#Options Greeks का सबसे सरल ज्ञान इधर मिलेगा। Options #Trading - 3 | #Learn2Trade 35
Welcoming you all to the session #35 of learn to trade. This is options class #3 and I’m teaching options trading to Annapurna Ji and you too. Hello Sir. -Hello. How are you? -Good Sir. We are Teaching everyone. I am feeling good. What a Lovely response I’m getting!
By the way if you’re confused that why are we wearing same dress is because we recorded the same day. – right sir. So, last video we talked about option chain. Was it complicated? Not that complicated but I have to look into it again sir. Yes, you have look little bit and listen, You have to do one more thing. If you are feeling complicated from the NSE website, There is option chain in stock edge too. -Okay.
But NSE website is better. -Okay sir. I will tell you all how to use option chain in stock edge But as you are starting now, Start from NSE website. -Okay. There is one more website that you have to see only.
Because you are learning I had told you last time even. Elearnoptions.com -Right Sir. -This is a very nice website made by us. In this we have provided free learning about options in English. Anyone who is interested in learning options in English for free. Basics only. No hi-fi, advanced concept is there. Basics only. All entry level concepts have been inserted here.
Free of cost that what are intro options? What is call options? What is put options? How to wave off. Strategies. There are so many strategies. We will talk about every strategy in future. Long or short. We have already discussed that what happens when we long the call options? And what happened when we short the call options! We have discussed before. Will discuss about strategies more in advanced. And Greeks!
So, todays topic for discussion is Greeks. Why do we call Greeks as Greeks? -Sir, it’s in maths too, I think. In maths too there is Greeks. -Right sir. The Greeks word Delta, Gama, Theta, Vega are Greek’s character. So that’s why these are called Greek. But anyways that’s not the real point.
Point is when we talk about Options. It can have so much permutation-combination Because it’s not just one instrument. Last time we talked about it that, Reliance’s call option of 1230 is an instrument in itself.
call option of 1250 is an instrument in itself. There are so many instruments that you can do multiple permutation-combination and you have to define the objective of trade. In future’s there is only one thing to talk about, Play BOOM or RECESSION. In cash even we have to do the same thing. Buy it or sell it. But under options you have to create lot of strategies with a defined objective. And your objective should be around these Greeks.
I am telling you an approximate thing, that if you are saying to do anything in options, Then you have to the decision making around these Greeks. That whether I’m talking about playing in Delta or working for Gama or Theta, Or working for Vega or Rho. -Okay. So let us understand each Greek one by one and don’t think it like Greek. Don’t think that it is very complicated and I won’t understand it.
Very simple concept it is. Using big jargons, it is made more complicated but is very simple concept. If you want to learn Greeks in English basics then go through these videos Which we have created which will explain you all what these Greeks are, And what are the implication of Greeks. Do go through it. But, let me teach in my way what Greeks are. There is one more website. Very nice site. If you want to move forward in Options, if you want to do trading, Then you have to do this website definitely. This is not our website.
For a change I’m not talking about my website, I’m talking about a third website. That I use too is OPSTRA. opstra.definedge.com. Very interesting people. DEFINE EDGE is a Pune based company. Very nice people. So, they made a very nice tool. Like we have made Stock Edge they have made Opstra nicely.
So, options related any strategy that you want to do then you have to use this tool. If you will go to this tool, do login, its free login so there will be no money charged for login. But obviously you would have to subscribe for using premium features. And might be you would have to do. Later on, I will tell you what are the benefits of it.
But now focus on what I’m trying to show you. Let’s take an example, suppose in options over here, there is Opstra Options Strategy Builder. So, let’s go and build a strategy here. Get Started. Get used to this “STRATEGY” word because when we talk about Options then strategy.
Don’t get confused. This is NIFTY, we had discussed last time even so let’s go NIFTY. Remember in last video we had talked about that In NIFTY, the call option of 16,000 there is very much Open Interest. -Right. And put option of`15,500 open interest is there. Then that’s a range. Let’s make one strategy that I feel that market will boom from here on. Can I feel it?
Then what should I do? Either I will buy futures or will buy in cash market. But too tensed in buying future because when we buy future margin requirement is too high, I had explained you when we were discussing about margin. Options oriented margin discussion which we will talk about in future today itself.
