Option Buying Strategies — Full Breakdown & Transcript

[00:00] The market has been volatile in recent days. Especially, those who are selling options, Mention it in the comment section.

[00:14] But, if you only know all concepts in option selling, If you want to capture the good move through option buying, it's not easy to turn into an option buyer mindset from an option seller.

[00:29] option buying is their first option. In fact, most of the stock market participants know this. option selling will have a better edge.

[00:43] Because, we get profit in range bound market and if market moves in our direction. Let's say, you thought that market move higher and sold put. You will get profit if the market moves up, since you sold put option.

[00:58] you will get profit, since you have premium you sold. So, compared to option buyers, option sellers have a big advantage. Almost, option sellers will have 66% probably of winning.

[01:14] option buyers will have 33% probably of winning. Knowing this, that option buyers will have lesser probability than option sellers Say that there is good momentum in the market.

[01:29] or falling. Some people go into option buying because they don't have the advantage Some people have low capital.

[01:41] And the risk is limited in option buying. So, low capital, low risk, unlimited profits. So, friends, we have been talking about equity and option selling for a long time.

[01:57] I have uploaded videos and strategies related to option buying in the main channel. Due to recent days volatility many might have turned into option buyers. if you don't understand what we are talking about,

[02:13] we will talk about the important points that you may not be eligible to buy options. The importance of this, even if you don't know much about option selling, with proper stop loss and percentage of stop loss calculations,

[02:27] So, in today's video, the points that you must and should know, After that, I planned to make separate videos. So, by linking with this video, if you want to buy any option

[02:45] In this video, I will answer it with some simple statements. And, along with this, option buying, next topic is

[02:57] If we want to buy, what to buy and when? But, we can also make a dedicated video for this. When we buy options, we talk about the pros and cons earlier. What are the negatives?

[03:14] Limited capital, limited risk, unlimited profit. Why do we have a loss? So, if we don't have intrinsic value in our option,

[03:27] with time to time, it will melt like ice and finally go to zero. But, without that, how can we protect option buyers with low capital?

[03:43] Let's talk about the first topic exclusively and in detail. The remaining two topics, if you are with me as a friend for 5 minutes, Or, if you want it to be more detailed,

[03:56] Which one? In what situations? And finally, we have to protect the negatives related to option buying.

[04:08] Day to day, our option premium will fall. So, first, as an option buyer, what are the important elements or concepts you should know?

[04:20] And friends, before starting the video, definitely like the video. if you find it valuable at any point in this content,

[04:33] it will encourage our efforts and So that, our efforts will reach more people, it will encourage us to bring more good content to you.

[04:51] Friends, before starting this, I've been seeing a lot of beginners and salaried people in the market. I've been noticing this in all of them.

[05:07] it's okay if it's profitable, but if they lose, no matter how much you say that they shouldn't do this, it's not possible for them to control themselves.

[05:22] your main account or your salary account, keep the main account aside, and take a different bank account that is attached to this trading account.

[05:35] and if you've asked the Broking firm, So, the amount you want to invest in trading, For those who are still beginners,

[05:49] I think only 10% of that is a new account. So, keep 10% of that aside, And don't tell me that you won't touch the money in the main account.

[06:06] how much it will cost, like you have 1 lakh for trading, and transfer it to the linked account.

[06:19] and you're sustained over the period, when you have 10,000 in your account, and you're losing a significant portion of it,

[06:32] and try to analyze what you've done. This is to keep you self-protected, and not to trade it for revenge.

[06:48] that you should know as an option buyer. you should understand these two terms in the market. Range-boundness means,

[07:00] In the recent Nifty chart, it goes up and down. Again, up and down.

[07:13] does it look range-bound? option buyers shouldn't trade. it comes to this low and takes support.

[07:27] and the option traders are here. they buy options here. They have to book their loss and come out.

[07:41] But, there are overnight updates, If they are intraday traders, the market hasn't moved down much.

[07:55] But, if they take the risk of carrying the next day, They should exit there. Why should they exit, the market fell strongly after a few days?

[08:07] The market might have gone to the top side. when you understand that the market is in range-boundness, buying options is not correct.

[08:19] Let's say, you mark the range-bound with resistance and support. When it comes to resistance and reverses, you should scalp only after you set a stop loss for the premium you are buying.

[08:37] you should come out with small gains. we can't put the entire premium we bought at risk. option buyers avoid range-boundness.

[08:49] Even intraday option buyers don't trade in range-boundness. Only scalpers buy calls when they are in range-boundness, So, range-boundness.

