
Buy HDFC 840 CALL at 15.8
12800C & 12600P
13000C & 12400P
Buy Cipla 440 CALL at 6.8
Wide Short Strangles
13200C & 12200P Buy ITC 300 CALL at 2.3
13300C & 12100P
13400C & 12000P Buy Reliance Infra 580 CALL at 12
USD/INR(Jan)
Buy RCOM 85 CALL at 3.25
Highest Call OI at 55
Highest Put OI at 55 Buy IDFC 180 PUT at 4.9
Equilibrium and Short Straddle at
55.5 Buy PFC 200 PUT at 3.6
Narrow Short Strangles
55.75C& 55.25P Buy LT 1550 PUT at 26
56C & 55P
Wide Short Strangles Buy Sesa Goa 190 PUT at 3.5
56.25C & 54.75P
Buy Adani Enterprise 270 PUT at 6
56.5C & 54.5P
56.75C & 54.25P
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2. READY RECKONER ON BASIC OPTION AND TECHNICAL STRATEGIES :
1. Options are Wasting Assets with Option Pricing like Insurance Pricing.
2. Strike Price is similar to Age of the Assets.
3. OTM are Low Probability strikes (young assets), ATM are equal probability strikes
(average age assets) and ITM are High Probability strikes ( old assets).
4. Premium reduces from ITM to ATM to OTM as probability of event happening reduces.
5. Mirror Image Concept : OTM for Calls is same as ITM for Puts and ITM for Calls is
same as OTM for Puts.
6. View for Strike Selection : OTM - Strong conviction. ATM - Moderate conviction .
ITM – Low Conviction
7. Call-Put Parity : Futures Price = Strike Price + Call Premium – Put Premium
8. Greeks – Delta is the Probability. Gamma is the Change in Delta. Theta is the change
in time remaining.
9. Vega is the Change in Volatility (VIX) and Rho is the Change in Interest Rate.
10. If VIX ( Volatility Index) is above average selling options is preferred and if VIX is below
average buying options is preferred.
11. The skew between Historical Volatility and Implied Volatility and between Call
Implied Volatility and Put Implied Volatility varies with Market Sentiment.
12. Advantages of Options – Profit from Trading range Markets, High Leverage, Built-in
Stop Loss, Higher Probability of Profit using Spread Trades and Increase in trading
opportunities due to multiple legs.
13. Stop Loss : Use 50% stop loss for bought options and 100% stop loss for sold
options.
14. Profit Taking : Book profits at 100% for bought options and 50% for sold options.
15. Put Call Ratio ( Open Interest) is bullish at levels between 0.8 to 1.2 and bearish
between 1.75 to 2.
16. Equilibrium strike is with equal Call and Put Open interest with Highest Call Open
interest strike as resistance and Highest Put Open interest as support.
17. Long Call and Long Put are Limited Risk and Unlimited Reward strategies.
18. Short Call and Short Put are Unlimited Risk and Limited Reward strategies.
19. Long Synthetic and Short Synthetic are Unlimited Risk and Unlimited Reward
strategies used instead of futures to save margin.
20. Long Straddle, Long Strangle and Long Guts are Long volatility strategies ahead of
events/results etc.
21. Short Straddle, Short Strangle and Short Guts are Short volatility strategies when
range-bound action is anticipated.
22. Protective Put and Protective Call protect futures positions by buying options.
23. Covered Call/Ratio Call Write Put and Covered Put/Ratio Put Write cover futures
positions by selling options. They involve unlimited risk and limited reward.
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The Ruby, 9 Floor, SenapatiBapatMarg, Dadar (W), Mumbai, India – 400028. Tel: 3026 6000 / 2269 4322

3. 24. Collar is a combination of the Covered Call and the Protective Put or the Covered Put
and the Protective Call.
25. Bull Call Spread , Ratio Bull Call Spread and Bull Call Ladder are bullish debit
spreads which involve buying a lower call option and selling upper call options.
26. Bear Put Spread, Ratio Bear Spread and Bear Ladder are bearish debit spreads
which involve buying a upper Put option and selling a lower Put option.
27. Bull Put Spread is a bullish credit spread which involves selling a upper put option and
buying a lower put option.
28. Bear Call Spread is a bearish credit spread which involves selling a lower call option
and buying a upper call option.
29. Long Iron Butterfly is a combination of the Bull Put Spread and Bear Call Spread while
Short Iron Butterfly is a combination of the Bull Call Spread and Bear Put Spread.
30. Long Term Options can be used to create investment grade positions using spreads,
synthetics and covered /protective positions.
31. Calendar/Diagonal Calls is a debit spread involving buying a long-dated call option and
selling a short-dated call option against it ( Diagonal Calls involve different strikes).
32. Calendar/Diagonal Puts is a debit spread involves buying a long-dated put option and
selling a short-dated put option against it ( Diagonal Puts involve different strikes).
33. Basic Technical Rules – Buy at Support and Buy above resistance ( Breakout) . Sell at
Resistance and Sell Below Support ( Breakdown).
34. Moving Average Crossovers – Buy if price crossing moving average from below and
Sell if price crossing moving average from above.
35. Oscillators – Buy RSI below 30 or above 50. Sell RSI above 70 or below 50.
36. Market Breadth Indicators – Volume and Delivery Volume Expansion, Open Interest
Expansion and Contraction, Advance/Decline Ratio, 52 Week Highs/Lows.
37. Open Interest Expansion and Contraction Rules – Price Up and Open Interest Up –
Long Buildup, Price Up and Open Interest Down – Profit Taking, Price Down and
Open Interest Up – Short Buildup, Price Down and Open Interest Down – Short
Covering.
38. Defensive stocks have low to moderate beta in sectors like FMCG, Healthcare, IT,
Cement, Telecom.
39. Cyclical stocks have high beta like Financials and Rate Sensitives like Auto,
Infrastructure, Realty.
40. Stock Selection – Invest in the constituents from broadbased indices like Nifty, Junior
Nifty and Midcap as well as constituents of Sectoral Indices like Auto, Banking, Capital
Goods, IT, FMCG, HC etc.
41. Alpha Strategies - Long Stock and Short Index( Outperformance) or Short Stock and
Long Index ( Underperformance).
42. Pair Strategies - Long Stock and Short Stock within the same sector.
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The Ruby, 9 Floor, SenapatiBapatMarg, Dadar (W), Mumbai, India – 400028. Tel: 3026 6000 / 2269 4322

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