And what are its benefits? How from small capital you can build big position? If we buy something in future, then there is too much anxiety. Daily market happens and margin is too high even. If we work in cash market, then you will have to give full money. And if you work in nifty in cash market then you would have to give ETF. Which probably you won’t like to do that, if you are trading. If you are investing, ETF is better. Suppose you are wanting to work under options, you are wanting to buy the market.
Then you have so much strike price, then which strike price should I buy which will give more return? If I would buy strike price of 16,500. The premium is less. But the journey from the current price to 16,500 then in that the premium of 16,000 will not increase as much as the current premium of strike price. Let me explain this concept more. Let’s go to option chain of NIFTY. So, these all are different option premium.
Price of NIFTY in today’s date is 15,850. Then the price of call option of 15,850 is 68. If I want to play BOOM in market then if I buy this, buy call option of 15,850 and nifty increases by 100 points and it becomes 15,950 then this premium of 68 would it be 168? No. Let’s see. Premium of 15,850 in today’s date is 68. And we are talking about would be the premium when it will become 15,950. And if we see today that what is the premium of call of 15,750 then we are talking about that scenario only. -Right.
Then what’s the premium of that 131. So, if everything is constant Then after 100 points this 68 will become 131. So, how much will it increase? 68-31. -65-70
Approximately 65. If the market increases by 100 points. Approximately 65. If the market increases by 100 points. Although it won’t increase by 65. It increases by half.
Then the relationship between underlying price, the price of market that will increase And call or put’s premium price increases or decreases That relationship is called delta. And at “at the money”, the delta is always 0.5 This Means strike price of call option is 15,850’s delta is 0.5 If market increases by 100 points, this will increase by 50 points which means It will become 68 + 50 = 118, if the market rises by 100 points. And in case of put the delta is -0.5 Why minus? Because put and market has inverse relationship.
If the market increases by 100 points, then the put will decrease by 50 points So, the price now which is 73. After 100 points, it will become 73-50 which is almost 23. Okay. Right. – This is simple mathematics. 0.5 is of “At the money”. The more “in the money” you will go the more 0.5 will increase.
And the deeper “in the money” we will go, the price of option reactive is high. The general graph of delta is like from 1, almost 1 to 0, in case of call option. And in case of Put Option, almost from -1 till 0. -Okay. The reason for this is that if we go” in the money”, the call option of 13,000’s delta would almost be 1. But if the market increases by 100 then this will even increase by 100 points.
Is there any time parameter in this? -Yes, it is called Theta which I will say. But as of now keep the other parameters constant. Focus only on delta. Delta for call option ranges almost from almost zero to almost one.
It won’t be exact zero are exact one. It will be but on the day of expiry. Because if that day only is the expiry, then market will react as per underline In most of the situations, that is known as Gama. Not going much inside it. Making it simpler for you that delta of call option is almost 1 and almost 0. -Can be between any price? -Yes, the more in the money we will go, the more it will be towards 1. The more you go towards out the money, the more it will be towards 0.
And what will be the delta at “at the money”? 0.5 -Right. So, the delta’s graph is always like this in case of call option. Like this. Out of the money, deep in the money and at the money it would be 0. That of put option is 0. Almost -0 in “out of the money” and almost -1 in deep “in the money” And 0.5 at “at the money”. -Okay, Got it.
Now the question that comes is what strike price should I take if I want to play boom If you are taking of at the money then impact is 0.5 If you take of “in the money” then the impact will be more but the more “in the money” will go the premium would -Keep on Increasing. Which means your investment? -will have to do more. The more the “out of the money” you will go, the impact is less Premium is less but impact would be less too. So, typically people make this mistake. They feel that the premium is cheap. Let’s take call of 16,000. Would get it 17. call of 16,000. Would get it 17 and if the market happens to be 16,000 then I will make money.
But people don’t understand that delta is less, So, till when the market will be 16,000 whose delta is less, if market increase by 200 points, Then it won’t increase that much. So, you be able to meet the Market’s BOOM Because its delta is less. -Okay. Got it. So, you should always have a balance that the strike price whose delta is moderate Such that if market increases then it’s delta too increases and value of premium is more. So preferably if delta is more then I should bet on that. -But premium would be more. So, take call option of 13,000. You would have to give 2,850. That’s why at the money is better. Because delta at “At the money” is 0.5 premium investment is moderate too.
