Well in this video I am going to give you a very beautiful concept. You will watch this video till the end. You can thank me later because the concept is very amazing. Now today we are going to understand a concept that will enable you to catch the big moves of the market.
The second thing is that I liked this concept very much and if it gives me some profit then I think I should share it with you. So today we are going to learn that where there will be a seller trap, we will enter there and you will see that in such moments where the seller is trapped, money is being made. What am I saying?
Many people might not understand, so I try to explain. When we trade options, in options either you buy the option or sell the option. Now basically what happens is that the seller gets additional profit.
That is theta decay. The advantage of theta decay is that even if you don’t move the option, just like snow is melting, your options are melting and most of the options become worthless and expire. I would like to explain you. You see here, you will understand the concept. I again take some time, but I mean explaining the concept, I will tell you. So you see the option chain here. Now basically all the options you see in yellow colour, they are in the money. The yellow colour you see here, they are in the money. On this side is put, on this side is call and all the options in white colour, they are out of the money. All the options in white colour, they are out of the money. Now what will happen? Whenever the market expires, all the options you see in white colour, they are not so small. If we see here, you will see that there are a lot of options here. There are different strike prices and there are different strike prices. Whatever is the price of all these options, whatever you see here, LTP is 44, 28, 79, 5, whatever you see, similarly, whatever you see here, all these prices will become zero on expiry and it depends on which month or which week you are looking at the option chain. So in Nifty, we have both weekly and monthly options. There are monthly options in stocks. So you can choose any option chain, any expiry and you can see. So we already know that the out of the money option has to expire worthless. Now if the market moves in that direction then money is also made good. We also know this. Suppose the market starts rising then the option here, suppose today you are seeing a strike of 17,300, its option is here for Rs 17. Now if the market moves then the price of this option will increase. How will this be known, we have made a video in detail on option break. If you have not seen then you can go to the i button and see. So how much it will increase, how much it will increase, we have told you all that. Now if it moves here and does not move then it will become zero. 5 paise remains, the price you have seen on expiry. Similarly if the market falls, falls to 17,000 then the option of Rs 30 will increase and if the market does not reach there on expiry then everything will become zero. Now if it becomes zero then option trading is a zero-sum game. What does this mean? If this buyer who has bought the option of Rs 30 makes a loss then the money will go to the seller’s pocket and when the seller is in loss then the money will go to the buyer’s pocket. Now the additional benefit that the seller gets is that if nothing happens, if the move does not come then whatever premium is there due to theta decay will become zero and the seller will make money most of the time. So who will make the most money? The seller will make. He has intrinsically about 66% chance of making money and the buyer has about 33% chance of making money. Believe me. So say 34, say 33, it is the same thing. Now the concept here that we are explaining to you is that sometime or the other it will happen that there will be a loss and when the seller is in loss the buyer will hit the jackpot and on expiry the option buyer’s pocket is empty and the option seller’s coffers are empty. When it happens it grows slowly, so the coffers grow slowly, but when it is empty it is empty and the buyer hits the jackpot on that day. Now because the buyer hits the jackpot some day, how will we know on that day? So here again we are going to understand a beautiful concept. I say this, so I am repeating it that we have to understand two things. When is the seller running away from his strike? I say he is running away with his lungi, so when the seller is running away, we will run behind the seller, means the price will run there. How will it run, how will we know, let’s see.
So here we see the option chain once again, then I teach you something amazing again. So look here, we have opened the option chain of Nifty. I can see the seller here, for example, at the strike price of 17,100, I can see the volume of 1,72,000, the open interest is standing.