Module 6   Option StrategiesChapter 2

Bull Call Spread

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2.1 – Background

The spread strategies are some of the simplest option strategies that a trader can implement. Spreads are multi leg strategies involving 2 or more options. When I say multi leg strategies, it implies the strategy requires 2 or more option transactions.

Spread strategy such as the ‘Bull Call Spread’ is best implemented when your outlook on the stock/index is ‘moderate’ and not really ‘aggressive’. For example the outlook on a particular stock could be ‘moderately bullish’ or ‘moderately bearish’.

Some of the typical scenarios where your outlook can turn ‘moderately bullish’ are outlined as below –

Fundamental perspective – Reliance Industries is expected to make its Q3 quarterly results announcement. From the management’s Q2 quarterly guidance you know that the Q3 results are expected to be better than both Q2 and Q3 of last year. However you do not know by how many basis points the results will be better. This is clearly the missing part of the puzzle.

Given this you expect the stock price to react positively to the result announcement. However because the guidance was laid out in Q2 the market could have kind of factored in the news. This leads you to think that the stock can go up, but with a limited upside.

Technical Perspective – The stock that you are tracking has been in the down trend for a while, so much so that it is at a 52 week low, testing the 200 day moving average, and also near a multi-year support. Given all this there is a high probability that the stock could stage a relief rally. However you are not completely bullish as whatever said and done the stock is still in a downtrend.

Quantitative Perspective – The stock is consistently trading between the 1st standard deviation both ways (+1 SD & -1 SD), exhibiting a consistent mean reverting behavior. However there has been a sudden decline in the stock price, so much so that the stock price is now at the 2nd standard deviation. There is no fundamental reason backing the stock price decline, hence there is a good chance that the stock price could revert to mean. This makes you bullish on the stock, but the fact that it there is a chance that it could spend more time near the 2nd SD before reverting to mean caps your bullish outlook on the stock.

The point here is – your perspective could be developed from any theory (fundamental, technical, or quantitative) and you could find yourself in a ‘moderately bullish’ stance. In fact this is true for a ‘moderately bearish’ stance as well. In such a situation you can simply invoke a spread strategy wherein you can set up option positions in such a way that

  1. You protect yourself on the downside (in case you are proved wrong)
  2. The amount of profit that you make is also predefined (capped)
  3. As a trade off (for capping your profits) you get to participate in the market for a lesser cost

The 3rd point could be a little confusing at this stage; you will get clarity on it as we proceed.

M6-C2-Bull Call Spread

Bull Call Spread

2.2 – Strategy notes

Amongst all the spread strategies, the bull call spread is one the most popular one. The strategy comes handy when you have a moderately bullish view on the stock/index.

The bull call spread is a two leg spread strategy traditionally involving ATM and OTM options. However you can create the bull call spread using other strikes as well.

To implement the bull call spread –

  1. Buy 1 ATM call option (leg 1)
  2. Sell 1 OTM call option (leg 2)

When you do this ensure –

  1. All strikes belong to the same underlying
  2. Belong to the same expiry series
  3. Each leg involves the same number of options

For example –

Date – 23rd November 2015

Outlook – Moderately bullish (expect the market to go higher but the expiry around the corner could limit the upside)

Nifty Spot – 7846

ATM – 7800 CE, premium – Rs.79/-

OTM – 7900 CE, premium – Rs.25/-

Bull Call Spread, trade set up –

  1. Buy 7800 CE by paying 79 towards the premium. Since money is going out of my account this is a debit transaction
  2. Sell 7900 CE and receive 25 as premium. Since I receive money, this is a credit transaction
  3. The net cash flow is the difference between the debit and credit i.e 79 – 25 = 54.

Generally speaking in a bull call spread there is always a ‘net debit’, hence the bull call spread is also called referred to as a ‘debit bull spread’.

After we initiate the trade, the market can move in any direction and expiry at any level. Therefore let us take up a few scenarios to get a sense of what would happen to the bull call spread for different levels of expiry.

