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COMMENT ON YOUTUBE TO BUY THE CUSTOMIZED FINANJA INDICATOR
Futures and options are derivative contracts whose value comes from an underlying asset like Nifty, Bank Nifty, stocks, or commodities. They are mainly used to speculate on price movements or to hedge (protect) an existing position.
What Are Futures?
What Are Futures?
A futures contract is an agreement to buy or sell an underlying asset at a fixed price on a specific future date.
Both buyer and seller are obligated to complete the deal at expiry, regardless of the market price.
In India (NSE/BSE), futures exist on indices (Nifty, Bank Nifty) and many stocks; margin is required, so leverage is high.
Key points:
No upfront premium; you post margin instead.
Profit and loss can be large because the entire price move on the contract size hits your account.
Useful for hedging stock portfolios or for directional trading with leverage.
What Are Options?
What Are Options?
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying at a fixed price on or before expiry.
Call option (CE): Right to buy at a certain strike price.
Put option (PE): Right to sell at a certain strike price.
Key points:
Option buyer pays a premium; this is the maximum loss for the buyer.
Option seller (writer) receives the premium but takes on higher or even unlimited risk if unhedged.
Options are heavily used in Nifty/Bank Nifty for strategies like buying CE/PE, spreads, and selling options for time decay.
Main Differences (Simple View)
Main Differences (Simple View)
Obligation vs Right:
Futures = obligation for both sides.
Options = right for buyer, obligation only for seller.
Cost Structure:
Futures = margin, no premium.
Options = premium upfront for buyers; margin for sellers.
Risk:
Futures = large profit or large loss depending on how far price moves.
Option buyer = risk limited to premium; seller = high risk if naked.
Here is a simple Nifty example comparing one futures contract vs one ATM(at the money) call option for the same 100‑point move, using current lot size.
Here is a simple Nifty example comparing one futures contract vs one ATM(at the money) call option for the same 100‑point move, using current lot size.
Assumptions (Nifty Example)
Assumptions (Nifty Example)
Nifty spot = 24,000
Nifty lot size = 75 units (current around late 2025).
You take one Nifty futures or one Nifty ATM call (24,000 CE).
Ignore brokerage, taxes, and Greeks other than basic price sensitivity.
1. Nifty Futures – 100‑Point Move
1. Nifty Futures – 100‑Point Move
You buy 1 lot Nifty Futures at 24,000.
Contract value = 24,000 × 75 = ₹18,00,000.
If Nifty goes up 100 points to 24,100:
If Nifty goes up 100 points to 24,100:
Profit per point = 75
Total profit = 100 × 75 = ₹7,500.
If Nifty goes down 100 points to 23,900:
If Nifty goes down 100 points to 23,900:
Loss per point = 75
Total loss = 100 × 75 = ₹7,500.
There is no fixed maximum loss; if Nifty falls 500 points, loss = 500 × 75 = ₹37,500, and so on.
2. Nifty ATM Call Option – 100‑Point Move
2. Nifty ATM Call Option – 100‑Point Move
You buy 1 lot of 24,000 CE (ATM) at premium = ₹200.
Total premium paid = 200 × 75 = ₹15,000 (this is max loss).
If Nifty goes up 100 points to 24,100:
If Nifty goes up 100 points to 24,100:
Roughly, intrinsic value ≈ 100 (ignoring time/IV), but market option price may move more if delta ≈ 0.5–0.7.
Suppose premium rises from ₹200 to ₹260 (gain of ₹60).
Profit = 60 × 75 = ₹4,500.
If Nifty goes down 100 points to 23,900:
If Nifty goes down 100 points to 23,900:
Option becomes OTM and may drop sharply, say from ₹200 to ₹100.
Loss = 100 × 75 = ₹7,500.
Worst case, it can go to zero → max loss = ₹15,000 (premium)
3. Key Takeaways from the Example
3. Key Takeaways from the Example
Futures:
Linear P&L: Every 100‑point move ≈ ₹7,500 profit/loss per lot at this lot size.
High leverage, no defined maximum loss.
ATM Call Option:
Limited risk: Max loss capped at ₹15,000 (premium).
Profit for 100‑point move typically less than futures unless move is large and fast (because of delta < 1 and time decay).
