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I have received lot of queries on #OptionsTrading.
Specially on the trades that I take on expiry day where option prices move 10 times in last one hour. Let me tell you that this happens only 1 in 3-4 weeks.
Few pointers that I look at.
Expiry day trading in options few tips. I hope it will help others.
So what I look for is following 3 things.
1. Open Interest Build Up on expiry day
2. Trend of the market from start of the day
3. how to trade
3. Time when breakout or breakdown of critical levels happen
#OpenInterest Build Up
#Optionwriting has become very popular & there is heightened activity of the same on expiry day. This is clearly visible through OI buildup in specific strikes where OI goes up significantly & price goes down. Now these strikes become our boundaries
#Trend of the market
Its very important to understand the trend of the market from start of the day. Its important to check if market is consolidating, trending and how was the opening gap up, gap down, flat. This will decide the force of the mo
So based on above 2 points we have identified
1. the 2 strikes where max OI is concentrated Upper boundary and lower boundary
2. the general structure of trend on that day for the market
How do we enter a #trade
So we have 2 levels one on upside and one on downside. These boundaries once broken we will enter the trade by buying a call if upper boundary is taken out or by buying put if lower boundary is taken out(we buy same day expiry put or call).
Time when to enter a trade
But most important point the #breakout/#breakdown has to be post 2oclock. If breakout/breakdown happens between 11-1.45 should be ignored. Generally these are false breakouts. And the premiums paid are also high till around 2.
Other important points to remember
1. Important to note that only 1 in 3 expires will give you a trading opportunity
2. Remember we are buying a lottery ticket so buy only of amount that you can afford to go to zero
3. Risk reward has to be min 1:4 higher the better.
This has very good #riskreward if you can maximize the gains.
Also please try and learn #optiongreeks that will also help in understanding the complex world of #options better. Please note this strategy is not scalable.
All comments remarks are welcome.
Thank you
By @ameyanifty
Few charts of previous trades just to give you an idea of reward that can be generated by taking limited risk.
Some of the recent trades that were taken by me.
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