Option_SELLING_Webinar_0321.pdf

Option SELLING
Webinar
YESHWANTH
- @YASHSTOCKS ON TWITTER

Twitter: @yashstocks
Introduction About Me
 Yeshwanth Reddivari
 Software Engineer
 Placed in a good position at a reputed company.
 13 years of working experience
 6 years of Trading Experience
 Poker Player(Needs same trading psychology), Chess Player

Major Contents
 My Trading Journey
 Why Option selling?
 Chart Setups & Indicators
 3 Expiry Trading Strategies
 3 Short Straddle Strategies & 1 Directional Strangle Strategy
 When to buy options?
 8 Other Trading & Investing Strategies
 Risk Management
 Trading Psychology
 Algo Trading

My Trading Journey
 Started in 2015
 Started with 10 lakhs and it went to 22 lakhs in 2 months (Beginner's Luck)
 And in next 20 days, 22 lakhs became 2 lakhs.
 Was so much confident, And In 2016, took 10 lakhs personal loan (A big mistake)
and started again.
 And blown it again in option buying.
 Never Trade with borrowed money unless you have made consistent money for
atleast last 3 years in Trading.
 Took break in 2017.
 Came to know about option selling and how profitable it is.
 Actively trading since 2018.
 But 2020 was the year where my skills enhanced because of pandemic WFH.

2020 Overview & PnL
 Walk through of my PnL in Zerodha account openly for 2020.
 Good Profit this year. Around 200% Returns.
 53 continuous profits in expiry days since Feb 27, 2020 and winning streak broken on
March 2021

Loser to Winner
 What rules I followed that
changed my trading career?
 Stopped Trading in Option buying and
Futures.
 98% of my positions are in Option Selling.
 Switched to Index options(Nifty & Banknifty)
 Not pre-assuming a trend or hoping for a
move but just reacting to the price.
 Don’t attach to a position emotionally.
 Entry, Exit and Emergency SL using Algo for better
execution efficiency.
 Identify what works for you and follow it.

Collateral
 Get extra returns on MFs and use Collateral for selling options.
 For every stock, MF there will be Hair cut and the remaining amount after hair cut will
be provided as Margin for trading.
 Two components
 Cash & non-cash
 Blue chip stocks will have 18 to 22% haircut. (Non-Cash)
 Direct Equity MFs & Debt MFs has 7.5% haricut. (Non-Cash)
 Liquid Funds, Gilt Funds & Money Market Funds has 10% haircut (Cash)
 As per exchange rules, 50% should come in cash or its equivalent for positional.
 For Intraday, you can use 100%
 Recommend Zerodha account as it has wide variety of Mutual Funds(1200+).
 If no account, register using https://zerodha.com/?c=DY0146

Walk through of my Mutual Funds
 Holding in 16 Mutual Funds
 Majorly 4 types:
 Gilt
 Liquid or Money Market
 Debt
 Equity
 Best MFs as per 5 years CAGR
 Nippon India Gilt Securities Fund (11.4%)
 HDFC Money Market Fund (7.4%)
 HDFC Corporate Bond Fund (9.28%)
 ICICI Prudential All Seasons Bond Fund (10.7%)
 Mirae Asset Emerging Bluechip Fund (18.36%)
 Parag Parikh Flexi Cap Fund (15.92%)
Mutual Funds
Gilt Liquid Debt Equity

Why Option Selling
 Trading is all about finding Edge and You will get TRADING EDGE by
default in option selling i.e Theta Decay
 Good Win Rate
 You can get money even if your view goes wrong.
 Exchange takes care of position sizing automatically unlike option buying.
 Unlimited risk only theoretically, but practically limited risk only.
 As per statistics, 80% of options expire worthless.
 Expiry day we all know that options will go to 0.
 Big Players do Option selling. So, can just follow them.
 Now with new SEBI rules, even with 5 lakhs capital can start option selling.

Why adjustments are must?
 With adjustments, the risk of losing more money reduces.
 You can even do wrong adjustment, it can prevent from profits but you can’t get a
big loss.
 Booking loss and moving on if view goes wrong is a must to survive in market.
 Never go against the trend.
 Adjust the position that catches the trend atleast slightly.
 Can adjust to protect profits, particularly on expiry days.
 Have a plan.
 Always keep in mind before entering the trade, what adjustment I do if market goes
up or goes down.

OI Analysis
 What is OI?
 Open Interest (OI) is a number that tells you how many Option contracts are currently
outstanding (open) in the market.
 Volume vs OI
 Open interest information tells us how many contracts are open and live in the market.
Volume on the other hand tells us how many trades were executed on the given day.
 Change in OI
 Very important on Expiry as Smart Money can be identified.