[09:03] even here we had a range break. In the next day opening, it went to upside. support break, resistance break,

[09:15] there is a big market move in one direction. If the market falls or moves upside sharply,

[09:27] But, if the market falls and rises suddenly, So, if the momentum in the market starts with a big candle, if option buyers understand it,

[09:42] If there is strength in it, the candle that broke the breakout candle from downside to upside, Like, if the market falls to downside,

[09:56] if we base the next candle with the previous strong body candle, that candle's high, if the momentum is really towards downside, So, let's say if the breakout happened,

[10:11] then the buyer should remember clearly that might have bought the candle thinking that the momentum is going to downside. Everyone's expectation is one, that the market is going to downside.

[10:27] then your premiums will also grow abnormally. If it is in red momentum, everyone will think that it is going to fall more.

[10:39] and option buyers will increase the premiums due to the high put. if you think that 1 is to 3 or 1 is to 4,

[10:51] then booking would be a better option. You can never capture it completely in option buying. If he sells 100 points, he will have 100 points as reward.

[11:09] we will be successful most of the time. the will have an idea how much money he can loose.

[11:21] It might feel that the risk is limited. If we buy the option with our entire capital, That can be our capital too.

[11:34] how much risk are we taking with respect to the premium we are buying? by keeping a stop loss logically and by trailing the target, only then you will be successful.

[11:47] let's say you have bought 100 put option. If it trades at 160, If the market moves from here to the range bound to upside,

[12:03] So, the market, whether it is in the opposite direction or range boundness, So, your premium will decay.

[12:16] if it falls in your direction after you buy, But it is not correct to be in dreams. either we exit when the price getting near good support,

[12:33] or, best option is to trail our profits with the mechanism of trailing stop loss. Means, we thought it was 80 stop loss. When it comes to 160,

[12:46] if we keep it as stop loss at 160, 20% or 30% of 160, If we get such conditions in the market,

[12:58] Maybe, after we come here and do the trailing stop loss, So, with 20 or 30% stop loss, you can trade that fall and momentum in a directional way.

[13:12] let's say, if you buy the put option here, If you buy the put option here and it falls down,

[13:24] it will be at a lower price than the price you bought. you might have bought it by seeing a red candle. By the time you exit, you might have bought it by seeing the green candle.

[13:38] many put option buyers might have exited by then. we should try to get our target trailed or exit. we should exit with momentum only.

[13:52] By doing that trial, when our target reaches, we should keep the gain that comes from capital protected buying the less premium options and expecting multi-bagger returns.

[14:08] and seeing higher premium options as riskier, we should avoid doing these. One is theta and the other is delta. I will explain the concept of in the money, out of the money, and in the money.

[14:22] What will be a 17,800 CE? 18,500 call, out of the money. will go up to 18,300, 18,400.

[14:37] If 18,000 breaks, it will go up to 18,200, 400. Should I buy in the money call? If you leave what to buy aside, what will the beginner do?

[14:50] Look at this. 18,000 call is at 50. What do beginners usually do?

[15:02] 17,800 call, 250 points means 250 into 50. you can buy 5 lots. Instead of 17,800, you can buy 5 lots at 18,000.

[15:14] You can get more quantity. The options with more premiums. Most of the cases, they don't trade or buy options in the money options.

[15:28] If they go further than at the money. I want to ask this to all of them. Deep out of the money options.

[15:42] They sell and in 90% cases, they don't face any risk. So, which option sellers do you think will give you a good profit?

[15:55] But, buying 18,500 call options out of the money, If the market is at 18,000,

[16:07] let's say you buy 17,800 call at 250. It means, since 17,800 is the in the money, Let's ignore the rest of the geeks.

[16:21] In the premium option you see, Since it's in the money, how much in the money? So, in 250, there's intrinsic value of 200 points.

[16:37] in this 250 points, 200 will be settled by the market. 200 multiplied by 50 is 10,000. So, out of intrinsic, you're putting 50 points.

[16:52] But, you should pay attention here. and buy the option, It means, you're putting 2,500 rupees at risk.

[17:07] is at the money. If you put it at 18,000, you'll lose your entire money.

[17:19] If you compare it with 18,000, Why should we do at the money? We'll get more lots with less premium in out of the money.

[17:32] You should remember one point. Or is there a higher chance of out of the money becoming in the money? So, this strike price,

[17:44] 18100, 18200, 18300, It's okay to take a risk. But what's the logic in out of the money?

[17:57] We can do it in only one condition. But you should remember these three points. if you have clarity on a breakout point in the market,

[18:09] trading in the money is a better option. It's better to trade in the money of 100 or 200 strike prices. you think it'll move volatilely,

[18:25] If you have clarity, it's a big event. If it fails, it can move in another direction. In those situations, you should go out of the money.