It’s not so that that its very much or very less and probability of the stock that It will move above in the money would be high too. -Got it sir. No after that the pointers that were there, time value which we will come to, But you have understood delta completely that “at the money” means 0.5 So, if you have to work by taking, then I never advice that give “Out of the money” because it will always look cheap. It’s cheap because it has a reason for it. The one’s that is expensive has some reason for it. In case of options, The thing that is expensive which means it has more probability that will give you more that’s why it expensive.
If I take “in the money” then the probability is more than you will make more money. Let’s go to OPSTRA once. That we are buying strike price of now, expiry of 29th July, No. It’s going to expire. So, let’s go far 26th August one. For this what strike price of options of nifty, I have to take? Current strike price at the money is 15,850. So, I have to buy call option of 15,850 Add Position. This is known as pay-off diagram.
That you have bought the call option of 15,850 which means this much money would only be used, He buys at 231, around 229 Then, 15850+230 is my break even point. Which is almost 16,056. If it goes above 16,056 then my profit will be huge. Unlimited profit and if it will be below that it will be my limited loss. So, every strategy, option strategy you have to convert into option and The pay off diagram would say what will be the impact of this strategy. Get into a habit of creating pay-off diagram and Opstra is a brilliant platform for that pay-off diagram.
My main aim was to teach you Greeks. So, in this strategy lets see what are Greeks. So, what are Greeks saying here? Delta, Theta, Gama & Vega. Let’s leave Gama for once. Delta, Theta & Vega.
Delta is impact of change in the price of the underlying, what would be the impact of that in the payoff? So, it’s delta is 53. Which means if NIFTY increases by 100 points, then you would earn a profit of 53. Theta is -341. Now what is Theta? I had told you in Mahabharat that time is strongest.
And time at each moment does Tick-Tick and there is a concept of Time value in the money. What is the concept? The 10 rupees today is not worth after 2 days Because anyone give you 10 rupees you will have to ask interest. So, if anyone has sold you option premium then he wants to earn from every moment. As days will be passing his earnings will be starting to book If I’ve got the premium of 50 so that premium is spread over the period of time And there is process of continuous compounding where every moment you are compounding that premium This means that every day the option seller is earning something from you and premium is decreasing. So, if you have bought the premium, then during a natural process, premium will fall till the expiry. So, premiums value is even variable over the period of time? -Correct. -Okay.
Have you seen ice, ice cubes? -Yes. What will happen if you keep the ice cubes outside? – it will start to melt. Why? – Because it reacts to the environment, the change in temperature.
So, if you have bought the options then the options are ice, Ice cubes. It will melt slowly and become water. -Right. Until and unless it has intrinsic value because if intrinsic value remains, Then that much value remains. Put an ice cube in a glass. Then it slowly melts and becomes water.
But it will take the shape of the glass, because it will have the bare minimum value. As you have put it in the glass. So, the intrinsic value is basically the difference between The strike price and the closing price. In case of call option, if the closing price
Is more than the strike price, then its intrinsic value is more. And if the closing price is less than the strike price, then it means that intrinsic value is 0. It should not have any worth. If the share price is only below the strike price, Then it’s worth should be 0. -Right. -So, Theta is basically the ice that is melting.
So, the seller would earn this money, and this money will keep on getting spent every day. Suppose if you have done life insurance and in life insurance premium has to be paid every year, There is a person, there is a man who has got a habit of smoking. So, the LIC got to know about it. Then what happened? LIC sad your premium should increase because your chances of going up has increased.
You have started smoking. Right? -Right. This means that the insurance company has got afraid, That he has started smoking he will go early. He will go and do to which I will have to pay. So, increase the premium! Vega is basically heartbeat. The more the nervousness the more is the premium Always think about Vega as the prospective from the seller Because that seller on the basis of Vega, decides on the volatility how much premium I should take. Higher the volatility, higher the nervousness, higher is the premium value.
Which is getting reflected through Vega. Shall I tell you a process? A hack to remember? VEGA – VOLATILITY THETA – TIME DELTA – DECIMAL IMPACT OF UNDERLYING. There is one more. Rho which I am not talking about. Rho is basically the interest rates.