5 important sites I use everyday
 Investing
 https://in.investing.com/indices/indices-futures
 https://in.investing.com/indices/major-indices
 Zerodha Pulse
 https://pulse.zerodha.com/
 Opstra (Free version)
 https://opstra.definedge.com
 tradeguide (Free) or iCharts (Rs 599 Monthly)
 https://tradeguide.in/home
 https://options.icharts.in
 Tradetron or Google cloud for Algo execution
 https://tradetron.tech/?ref=yeshwanthreddivari

Pre-market analysis
 Global Market Trend
 SGX Nifty
 Dow Jones, S&P 500, Nasdaq
 Nikkei, Hang Seng, Kospi
 FTSE, DAX, CAC
 Highest OI
 FII/DII Data
 https://www.moneycontrol.com/stocks/
marketstats/fii_dii_activity/index.php
 Note PDL, PDH, PDC
 Check Mr. PR Sundar Blog for other
news
 http://prsundar.blogspot.com/

Why Dow Theory is very important?
 To understand price action, Dow Theory is very helpful
 Market moves in 3 phases
 Accumulation, Distribution, Trending (Break out or Break down)
 Accumulation and distribution happens for longer periods.
 Volume must confirm price break-out or break-down

Why Dow Theory is very important?
 Closing price is most important than day open, low and high.
 Higher High & Higher Low – Trending Up
 Lower High & Lower Low – Trending Down
 Stays between a high & low - Rangebound

Understanding Option Greeks in
Simple Terms
 Once you know about how options work, then no need to consider any Greeks,
everything comes default while taking/adjusting positions. And by seeing underlying
option prices, you can know about all the so-called Greeks.
 After all, Price is the KING.
 You know in 4 days option value becomes 0 if the market is not moved. i.e Theta
 You know if the market moves up, ATM CE moves up too 0.5 times and ITM moves up
by some factor say 0.7 and deep ITM moves by big factor say 0.9. i.e Delta
 You know if the market moves too much in one direction, assume UP, then the ATM
call option will also move fast in accelerated speed i.e Gamma. And during 2nd half
of expiry day, since option premiums are too less, the gamma risk will be more.
 You know if volatility goes up then option values also go up and vice versa. i.e Vega
 No one cares about Rho as interest rates will be changed only once in a few
months.

Chart Indicators I use
 I use majorly 3 chart indicators
 Donchian Channel
 VWAP
 RSI
 And rest is just price action.

My chart setups

My chart setups (Straddle Chart)
 A single view to watch call price, put price, combined straddle price,
Call/Put OI changes & IV.

Donchian channel
 Upper, Lower & Middle Band: 20 period highest highs & lowest lows
 Donchian channels will help in checking
 Breakouts or Breakdowns(can consider along with volume)
 Touching DC upper channel with double the average volume with bullish candle -> Breakout
 Touching DC Lower channel with double the average volume with bearish candle -> Breakdown

VWAP
 Volume weighted average price
 Average price of the index throughout the entire trading day.
 It acts as support or resistance depending on current price level.

RSI
 Relative Strength Index is a momentum indicator.
 I use it to apply only on India VIX
 Above 60, cautious
 Above 70, better to exit short vega trades and wait for it to fall below 60.

Leverage after Sep 2021
 Don’t worry about trading intraday even after leverage is removed.
 All you need is just buy far OTM option and can still get margin benefit and trade 2/3rd of
current quantity. Currently it was 4x margin (Feb).
 NRML margin required is 1.75 lakhs and you can reduce it to almost half by hedging.
 Also, some brokers planning to offer leverage on expiry day for minimum interest rate.
[But as per new SEBI rule, its also not possible] Need to see if brokers fight for it.

How I got 50+ continuous profits in
Expiry trading?
 Expiry is a pure mathematics for me.
 It’s game of numbers as we know that at end of day, strikes will go to 0 unlike other
days.
 Consistent decay though out the day.
 VIX effect negligible.
 Change in OI plays a key role in Expiry trading.
 Max. change in OI can help if its range-bound day or trending day.
 Gamma Alert if Price breaking day high/low after 2 pm.
 3 Strategies
 Short Straddle
 Short Strangle
 Option Buying

Expiry Straddle Strategy
 Entry:
 9:16 am if flat or positive opening & Global markets also flat/mixed.
 Or wait for few mins to stabilize to know exactly which straddle to enter.
 If global markets are hugely trending down, then wait for VIX to cool off.
 10 points decay = 1% ROI if used full margin.
 Adjustments:
 After entering straddle, keep SL for each leg at Combined cost – 10% points.
 Say you enter straddle for Rs. 90, 50 and 40 each. Keep SL for both at 90 - 9 = 81.
 It helps psychologically and if market goes trending in a direction, we will take at least 10
points profit. This mind set will help to hold position.
 Trail SL as per the combined premium decay, say 10%. If premium becomes 85, trail SL to
77 ( 8 points), if it becomes 55, trail SL to 50 (5 points)
 And so on until premium falls below 40. Once it falls below 40, the chance of SL getting hit
is high, so its better to book profits and take strangle as per 2nd strategy based on OI data

Expiry Straddle Strategy
 Adjustments(continued):
 Suppose before stop loss is hit, we got a strong signal(based on DC, VWAP) or nifty
breaking PDL/PDH, Current day low/high, then exit the profitable end & convert it into
inverted strangle to make it delta neutral or slightly delta positive.
 Inverted strangle helps in keeping wider SL and it wont hit easily.
 If at any point of time SL is hit then convert it to strangle.
 If OI shows clear weakness, don’t enter position and let it be directional with SL or enter far
OTM option. After 2 pm if stop loss hit, turn directional or exit both.
 If market reverses and comes closes to your strike, convert back to straddle if premiums
are good say above 50, else move the strike far away widening the strangle.
 If premiums are less than 10, then 20 is SL. If less than 5, 3 times i.e 15 is the SL. And if SL hit
one side, turn directional.
 Exit:
 At end of day if aggressive
 Or as per target say 1 or 2% for the day.