Scenario 1 – Market expires at 7700 (below the lower strike price i.e ATM option)

The value of the call options would depend upon its intrinsic value. If you recall from the previous module, the intrinsic value of a call option upon expiry is –

Max [0, Spot-Strike]

In case of 7800 CE, the intrinsic value would be –

Max [0, 7700 – 7800]

= Max [0, -100]

= 0

Since the 7800 (ATM) call option has 0 intrinsic value we would lose the entire premium paid i.e  Rs.79/-

The 7900 CE option also has 0 intrinsic value, but since we have sold/written this option we get to retain the premium of Rs.25.

So our net payoff from this would be –

-79 + 25

= 54

Do note, this is also the net debit of the overall strategy.

Scenario 2 – Market expires at 7800 (at the lower strike price i.e the ATM option)

I will skip the math here, but you need to know that both 7800 and 7900 would have 0 intrinsic value, therefore the net loss would be 54.

Scenario 3 – Market expires at 7900 (at the higher strike price, i.e the OTM option)

The intrinsic value of the 7800 CE would be –

Max [0, Spot-Strike]

= Max [0, 7900 – 7800]

= 100

Since we are long on this option by paying a premium of 79, we would make a profit of –

100 -79

= 21

The intrinsic value of 7900 CE would be 0, therefore we get to retain the premium Rs.25/-

Net profit would be 21 + 25 = 46

Scenario 4 – Market expires at 8000 (above the higher strike price, i.e the OTM option)

Both the options would have a positive intrinsic value

7800 CE would have an intrinsic value of 200, and the 7900 CE would have an intrinsic value of 100.

On the 7800 CE we would make 200 – 79 = 121 in profit

And on the 7900 CE we would lose 100 – 25 = 75

The overall profit would be

121 – 75

= 46

To summarize –

Market Expiry LS – IV HS – IV Net pay off
7700 0 0 (54)
7800 0 0 (54)
7900 100 0 +46
8000 200 100 +46

From this, 2 things should be clear to you –

  1. Irrespective of the down move in the market, the loss is restricted to Rs.54, the maximum loss also happens to be the ‘net debit’ of the strategy
  2. The maximum profit is capped to 46. This also happens to be the difference between the spread and strategy’s net debit

We can define the ‘Spread’ as –

Spread = Difference between the higher and lower strike price

We can calculate the overall profitability of the strategy for any given expiry value. Here is screenshot of the calculations that I made on the excel sheet –

Image 1_Payoff

  • LS – IV – Lower Strike – Intrinsic value (7800 CE, ATM)
  • PP – Premium Paid
  • LS Payoff – Lower Strike Payoff
  • HS-IV – Higher strike – Intrinsic Value (7900 CE, OTM)
  • PR – Premium Received
  • HS Payoff – Higher Strike Payoff

As you can notice, the loss is restricted to Rs.54, and the profit is capped to 46. Given this,we can generalize the Bull Call Spread to identify the Max loss and Max profit levels  as –

Bull Call Spread Max loss = Net Debit of the Strategy

Net Debit = Premium Paid for lower strike – Premium Received for higher strike

Bull Call Spread Max Profit = Spread – Net Debit

This is how the pay off diagram of the Bull Call Spread looks like –

Image 2_Payoff

There are three important points to note from the payoff diagram –

  1. The strategy makes a loss in Nifty expires below 7800. However the loss is restricted to Rs.54.
  2. The breakeven point (where the strategy neither make a profit or loss) is achieved when the market expires at 7854 (7800 + 54). Therefore we can generalize the breakeven point for a bull call spread as Lower Strike + Net Debit
  3. The strategy makes money if the market moves above 7854, however the maximum profit achievable is Rs.46 i.e the difference between the strikes minus the net debit
    1. 7900 – 7800 = 100
    2. 100 – 54 = 46

I suppose at this stage you may be wondering why anyone would choose to implement a bull call spread versus buying a plain vanilla call option. Well, the main reason is the reduced strategy cost.

Do remember your outlook is ‘moderately bullish’. Given this buying an OTM option is ruled out. If you were to buy the ATM option you would have to pay Rs.79 as the option premium and if the market proves you wrong, you stand to lose Rs.79. However by implementing a bull call spread you reduce the overall cost to Rs.54 from Rs.79. As a tradeoff you also cap your upside. In my view this is a fair deal considering you are not aggressively bullish on the stock/index.