Avoid naked CE BUY/PE BUY . Consider Hedging
OPTIONS :: Hedging Concepts
OPTIONS :: Hedging Concepts
Iron Fly -Weekly Startegy
Iron Condor- Weekly Startegy
Bull Condor
Option Sell
Options Greeks ::
Options Greeks ::
Options Greeks are quantitative measures that show how an option’s price will react to changes in price, time, volatility, and interest rates. Understanding them is critical for Nifty/Bank Nifty options risk management and strategy design.
Delta (Δ): Sensitivity of option price to underlying price changes.
Gamma (Γ): Sensitivity of delta to underlying price changes.
Theta (Θ): Sensitivity of option price to passage of time (time decay).
Vega (V): Sensitivity of option price to implied volatility changes.
Rho (ρ): Sensitivity of option price to interest rate changes.
Delta – Direction & Probability
Delta – Direction & Probability
Meaning: Delta measures how much the option price should move for a 1-point move in the underlying.
Range:
Calls: 0 to +1 (e.g., +0.50 means option gains ₹0.50 for each ₹1 rise in stock).
Puts: 0 to −1 (e.g., −0.40 means option loses ₹0.40 for each ₹1 rise).
Use cases:
Gauges directional exposure of a position (net delta).
Approximates probability of expiring ITM (e.g., 0.30 delta ≈ 30% ITM chance).
Gamma – Stability of Delta
Gamma – Stability of Delta
Meaning: Gamma measures how much delta changes for a 1-point move in the underlying.
Behaviour:
Highest for at-the-money options, lower for deep ITM/OTM.
Short-dated weekly options show very high gamma, causing fast delta swings.
Use cases:
Long gamma (buying options) helps in fast markets, as delta moves in your favour quickly.
Short gamma (selling options) is risky near expiry due to sudden P&L swings.
Theta – Time Decay
Theta – Time Decay
Meaning: Theta is the daily loss in option value from time passing, holding price and volatility constant.
Sign:
Long options: negative theta (you lose value each day).
Short options: positive theta (you earn time decay).
Behaviour:
Decay accelerates as expiry nears, especially for at-the-money options.
Use cases:
Income strategies (credit spreads, iron condors) are theta positive.
Intraday scalping is less affected by theta than multi-day option holding.
Vega – Volatility Sensitivity
Vega – Volatility Sensitivity
Meaning: Vega measures how much the option price changes for a 1% change in implied volatility.
Behaviour:
Highest for at-the-money and longer-dated options.
Event days (results, RBI, budget) cause large IV spikes and vega impact.
Use cases:
Long vega (buying options) benefits from IV increase (e.g., before news).
Short vega (selling options) benefits from IV crush after events.
Rho – Interest Rate Sensitivity
Rho – Interest Rate Sensitivity
Meaning: Rho measures change in option price for a 1% change in interest rates.
Behaviour:
Matters more for long-dated options (LEAPS) than weeklies.
Call options usually gain when rates rise; puts often lose slightly.
Use cases:
Relevant for portfolio hedging and longer-term positions around rate cycles.
Greeks in Risk Management
Greeks in Risk Management
Position Greeks: Sum of deltas, gammas, thetas, vegas, and rhos across all options gives your portfolio exposure.
Practical rules:
Keep net delta aligned with your directional view; avoid accidental large one-sided exposure.
Control theta when buying options by not holding too close to expiry without strong momentum.
Watch vega around high-IV events (e.g., results day for Nifty stocks) to avoid IV crush losses.
Scenarios ::
Scenarios ::
1. Delta – Price Sensitivity & Direction
1. Delta – Price Sensitivity & Direction
Example (Nifty Call):
Nifty spot = 22,000
You buy 22,000 ATM Call at premium = ₹200
Delta = 0.50 (typical ATM).
If Nifty goes up 100 points to 22,100, expected option change ≈
0.5×100=50
0.5×100=50.
New premium ≈ ₹250 (ignoring other Greeks).
Example (Bank Nifty Put):
Bank Nifty = 48,000
You buy 48,000 ATM Put at ₹300, Delta = −0.50.