Expiry Straddle Strategy(Case Study)
 18th Mar (11 pts profit)
 Enter 14850 at 111. At 10:31 SL hit and straddle price was 101. +10 pts.
 Convert to 14700-14850 for 34rs. At 13:08 SL hit on pe side for 20, combined is 26,
booked 8 pts profit.
 Convert to 14600-14850 for 11rs. SL is 15 (3 times). SL hit at 13:17. Straddle is 20rs. Lost
9 pts. Turn directional as SL is hit on PE side.
 CE side went to 0. +3 pts.

 18th Feb(29 pts profit)
 Enter 15200 straddle at 103. Exit PE at 11:44 for combined 85. +18 pts
 Convert it to 15200-15100 strangle for 38. Exit PE at 12:25 for combined 42. -4 pts
 Convert to 15200-15000 strangle for 15 and both went to 0. +15 pts

 15100 straddle for Rs.115, exit at 12:31 for 90 and shift to 15200 inverted strangle
for 136. Exit at end of day for 100.

 10th Mar(10 pts profit)
 Enter 15200 straddle at 93. Exit PE at 12:03 for combined 98. -5 pts
 Convert it to 15200-15050 strangle for 29. Exit CE at 13:16 for combined 24. +5 pts
 Convert to 15050-15250 strangle for 10 and both went to 0. +10 pts

 14750 straddle for Rs.122, exit at 11:18 for 97 and shift to 14850 strangle for 41.
Exit at 43 at 12:30 and shift to 14900 strangle for 23. Call side SL hit, exit at 15.

 28th Jan (12 pts profit)
 13850 straddle for Rs.120, exit at 12:35 for 97 and shift to 13700 strangle for 32.
Exit at 36 and shift to 13600 strangle for 13. Call side SL hit again, exit at 20

 21st Jan (16 points profit)
 14700 straddle opened at 65, exit at 12:27 for 59.
 Enter Strangle 14700-14750 and exit for 10 points profit

 14550 at 86, SL hit at 9:38, 9 pts loss. Convert to 14450 strangle for 46, SL hit
at 36, + 10 pts. Convert to 14650 strangle, no SL hit, 11 pts profit

 Enter 14200-14250 inverted strangle for 104 as straddle premiums are not even. Exit at 97.
 Converted to 14200 straddle based on DC for 68, exit at 51 and later to strangle to 18 and
both become 0

Low Risk Expiry Strategy for 2% returns
in a month
 OI Based Nifty Strangle Strategy
 Capital preservation is the main criteria for this strategy
 Monthly target 3-4%
 Just monitor change in OI levels from 9:15.
 Entry:
 We will take position only if any strike crosses 10 lakhs change in OI.
 See which strike crosses 10 lakhs change in OI first and take position 100 or 200 points
less than that strike depending on your risk appetite. Say its PE side.
 Now monitor CE side and if it has 75% of OI of PE, enter it as well 100 or 50 points
away so that we try to match premium
 Thus we entered the Nifty Strangle.
 Stop loss can be kept 5 times on system to escape broker issues, but adjustment will
be done much before it.

Low Risk Expiry Strategy Adjustments
 No adjustments are required if same strikes PE and CE side OI is increasing.
 Move closer or farther depending on highest change in OI. It should have 20 to 25%
more OI than current strike for changing strike.
 If at any time highest OI strike of one side falls below 50% of other, then close it
temporarily, can reenter again if 75% OI is claimed.
 We never hold the position if price breaks
 CE strike – 50 on upside or
 PE strike + 100 on downside

Low Risk Expiry Strategy(Case Study)
 Example from order book (March 10th)
 Entered a strangle and only one adjustment done to increase profit.

Expiry Option Buying Strategy
 This buying strategy is applicable on expiry day only after 2:30 pm.
 Can be applied on Nifty or bank nifty.
 Entry Criteria:
 Monitor ATM CE and PE
 3 mins TF
 DC High + 1
 Exit Criteria can be managed in 2 ways:
 SL: Low of breakout candle
 Target
 Fixed: 1:2
 Trailing SL: Previous swing low
 Hero or Zero
 You may not get entry criteria met for this strategy every week.