[18:38] Those trades are like, if they move in your direction you will gain huge amount and you should be ready to lose if it doesn't move in your favour. you should trade with very little amount compared to the normal ITM and ATM options.

[18:53] They don't keep the capital because if it's zero, we lose out of the capital. Will it happen? Okay, let it happen. Even serious traders don't trade out of the money options.

[19:09] Serious option buyers don't touch out of the money options. They only trade to protect their Theta value. We will talk about this. People who think that out of the money options are less money,

[19:21] even if you go to 18150, the money that comes in 17,800 won't come in 18,000. The money that comes in 18,000 calls won't come in 18,500 calls.

[19:33] To be more specific, these two will be in profit or positive gains. In in the money options, Delta is higher than 0.9.

[19:45] in the money option will grow by one point. Which means, if the market grows by one rupee, Let's assume that it will grow by one rupee and half rupee.

[19:58] For out of the money, depending upon how much you are going out of the money, the out of the money option will be 0.1, below 0.1, and 0.2. Because the time value is decreasing,

[20:10] the money that comes in out of the money options won't come. and buying a lot of OTM options thinking that nothing would happen.

[20:22] if it is going slowly, if the price from 18,000 to 18,450, Even if it comes to 18,500, it will be at the money

[20:39] So, based upon premiums, don't decide your trade. If you want to take a limited risk, Remember, don't try see ATM trades as continues holding trades.

[20:57] Most of the times, see the option buying as the trade that ends in the intraday. you will lose most of the premiums with the small updates that you get, the theta value will also be decreasing from that.

[21:13] So, if you are thinking of doing something, mostly follow option buying in the intraday. try to see the options of INT, ATM and OTM in that point of view.

[21:26] So, we talked about delta and theta in Option Greeks. And I have also made a video about INT, ATM and OTM. Again, by explaining these,

[21:38] I am not discussing these points here. Tell me, how many of you understand the market depth from 9.15 to 3.30?

[21:51] There is volatility in the market till 9.45 or 10.00. And from around 12.00 to 1:00, due European markets open, And there will be a strong move in the market from 2 to 3.

[22:06] I have already uploaded dedicated videos related to this on two channels. So, option buyers should know this very well. At which points there will be momentum and at which point the market will be range bound?

[22:25] You have seen the option buying strategy, right? Why did I select that particular time? Even if we buy options for just an hour, we will lose.

[22:40] There should be clarity in price action. if you have clarity in time, So, if you can combine chart observation and chart reading with time,

[22:55] So, how does the market move in normal days? And in the expiry days, when should we avoid the market? we should scalp the volatile time.

[23:08] draw the main important range and borders. Or in the afternoon, we have the volatile move in most of the expiry days. We have the volatile move in 1.5 hours.

[23:23] This is the thing that option buyers should observe and understand in the market. there are event days like RBI, FED and results.

[23:35] The option buyer should know how to play these particular things. I have told you how to observe the market in a day, how to trade the events.

[23:49] All those links are one by one. And most of the option buyers make a mistake. That is not correct.

[24:02] your stop loss should be based on premium. Then your stop loss should be based on the percentage of premium of that option.

[24:16] If I exit at Rs.17800, if it goes from Rs.18000 to Rs.17950, and expires like this, what is the situation?

[24:30] When we buy an option, Levels are only for entry. If you don't understand this logic,

[24:45] I will buy an option based on the entry. But stop loss and target should not be based on the levels. You should try to book the target by trailing the premium.

[24:58] Stop loss should be 20% or 30% based on the premium. Related to option buying, it will keep you profitable or consistent. if the entire day, if it doesn't come to that level,

[25:12] But if it is expiry day, Another important element, it might break and go in that direction.

[25:27] Let's say you understand that support is formed twice here. After this, you see it like this and again sell off comes.

[25:39] What will the buyer understand about the put option that you entered? This time, when it is falling and coming here, It came up during closing time.

[25:53] Most of the put buyers at that time, they try to exit after looking at the next candle. there is a premium that comes near support.

[26:05] option buying will buy more the premium that increased because of that is a bulging premium. The premium will change a lot.

[26:19] the premium will increase a lot. if you think your target has achieved, then try to put a minimum there.

[26:31] Keep a very low margin. or if it reverses, If you try to trial the target with a big variation,

[26:46] or if you think you will make a stop loss at the cost, If it is consolidated for a while, If on expiry day, it will decay significantly.

[27:00] We should keep all these in mind, option buyers. We talked about the important elements that option buyers should remember. Actually, we can do that topic as a dedicated video.

[27:14] I will explain an important topic and end the video. Friends, let's say the market reverses here. and it is moving to the upside by forming a base.