If Bank Nifty falls 200 points to 47,800, expected option change ≈
−0.5×−200=+100
−0.5×−200=+100.
New premium ≈ ₹400.
Use: Delta shows directional exposure and rough ITM probability (e.g., 0.30 delta ≈ 30% chance of expiring ITM).
2. Gamma – How Fast Delta Changes
2. Gamma – How Fast Delta Changes
Nifty Call example:
Nifty = 22,000, 22,000 Call premium = ₹200
Delta = 0.50, Gamma = 0.01.
If Nifty moves up 100 points, Delta increase ≈
0.01×100=1.0
0.01×100=1.0.
New Delta ≈ 1.50 (theoretical; in practice capped near 1).
Interpretation:
High Gamma (weekly ATM) → Delta changes very fast; short option sellers can see P&L swing sharply on quick moves.
Low Gamma (far OTM or far ITM) → Delta is more stable.
Use: For Nifty/Bank Nifty intraday, avoid selling very high‑gamma strikes near expiry unless risk is tightly controlled.
3. Theta – Time Decay per Day
3. Theta – Time Decay per Day
Nifty Intraday/Short-term:
Nifty = 22,000
You buy 22,000 weekly Call at ₹200
Theta = −8 per day.
If price and IV stay flat, after 1 day, premium ≈ ₹192.
After 3 days, decay ≈ 3 × 8 = 24 → premium ≈ ₹176.
Bank Nifty Example:
Bank Nifty = 48,000
48,000 weekly Put premium = ₹300, Theta = −12.
Each day with no move, you lose ~₹12 per lot on time.
Use:
Option buyers must demand strong move quickly to beat theta.
Option sellers design theta‑positive strategies (spreads, short straddles) to let time decay work in their favour.
4. Vega – Impact of Volatility Changes
4. Vega – Impact of Volatility Changes
Nifty Event Example (Budget / RBI):
Nifty = 22,000, 22,000 ATM Call = ₹200
Vega = 4 (means ₹4 change per 1% IV move).
IV rises from 15% to 20% (change = +5%).
Price gain from volatility ≈
4×5=20
4×5=20.
New premium ≈ ₹220 plus any intrinsic change from price move.
Post‑event IV Crush:
Same option, IV falls from 20% to 14% (−6%).
Price drop from volatility ≈
4×−6=−24
4×−6=−24.
Even if Nifty moves slightly in your favour, IV crush can reduce premium.
Use:
Before big events: Long options (long vega) can benefit from rising IV.
After events: Short vega strategies (spreads, short straddles with hedge) try to profit from IV collapse.
5. Rho – Interest Rate Effect (Mostly for Longer Dated)
5. Rho – Interest Rate Effect (Mostly for Longer Dated)
Nifty 6‑month Call:
Nifty = 22,000, 22,000 6‑month Call premium = ₹800
Rho = 0.40 (₹0.40 per 1% rate change).
If interest rates rise 1%, premium ≈ ₹800 + ₹0.40 = ₹800.40 (small effect).
Use: For weekly and monthly Nifty/Bank Nifty options, rho impact is negligible; more relevant for LEAPS or when building portfolio‑level hedges.
6. Sample Nifty Trade
6. Sample Nifty Trade
Assume:
Nifty = 22,000, buying 22,000 weekly Call at ₹200
Greeks: Delta = 0.50, Gamma = 0.015, Theta = −8, Vega = 4.
Scenario A – Strong Up Move, No IV Change
Nifty goes to 22,100 (+100).
Price effect ≈
0.5×100=+50
0.5×100=+50 → ₹250
Delta adjusts by Gamma: new Delta ≈
0.50+0.015×100=2.0
0.50+0.015×100=2.0 (capped near 1 in reality).
1 day passes: Theta ≈ −8 → final ≈ ₹242 (ignoring gamma non‑linearity).
Scenario B – No Price Move, 2 Days Pass, IV Falls 3%
Nifty stays at 22,000.
Time decay: 2 × 8 = 16 → ₹184
Vega effect:
4×−3=−12
4×−3=−12 → final ≈ ₹172.
This shows how a buyer can lose even without adverse price moves if time and volatility move against the position.
When to Buy or Sell Options
When to Buy or Sell Options
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