Expiry Option Buying Strategy (case study)
 18th Feb, 11th Feb, 4th Feb, 28th Jan Not triggered in Nifty
 21st Jan Signal triggered, 1:2 achieved

 14th Jan not triggered
 7th Jan Signal triggered, 1:2 achieved

 Not Triggered 31st Dec
 Triggered 24th Dec, 1:2 achieved or 1:1 by using trialing SL

 Not Triggered 17st Dec, 3rd Dec, 5th Nov, 12th Nov, 19th Nov
 Triggered 10th Dec, 1:3 achieved or 1:0.8 by using trialing SL
 Triggered 26th Nov, 1:4 achieved or 1:2 by using trailing SL.

How I choose whether to do straddle
or strangle on other days?
 Criteria 1: Based on Nifty Premiums
 Simply check last week premiums and see how much decay can be expected
 General Premium range for me for good decay:
 Friday > 240, Monday > 200, Tuesday > 170, Wednesday > 140, Thursday > 80
 Can check last week premium behavior in icharts too.
 Criteria 2: Global markets trending or rangebound (gap up/down or flat opening)
 If flat open and inside bar, straddles are way to go.
 If trending up, both straddles or strangles are easy to manage.
 If trending down, wait for IV to cool-off.
 Criteria 3: Based on Day
 Straddles on Friday, Wednesday, Thursday as decay will be more.
 Strangles on Monday, Tuesday only if above 2 conditions are not met.

How to control Theta, Vega, Delta
and Gamma in straddle?
 Theta
 It is option seller’s best friend.
 No need to take care of it.
 Vega
 It is the biggest enemy for option sellers.
 Can control based on India VIX
 RSI > 60 cautious and RSI > 70 exit
 Apply price action. PDH/DH are important.
 Delta
 We move our position delta neutral or slightly delta positive.
 Gamma
 Change of rate of delta.
 Since we move position before underlying moves to that strike, this will be in control
automatically.

Nifty Straddle System based on PA
 Go where Nifty goes. And take care of IV.
 Act according to market move. No pre-assumption.
 Avoid Event days like pre-budget, pre-election etc.
 Entry Criteria
 At 9:16 am or 9:18 am for aggressive, At 9:45 for conservative traders
 No re-entry to straddle after 2:50 pm if exit criteria met.
 Conservative traders can wait until India VIX RSI falls below 60 if opened above 70
 Aggressive traders can enter trade if RSI of VIX is below 70
 Exit Criteria
 SLs of 80% or Day High of CE/PE respectively should be kept in system (We will be doing
adjustments before that, but this is safe in order to escape sudden fall or broker issues). All
orders are SLM.
 When 3 mins VIX is above RSI 70 and can re-enter again if it falls below 60. Or can follow other
ways to control volatility as explained before.
 3:08 pm

Straddle Adjustments
 Adjustments
 Based on price action can shift to other straddle or convert to strangle if there are big volatile
moves.
 If nifty trades in DC range, no adjustments.
 If nifty breaks DC on either side with good volume(atleast more than twice the average) and
with bearish(downside)/bullish(upside) candlestick bar then move strike to that price.
 If PDH/PDL break or DH/DL break, then adjust straddle.
 If no signal but market crossed next strike and profit/loss reduced by 5 pts , then adjust straddle
 If market is weak, then prefer one strike lower straddle as it can offset VIX upto certain extent
with delta
 Additional confirmation:
 If individual option value breakout with atleast twice the average volume.
 If VWAP also near to DC high/low, take it also as consideration to confirm trend.
 OI can give you additional conviction.
 Pin bar candle will be ignored even if it touches DC low or high. Only bullish or bearish candle
where body is atleast 50 to 60% of candlestick should be considered.

Live Walk Through (12th Mar)
 Highly volatile day. A big Fall, Nifty from day high to low 400+ points
 Entered 15300 short straddle in morning at 9:18 for Rs.305
 At 12:12 we got double volume downside breakout, so exit at next candle 12:15 for 295.
10 pts profit.
 Enter 15250 straddle for 297. At 12:42 RSI crossed 70, so exit straddle at 12:45 for 307. -10
pts. No reentry after that, so its breakeven day even on such huge fall.

Live Walk Through (19th Feb)
 Highly volatile day (Nifty moved 120 pts up, 240 pts down and 100 pts up)
 Enter 15050 straddle at 9:18 for 287. At 1:39 got signal, so exit at 1:42 for 267, 20 pts profit
and enter 15000 straddle for 271
 Exit at 2:03 since at 2pm RSI VIX crossed above 70 for 274, -4 pts and wait for vix to cool.
 At 2:27 it came below 60, enter straddle again at 2:30, 14950 for 286. Exit at 3:08 for 266.
+20 pts. Overall 36 pts profit.

Live Walk Through (1st Feb)
 1st Feb (Nifty up 500+ points)
 Started with 13800 straddle for 425rs at 9:18, exit at 11:51 for 386
 Shift to 13900, 14000, 14100, 14200, 14300 and get another 35+ points decay
 70+ points profit even after one side move.