2.3 – Strike Selection

How would you quantify moderately bullish/bearish? Would you consider a 5% move on Infosys as moderately bullish move, or should it be 10% and above? What about the index such as Bank Nifty and Nifty 50? What about mid caps stocks such as Yes Bank, Mindtree, Strides Arcolab etc? Well, clearly there is no one shoe fits all solution here. One can attempt to quantify the ‘moderate-ness’ of the move by evaluating the stock/index volatility.

Based on volatility I have devised a few rules (works alright for me) you may want to improvise on it further – If the stock is highly volatile, then I would consider a move of 5-8% as ‘moderate’. However if the stock is not very volatile I would consider sub 5% as ‘moderate’. For indices I would consider sub 5% as moderate.

Now consider this – you have a ‘moderately bullish’ view on Nifty 50 (sub 5% move), given this which are the strikes to select for the bull call spread? Is the ATM + OTM combo the best possible spread?

The answer to this depends on good old Theta!

Here are a bunch of graphs that will help you identify the best possible strikes based on time to expiry.

Image 3_first half of series

Before understanding the graphs above a few things to note –

  1. Nifty spot is assumed to be at 8000
  2. Start of the series is defined as anytime during the first 15 days of the series
  3. End of the series is defined as anytime during the last 15 days of the series
  4. The bull call spread is optimized and the spread is created with 300 points difference

The thought here is that the market will move up moderately by about 3.75% i.e from 8000 to 8300. So considering the move and the time to expiry, the graphs above suggest –

  1. Graph 1 (top left) – You are at the start of the expiry series and you expect the move over the next 5 days, then a bull spread with far OTM is most profitable i.e 8600 (lower strike long) and 8900 (higher strike short)
  2. Graph 2 (top right) – You are at the start of the expiry series and you expect the move over the next 15 days, then a bull spread with slightly OTM is most profitable i.e 8200 and 8500
  3. Graph 3 (bottom left) – You are at the start of the expiry series and you expect the move in 25 days, then a bull spread with ATM is most profitable i.e 8000 and 8300. It is also interesting to note that the strikes above 8200 (OTM options) make a loss.
  4. Graph 4 (bottom right) – You are at the start of the expiry series and you expect the move to occur by expiry, then a bull spread with ATM is most profitable i.e 8000 and 8300. Do note, the losses with OTM and far OTM options deepen.

Here are another bunch of charts; the only difference is that for the same move (i.e 3.75%) these charts suggest the best possible strikes to select assuming you are in the 2nd half of the series.

Image 4_2nd half of series

  1. Graph 1 (top left) – If you expect a moderate move during the 2nd half of the series, and you expect the move to happen within a day (or two) then the best strikes to opt are far OTM i.e 8600 (lower strike long) and 8900 (higher strike short)
  2. Graph 2 (top right) – If you expect a moderate move during the 2nd half of the series, and you expect the move to happen over the next 5 days then the best strikes to opt are far OTM i.e 8600 (lower strike long) and 8900 (higher strike short). Do note, both Graph 1 and 2 are suggesting the same strikes, but the profitability of the strategy reduces, thanks to the effect of Theta!
  3. Graph 3 (bottom right) – If you expect a moderate move during the 2nd half of the series, and you expect the move to happen over the next 10 days then the best strikes to opt are slightly OTM (1 strike away from ATM)
  4. Graph 4 (bottom left) – If you expect a moderate move during the 2nd half of the series, and you expect the move to happen on expiry day, then the best strikes to opt are ATM i.e 8000 (lower strike, long) and 8300 (higher strike, short). Do note, far OTM options lose money even if the market moves up.

2.3 – Creating Spreads

Here is something you should know, wider the spread, higher is the amount of money you can potentially make, but as a trade off the breakeven also increases.

To illustrate –

Today is 28th November, the first day of the December series. Nifty spot is at 7883, consider 3 different bull call spreads –

Set 1 – Bull call spread with ITM and ATM strikes

Lower Strike (ITM, Long) 7700
Higher Strike (ATM, short) 7800
Spread 7800 – 7700 = 100
Lower Strike Premium Paid 296
Higher Strike Premium Received 227
Net Debit 296 – 227 = 69
Max Loss (same as net debit) 69
Max Profit (Spread – Net Debit) 100 – 69 = 31
Breakeven 7700 + 69 = 7769
Remarks Considering the outlook is moderately bullish,
7769 breakeven is easily achievable,
however the max profit is 31,
skewing the risk (69 pts) to reward (31 pts) ratio.