The more the Rate of interest changes in the world the more is the impact of it on premium. That is valid on the long-dated options. In our case application of Rho is not much. So, Vega reflects the volatility. If VEGA is saying 1843 which means if the volatility increases
By 1%, then you would get 1843 more which means value of option premium increases. Because volatility increased by 1%. Now what has that volatility said? When we were talking about Option Chain then did you see the concept of IV? Yes. -Implied Volatility. When we talk about volatility, then we talk about IV. Now here the implied volatility is 11.52, This strike price’s IV is 11.52
If this 11.52 becomes 12.52, then you will get more 1843. Why? Because the premium that you have bought, will increase. -Okay. Price will increase in the market. But this you have already taken.
And the one who has sold you will have to face loss because price in the market will increase. Volatility is high. Market price has increased so obviously he will have loss and you profit. So, whenever you draw the payoff diagram of options, Then you have to see these major Greeks. Sir there is one confusion! When volatility increases, it is not necessary that market price should rise.
Premium would increase because the nervousness of the seller will increase. So, in the next trade the seller will say that “I will charge high premium” And after that he would say “I will charge high.”. Old which has happened has happened. But for the new he will charge premium high. So, whenever we are talking about options trading, You have to calculate payoff diagram like this and you have to see the delta, The Theta and the Vega. Gama I will cover later on. But at least you see the rest three. You have understood the impact of this? When you are buying the theta is negative. Meaning every day, you are getting charged and this much.
Because theta’s impact is time decay like that ice cube. Typically, Theta is like ‘Kumbh Karan’. It sleeps for first few days. And when it gets awake, it falls hugely. So, its graph is like this, see. So, whenever the expiry is going to come, the first 10 days the Theta has no impact. But there is a huge impact in the last 15 days. So, whenever someone does options strategy training, they take care of this fact As theta’s impact comes in last, then I use the selling strategy in last and Buying strategy in the starting. Because in that impact of Theta is less as you are buying.
So, DELTA, THETA AND VEGA impacts should be understood. And whenever we make options strategy, we make around these three. You will have to decide whether you want to play delta, theta or Vega. So, I cannot combine all 3? – Typically, people either want to play delta.
That play boom or recession in the stock. or I want to play theta. That I want to eat the time value. Or I want to play volatility or Vega, That we have expectations that volatility will increase and that’s why we are want to buy. The moment you have clarity that whether you want to play delta Then you would hedge theta and vega. If you are making advanced strategies. and if you are wanting to do theta, then you will hedge delta & vega. Various strategies can be done because it has a very big domain under option That the one entering seriously into it, will enjoy. And in this creativity can be done.
It is like a canvas and you can paint your own story. So, I am going to cover the basic stuff but obviously if you want to go in advanced stuff then you would have to go deeper into it. We will not cover the advanced in the learn2trade but more or less that typically people do and can do we will discuss. And what does each strategy have an impact and you can play it, we will discuss. As an Individual Retail Investor, you will have propensity to buy because premium is less. But people don’t understand that being the decision of buying, these 3 characters needed to be understood too.
Why you are buying? Want to play delta? Do you know that impact of Vega can come? Do you realise that due to Theta, money of Time Decay is used! If you understand this and accordingly evolve the strategies then in options your money won’t be used. You can earn money, and with proper strategy you can multiply it. Many a times we have strategies that we can use cash market and derivative options. Many a time like you said can we use all three! why not you can work? For example, if you want to play BOOM and that too in the month starting, Where Theta’s impact is less. Then you will work with call. But if you want to work in mid of the month, where Theta’s impact has started. You work with call, Theta’s impact is coming, then you would sell put and work.
So, you had asked a question? That I want to play Boom so shall I but call or sell put? At that time, you would have to see that what volatility is going on in market. What is my theta’s impact? Accordingly, I can change my decision if I have to combine. Little Complication? -No Sir. -All fine? -Yes sir. So, this was option’s 3rd class where I had added a next level complication but kept it simple So that you can understand thing clearly. To have friendship with these 3 is very important. DELTA, THETA, VEGA.
These three are your friends. You have assume your friends and are made to help you. These are not made to scare you so understand more about these. Made free in elearnoptions. Explained very nicely and will practise here again. You could learn more better if you practise in Opstra.
The more you spend time with it, the stronger the friendship with it. Stronger the friendship the more it will support you. Lets end this video, hope you all liked it. Share my other videos and sharing this series of mine is very important Because excellent work is going and I hope you too will acknowledge that work is going good, efforts are being made. Bye bye. Take care. Let's meet in the next video.
2021-08-09 08:07