Live Walk Through (20th Jan)
 20th Jan (A normal Trending day)
 9:18 14550 – Entry 148 - Exit(at below time) 138 - Profit 10
 15:08 Exit. Captured 43 points in short straddle

Live Walk Through (22nd Jan)
 22nd Jan (A very high volatile day, nifty fell 200 points, bank nifty 1000 points)
 9:18 - 14550 straddle - Entry 289 – Exit(at below time) 278 - Profit 11
 11:09 - 14500 straddle - Entry 282 - Exit(at below time) 297 – Loss 15
 11:18 – Exit and wait for India VIX to go below 60
 11:30 14500 straddle 297 299
– Loss 2
 12:57 14400 straddle 305 297
– Profit 8
 14:27 14450 straddle 289 288
– Profit 1 (should have exit
before & got more profit)
 15:03 Exit.
Overall profit 3 pts(breakeven)
even on such high volatile day.

Straddle System for Office Goers
 Alerts and stop loss method
 Based on Pivot Points indicator and previous swing high or low
 Settings Fibonacci, Daily
 I use this when I am in office as I just need to monitor decision points & adjust.
 Entry & Exit Criteria, same as straddle system 1.
 SL will be individual option values DC high + 5 pts.
 Keep alerts on system
 Higher Pivot level or Swing high
 Lower Pivot level or Swing low
 VIX > 1% than current level
 If serious trader, better to use smart watch as you cant miss any alert. I personally
remove all alerts on wearable except from sensibull and Kite.

Straddle Adjustments
 Adjustments
 Based on pivot points p, s1, r1, s2, r2, s3, r3 or
swing high/low
 Once you get alert on above value, just open
graph on mobile and see.
 If no volume, Only adjust if a bar open & close are
completely above or below pivot point.
 If big volume, then can adjust when the level is
crossed.
 Adjust to lower strike if premiums are more and
India VIX was positive.
 If VIX alert comes and RSI increasing better to exit
 Decide new high/low alert values and keep alerts
for it and continue your office work.

Live Walk Through
 9th March(Tuesday, a day before expiry)
 Entered 15050 straddle in morning at 9:18 for 211.
 At 1:03 level broke with volume, so exit at 1:06 for 182.
 Enter 15000 straddle again for 177 and exit at 3:06pm for 170.
 Total 35 points profit.

Live Walk Through
 22nd Jan
 Highly volatile day
 Banknifty fell 1000 points
 Nifty fell 200 points
 First Entry 9:18, Exit at 11:12
 14550 straddle
 289-281, 8 pts profit
 Entry 11:12, Exit at 12:57
 14500 straddle
 282-299, 17 pts loss
 Entry at 12:57, Exit at 3:08
 14400 staddle
 305-282, 23 pts profit
 Overall 14 pts profit.

Live Walk Through
 20th Jan
 A calm raising day
 High-low = 140 pts
 VIX was falling
 First Entry 9:18, Exit at 10:39
 14550 straddle
 148 – 138, 10 pts profit
 Entry 10:39, Exit at 14:21
 14600 straddle
 127 – 106, 21 pts profit
 14650 staddle
 96 – 89, 7 pts profit
 Overall 38 pts profit.

Live Walk Through
 18th Jan
 Volatile day with lot adjustments required
 Nifty fell 172 points from open.
 High – low = 237 pts
 First Entry 10:42 as India VIX RSI is above
70 at open, Exit at 11:12
 14300 straddle, 287-277 = 10 pts profit
 Entry 11:12, Exit at 11:33
 14350 straddle, 273-277 = 4 pts loss
 14300 staddle, 276-261 = 15 prs profit
 14350 staddle, 255-245 = 10 pts profit
 Entry at 14:15, Exit at 14:54, No reentry
 14400 staddle, 236-243 = 7 pts loss
 Overall got 24 points

Live Walk Through
 15th Jan
 Highly Volatile day with lot adjustments required
 Nifty fell 145 points from open.
 First Entry 10:03 as India VIX RSI is above 70 at open, Exit at 10:36
 14550 straddle, 284-286 = 2 pts loss
 Entry 10:36, Exit at 11:12 but again should enter same straddle, so no exit.
Next exit at 12:48
 14500 straddle, 290-279 = 11 pts profit
 Entry at 13:45, Exit at 14:09 as VIX
crossed 70
 14500 staddle, 275-307 = 32 pts loss
 Re Entry at 14:27, Exit at 15:08
 Overall 10 points loss

Simple Rule Based Straddle System
 Time based system.
 As per back test data, most time decay happens in the afternoon session.
 After checking various times finally found idle time for straddle is
between 12:57 to 3:08pm.
 Entry Criteria
 12:57pm
 Exit Criteria
 When combined
Stop loss of 20
points hit
or at 3:08 pm
 No Adjustments,
just SL.

Back test Data for this Straddle System
 Even if Slippage & Brokerage is removed, still profit is 1lakh+ on 60k capital in 2 years.

Back test Data for this Straddle System

Directional Strangles & Adjustments
 Directional OTM Strangle can be done both in Nifty & bank nifty.
 Strangles are low risk than straddles.
 Take strangles when IV is high or straddle combined premiums are too low.
 Entry/Exit
 Same as straddle system 1
 Strangle strike selection based on support/resistance, OI data and risk appetite.
 Adjustments in strangle is same as Nifty straddle system 1 as per DC breakout.
 If Bank nifty touches DC high with double volume bar, move PE higher so that PE premium
is 20% more than current CE.
 If Bank nifty touches DC Low with double volume bar, move CE lower so that CE premium
is 30% more than current PE.
 Do adjustments even if it converts to inverted strangle.
 Overall SL should be followed based on capital, say 2 to 3%.