[27:29] Let's say you bought a call here. What will be your target? Will your target be the recent resistance?

[27:42] if it comes to these zones and got rejected and fell, we have multiple times price action at these levels. Let's say 17,970 is our target.

[27:57] let's say you bought 17,600 or 17,500. You buy any option, right? Instead of buying that option and buying it as a naked option,

[28:14] selling that option there will give you many advantages. The theta value will be the protection for your current big option related decay.

[28:27] you should sell the option as calculated. where ever you think it is going, If the time value or IV falls here,

[28:41] If you are moving in the opposite direction, Because you sold an option there. the option you bought won't move.

[28:54] it will be good for you, Along with the gain from it, if the market is going up in the direction,

[29:07] But friends, the word unlimited is a trap in the stock market. I'll tell you a logical theme. It will be very unlimited.

[29:22] I'll tell you that should do only option buying. If your time is good and the first day is unlimited, If you are smart,

[29:36] because it is only one day. and if it is the same today, or if you keep a significant portion of it,

[29:49] the money will become zero. a person who is buying the option without managing the risk thinking that the profit is unlimited in the market,

[30:01] and if market goes in the direction of his view, and has the same theme and mindset in the next remaining days I want limited profit.

[30:14] The person who is thinking that he will trail his target will be the only one who can sustain in option buying. only when he removes unlimited word from his mind.

[30:28] So, to save you from the crush of theta decay, or IV, I'll tell you the themes I have and the ideas I have. We can talk about it more elaborately.

[30:43] the followers of this video might not watch it. First, you are buying at 17,800.

[30:55] sell 18,000 calls. I'll show you how much money is needed. Second, you are buying at 17,800 calls.

[31:07] we see the OI data in the option chain, right? I'll show you one by one. Where there is more OI data,

[31:19] The market won't go that far. if one trading session closes, We can keep our sell option the same till then.

[31:31] What's the problem if we reach that point? we can take our sell option up again If the market comes from 17,800 to 18,000,

[31:44] If the market closes above 18,000, If it comes to 18,200, So, based upon OI,

[31:58] Why do we sell the option when it's increasing? Because every time our sell option increases, there's no requirement to sell the call at 18,000

[32:14] We're doing that to protect the loss or theta decay If it's going in the direction of the market, if the market is at 18,000,

[32:28] if the market is at 18,000, If the option you're buying is at 280, 80 is the value of time and other Greeks.

[32:42] we thought it was 17,800 as the intrinsic value and time value. you bought 17,500 call option or 17,600, 700, 800

[32:55] Let's say it's 17,900. 17,900 call option is at 140. But what you're paying?

[33:10] Time value. The market can go as far as 18,000 or 18,500. If you're buying 140 option,

[33:25] 100 is intrinsic, you can sell one option of the rest of the 40. You can sell one option of the 40 where it's traded. If you don't have capital,

[33:38] If you're close to 40 and expect more, 40 and 30 will go further. You can protect at least half of your Theta Decay.

[33:55] I'll show money for the first and third option. In the first and third option, You're selling the target in the first option.

[34:08] you're selling the time value extra to the time value You're selling it at another premium. The present Nifty is trading at 17,850.

[34:23] if I buy 17,700, I'll have more delta value. I bought it for this money with a view that I'll get a good profit.

[34:35] If I want to trade with a low portion of my capital, if I'm not that clear, or if I want to risk a low portion of my capital,

[34:49] out of the money is not traded by serious option buyers. Because of higher delta value, Let's say I'm buying this trade for 17,700.

[35:03] where is the market now? I'm not considering the future. But I'm comparing with the spot here.

[35:16] 195 points something. Let's take the points after 17,850. What's the call option?

[35:30] 17,700 is here and present market is at 17,850. 150 points is the intrinsic value. how many points are left?

[35:45] these 40 points will decay slowly in 195. let's say I sell 18,000 call. It'll decrease a little.

[35:58] Let's say 18,000. I'm protecting my remaining premium. It's 92,000.

[36:14] But if I create a basket here, I'll get 17,700 call option. I'll sell 18,000 call option.

[36:29] Normally, my option buying value is around 9,000. You can see it here. But because of 18,000,

[36:43] If I buy another option for 18,000, We won't buy any option with the entire capital. To do multiple trades,

[36:56] Before the opportunity comes, We can save our premium by selling it. But to buy an option and sell it,

[37:08] So, we can sell the remaining portion of the intrinsic value What if we go against it? We'll lose here too.

[37:21] it'll protect it a little. So, if you're interested in this value, topic, we can talk about it in another video.

[37:36] Let's talk about it again. we can convert these into 2-3 videos. And we should cover these topics quickly.

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