Live Walk Through(10th Feb)
 A highly volatile day. (Bnf moved from 36250 to 35750 to 36118 to 35460 to 36000)
 Entered strangle at 9:18, 37000CE for 84 and 35000PE for 74

 At 10:15 DC gave down signal, exit CE for 44 at 10:18 and as 35000PE is trading for
110, we check for 140rs premium and sell 36400CE for 131. Profit booked 40 pts.
 At 11:45 DC up break, exit PE at 11:48 for 54 and as 36400 CE is trading at 178, we
check for 210rs premium and sell 35800PE for 224. Profit booked 20 pts.
 At 1:03 DC low break, exit CE at 1:06pm for 119 and as 35800 PE is trading at 313, we
check 400rs premium and sell 35700ce at 406rs. Profit booked 12 pts.
 At 1:39 DC low break and range moved, 1:42pm exit 35700ce for 293. Profit is 113
pts. 35800 PE is trading at 388, so sell 490rs premium i.e. 35400ce for 461rs
 Exit both at 3:08. 35400CE is trading at 567 & 35800 PE at 288.
So loss is 224-288 & 461-567 is loss. 170pts loss.
 Total P/L = 40+20+12+113 – 170 = 15 pts. Even if consider 15pts as slippage, its
breakeven on such a highly volatile day

When to buy options?
 High VIX days or Pre-event days like budget or event days like RBI
 When India VIX RSI crosses 70 after 2 pm on any day.
 Entry Criteria
 Cumulative OI showing clear sign.
 DC Low is break down with good volume.
 Put option is breaking out.
 Accordingly buy ATM PE.
 Exit Criteria
 When India VIX closes below 60
 At intraday exit time
 A reversal pin bar is seen in 3mins TF.
 Will get very few signals, but patience is the key.
 Go with fixed R:R every time.

 Buy ATM 15000 pe at 2:03 as 2pm candle RSI went above 70
 Exit at 2:30 as VIX went below 60 in 2:27 candle
 Profit 156 -134 = 22 pts

Live Walk Through(21st Dec)
 Recent crash should have been captured on Dec 21st.
 Straddles also should have exited at right time.
 Nifty moved 13720 to 13385

Other Strategies I use in trading apart
from straddle & strangles
 A day before expiry EOD strategy
 Overnight Straddle Strategy
 Conservative Covered Call Strategy
 Super Conservative Option selling strategy
 Designing earnings-based strategy
 Long straddle strategy in stocks
 Investing Strategy in ETFs.
 Wealth Creation using Trading Profits.

A Day Before Expiry EOD Strategy
 Call Ratios are a way to go on a day before expiry in Banknifty.
 95% high probability strategy
 Take call ratios in the ratio of 1:3. Strike selection based on risk appetite.
 Low risk people can take call ratio 2% points away
 Moderate risk people can take call ratio 1% away
 Exit when bank nifty reaches bought strike or in the morning.

Back Test Data (2 to 3% away)
 Wednesday Entry at 3:20, Thursday Exit at 9:18am
 46k profit, 95% win ratio, max loss is less than max profit.
 2.9 lakhs margin required for 1 set of call ratio

Back Test Data (Slight change in rule)
 Wednesday Entry at 3:20, expire it without doing anything.
 76k profit, 97% win ratio, max loss is lot lesser than max profit.

Back Test Data(for 1% above call ratio)
 Wednesday Entry at 3:20, Thursday Exit at 9:18am
 84k profit, buy ATM+200, sell ATM+300 in 1:3
 3 lakhs margin required for 1 set of call ratio

Back Test Data(hold until EOD)
 Wednesday Entry at 3:20, Thursday Exit at EOD
 1.34 lakhs profit, even with 1% brokerage and slippage 1.2 lakhs profit
 3 lakhs margin required, so 20% returns per Annum

Overnight Straddle Strategy
 Entry Criteria: Nifty Straddle on Mon, Tue, Wed at 3:20pm
 Exit Criteria: Next Day at 9:18am
 Position sizing is very important in this strategy as it is naked strategy.
 So, my recommendation is to sell 1 lot naked for 5 to 7 to 10 lakhs in account
depending on your risk appetite.
 Suppose you have 20 lakhs account, you can only do 3 lots i.e 225 nifty straddles.
 The biggest gap down in Nifty until now is 800 points during corona time. And next is
around 500 points during demonetization but closed only 100 points difference.
 Rest of times max. gap down is around 300 points only and that do during some
events like election, corona etc.
 So, no need to fear gap down if position size is in control & VIX can already give hint.
 If conservative trader, can avoid this strategy if RSI of VIX is above 60 and during
events like election results, budget etc.
 Back test report for last 2 years including corona crashes.

Back Test Data (Mon to Tue)
 Monday Entry, Tuesday Exit
 43k profit in 2 years. Need 1.5 lakhs to take overnight straddle.

Back Test Data (Tue to Wed)
 Tuesday Entry, Wednesday Exit
 71k profit

BackTest Data (Wed to Thur)
 Wednesday Entry, Thursday Exit
 85k profit

Conservative Covered Call
 It same as covered call but will sell ITM or ATM option.
 Covered call:
 Buy blue-chip stock in cash + Sell OTM call option
 Conservative covered call
 Buy high dividend blue chip stock in cash or good volume stock in futures
+ Sell ITM or ATM call option
 ITC, REC, Power Finance are some high dividend yield stocks.
 Good Downside Protection unlike covered call.
 Sell next month CE, 1 week before current monthly expiry for good premiums and to
avoid additional margin requirement by holding in final week.
 For Long Term: Cash + CE
 For Monthly Strategy:
 Select an up trending stock and do with
Stock Future + CE and square off every month.

Conservative Covered Call (Example)
 Assume, ITC you have 1 lot in cash Market (6.5 lakhs required)
 ITC trading at Rs. 211. ITC Feb 210 CE is Rs. 16
 So, you sell this ATM call.
 Three scenarios:
 If stock moves upside, can shift CE option upside for more profits.
You get 15 points profit for ATM = 7.1% return & also
on down side 7.1% protection
 If stock remains sideways and closed above 210, still
you get the same returns.
 If stock goes down by premium value, will enter one more CE at
lower strike to reduce downside risk. Max will be holding 2 CE at
a time. And if market reverses, we will shift back to 1 CE again.
 Can add additional rules based on breakout or EMA(20) for
riding upward trend

Rule Based Option selling strategy in Bnf
for office goers
 Sell options in the range of Rs 40-50 from Mon to Wed.
 Entry time 9:18 to 9:20
 100% SL, exit one leg and hold other.

Rule Based Option selling strategy in Bnf
for office goers
 2 years back test data and after considering 1% slippage, still 42k profit
 With new margin rules, its still 30% returns i.e 15% returns per annum.
 Can trade this strategy & expiry day strategy

Designing Earnings Based Strategy
 Choose high IVP stock & Liquidity shouldn’t be a concern.
 Check using https://opstra.definedge.com (Free)
 Check historical results and stock movement on results day.
 Do chart analysis to find support/resistance.
 Enter the trade 1 day before results to profit from IV Crash.
 Result trade near expiry will be added advantage because of sharp fall in premiums
Previous Results Date Time
Close Price before
results
Close price of
next day %Change IV Prev IV next %IV Crash
16 Apr 2020 19:13 1722 1815 5.40% 64.8 52.6 -18.83%
17 Jan 2020 16:01 2219 2174 -2.03% 28.7 24.8 -13.59%
10 Oct 2019 16:41 1998 1951 -2.35% 32.7 26.3 -19.57%
09 Jul 2019 17:17 2127 2111 -0.75% 27.6 23.5 -14.86%
12 Apr 2019 16:40 2026 2117 4.49% 31.4 24.2 -22.93%

Earnings Based Strategy Example(BWB)
 Based on past performance, we came to know that max 5% move in upside and we
are expecting downside move may be lot more depending on current conditions
 So, we can enter a broken wing butterfly trade as:
 Buy 1 OTM CE, Sell 3 OTM next CE and buy 2 OTM CE
 Strike selection based on resistance level
 Downside profit.
 Even upside profit up to 5%.

Long Strangle strategy in stocks
 IV usually raises until earnings and then IV crash happens.
 Check how historical IV moved in the stock for last 7 days of previous earnings season
 Entry Criteria
 Find a stock with a history of big post-earnings moves.
 Say atleast 5% moves post earnings in last 4-5 quarters.
 Buy long strangle 7 days before earnings.
 Near ATM strikes are better choice.
 Volatile Market is an added advantage
 Exit Criteria
 Sell just before earnings are announced
 Advantages
 Good R:R ratio. We may lose 10% if lost but winnings can be 20-30%

Investing Strategy in ETFs
 Invest in 3 ETFs
 Gold bees
 Nifty bees
 N100
 If on any day, 1% fall happens in any one of the above, I invest fixed amount say
Rs.10000(depending on capital) in that ETF.
 Advantage:
 We never know when top or bottom is made.
 Can get good collateral for trading. Only ~12.5% haircut.
 With this strategy, you can get good returns in long term as we all know that in long term
Nifty should go UP only.
 Example:
 Corona recovery from 7500 to 14200.
 N100 at all time high
 Gold bees now down 20% from ATH, but it will go up in long term because of good demand.

Wealth Creation using Trading Profits
 Decide a day and invest trading profits
into stocks.
 I normally buy stocks for the entire
profits I get on Monday.
 Criteria for short listing stocks:
 Use screener.in for screening stocks to
shortlist
 Debt free
 ROCE, ROE > 20%
 Market cap > 5000 crores
 Operating profit margin(5yr avg) > 20

Wealth Creation using Trading Profits
 Add all stocks to watchlist
 Two strategies in investing.
 Invest Directly
 As these are good companies
with zero debt, you can just invest
in them directly
 Exit them when they don’t satisfy
these screener conditions or
touches 52 week low.
 Invest based on Technical
 Check Weekly Graph of the
stock.
 If stock is trading above PSAR
then invest in the stock & Exit
when stock trades below PSAR

Risk Management
 Risk he tho ishq he (Scam 1992)
 But risk should be managed well.
 4 ways to manage risk:
 Per Trade SL, say 1%
 Per Day SL, say 2%
 SL based on last week profit.
 Trailing SL to protect profits.
 Position Sizing
 Depends on type of trader you are.
 I normally use full leverage for intraday as I am aggressive.
 For positional naked, 1 lot for 5 lakhs is considered good.
 Larger your stop loss, smaller your position size.
 Why trading in multiple systems is important?
 Reduces Drawdown by huge extent.
 Consistent returns if traded in multiple tested systems.

Trading Psychology
 Capital preservation should be the first priority.
 Fear, Greed, Hope are the biggest reasons for loss in stock market.
 Money cannot be made everyday from markets.
 Shouldn’t attach to positions emotionally.
 Control ego and agree if a position goes wrong.
 Taking SL doesn’t make you a loser.
 Follow strict discipline.
 Be patient and let the trades come to you, no need to rush.
 Never do revenge trading. Market stays here for lifetime.
 Even good trade can lose money and bad trade can win.
 Don’t average your losses.
 Control what you can & Manage what you cannot.

Algo Trading
 What is Algo Trading?
 Executing buy/sell orders via computers without any manual intervention
 40% of volume comes through algo in NSE markets.
 Saves your time and reduces monitor time
 Python can be easily learned.
 Execution speed is No.1 criteria for me to place orders via Algo.
 But but..
 Simple Algos work better than complex algos. And making complex Algorithms & more
curve fitting will result in bad performance.
 Same algo will not work in all markets.
 No guarantee in future depending on back test.

What is an edge in Algo?
 Emotion less Trading
 0 manual intervention.
 Can even get notifications on telegram or WhatsApp when order is triggered.
 Algo edge over discretionary:
 Scan 100s of stocks with predefined conditions.
 Monitor bid/ask prices continuously and trade accordingly when multiple instruments
satisfy the buy condition for the required price
 Reduce slippages
 Scalability of position size
 Keep combined stop loss for straddles.
 Design systems and back testing
 Design custom indicators and graphs

How to do the Algo trade without any
coding skills?
 Tradetron Platform can be used for beginners
 Simple and easy

How to replace alerts with actual execution for
PART-TIME Traders going to office?
 Using tradetron
 You can dynamically edit the SL.
 I did this many times while busy in office.
 Say you enter straddle and its in 20 points profit. I move my combined SL to +5 from -
20 points. So, I can be sure that trade ends in profit despite of any move.
 Can edit from mobile also.
 Better than alerts.

Algo Trading using Python kite connect
 This is specific to Zerodha
 They charge Rs.2000 per month for API Access.
 But unlimited possibilities.
 From drawing graphs to placing orders to reduce slippage to complete algo based
system without manual intervention, anything can be done.

Designing an algo-based trading system
in Zerodha.
 Simple algo based straddle system
 Tick comes every second.
 We can check price and make algo based on it.
 Change strike if last price of nifty > current strike + 55 or less than current strike - 45

How much returns per annum is
considered as best?
 Any returns that beat inflation is best in current situation.
 With interest rates falling, many are looking into alternate investments like stock
market or real estate.
 Problem with real estate is liquidity and black money.
 10-12% consistent returns can be achieved with Mutual funds in long term.
 So, even if we get 12% returns in a year in trading, total returns = 24%
 As collateral will be used same MF money can be reused
 It just 1% per month
 You can double your money every 3 years even with these returns.
 If you can get 3% returns per month in trading, total 46% returns in a year, you can
double your money every 1.5 years. In 6 years, 10 lakhs becomes 1.6 crore, 1600%
returns.
 Keep achievable targets.

How to reduce Tax in F&O
 Trade in Family members account
 Wife (if not working) or Mother
 Can save 5 to 7 lakhs tax directly.
 If account size is more, trading in corporate account is beneficial
 Create a Pvt ltd company that costs around Rs. 10000
 Corporate Tax is 25% flat.
 But you can show many expenses and completely avoid paying tax:
 Rent expenses
 Current and maintenance charges.
 Employee salaries(Wife, mother, father can also be employees)
 Depreciation of assets.
 Travel expenses(Even personal can be shown as official)
 Vehicles etc

Any Questions?
Contact on WhatsApp for any questions
post session. Mobile No: 8799767337

 Some of my useful tweets:
 https://twitter.com/yashstocks/status/1354129871719395328?s=20

 If no account in zerodha, register using our referral link & get 10 free
pdf books on advanced option trading from international authors:
https://zerodha.com/?c=DY0146
 Register on Tradetron using referral link & get more support on
designing strategies in tradetron
https://tradetron.tech/?ref=yeshwanthreddivari

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