Set 2 – Bull call spread with ATM and OTM strikes (classic combo)

Lower Strike (ATM, Long) 7800
Higher Strike (ATM, short) 7900
Spread 7900 – 7800 = 100
Lower Strike Premium Paid 227
Higher Strike Premium Received 167
Net Debit 227 – 167 = 60
Max Loss (same as net debit) 60
Max Profit (Spread – Net Debit) 100 – 60 = 40
Breakeven 7800 + 60 = 7860
Remarks Risk reward is better, but the breakeven is higher

Set 3 – Bull call spread with OTM and OTM strikes

Lower Strike (ATM, Long) 7900
Higher Strike (ATM, short) 8000
Spread 8000 – 7900 = 100
Lower Strike Premium Paid 167
Higher Strike Premium Received 116
Net Debit 167 – 116 = 51
Max Loss (same as net debit) 51
Max Profit (Spread – Net Debit) 100 – 51 = 49
Breakeven 7900 + 51 = 7951
Remarks Risk reward is attractive, but the breakeven is higher

So the point is that, the risk reward changes based on the strikes that you choose. However don’t just let the risk reward dictate the strikes that you choose. Do note you can create a bull call spread with 2 options, for example – buy 2 ATM options and sell 2 OTM options.

Like other things in options trading,  do consider the Greeks, Theta in particular!

I suppose this chapter has laid a foundation for understanding basic ‘spreads’. Going forward I will assume you are familiar with what a moderately bullish/bearish move would mean, hence I would probably start directly with the strategy notes.

Key takeaways from this chapter

  1. A moderate move would mean you expect a movement in the stock/index but the outlook is not too aggressive
  2. One has to quantify ‘moderate’ by evaluating the volatility of the  stock/index
  3. Bull Call spread is a basic spread that you can set up when the outlook is moderately bullish
  4. Classic bull call spread involves buying ATM option and selling OTM option – all belonging to same expiry, same underlying, and equal quantity
  5. The theta plays an important role in strike selection
  6. The risk reward gets skewed based on the strikes you choose


Download Bull Call Spread Excel Sheet


  1. Gurmukh Singh says:

    Sir, If am no asking question out of context. plz tell me if there is any free tool available to calculate pay off and profit/loss or other things for option trading.

    • Karthik Rangappa says:

      There is an excel sheet at the end of the chapter which you can download. This will help you calculate the breakeven points.

  2. Billa says:

    Hi Karthick ,

    Can you please explain why Risk : Reward shouldn’t be considered in option strategies ? Because R:R is used to become profitable(or reduce the loss) even after few consecutive loss,right ? My assumption may be wrong, so can you explain more… Thanks in advance,Kartick 🙂

    • Karthik Rangappa says:

      Billa – Risk Reward should be considered before executing any trade. Have I mentioned anywhere that it should not? If yes, please do let me know…I need to correct it. Thanks.

  3. Billa says:

    Hi Karthick,
    No, itsn’t mentioned R:R shouldn’t be considered.. Written as “don’t just let the risk reward dictate the strikes that you choose.” Got it Now..Thanks.

  4. jignesh says:

    hello sir here Maximum Risk is 54 times lot size….=54 * 75=4050 or if 67 points then 67*75 = 5025.
    then why every broker needs 30000 to 40000 INR in margin for spread order.

    Please let me know.

  5. Jeyaraman says:

    Dear Karhik,

    I have analyzed few basic and technicall and bought Sunpharma 800 call at 4.75 today. As expiry is still too far is there possiblity to get some 20 to 30 % return in this trade

    • Karthik Rangappa says:

      Well, our job is to analyse rationally, as long as thats done, the returns are expected to follow. Good luck!

  6. lakshmi says:

    buy 1 atm and sell one otm:
    Will there be a margin difference if i place two different orders – for buy and sell? Because for moderately bullish outlook, I can buy the call for a while or even a couple of days and then sell the otm call option.
    Again, in the example spot price is 7846. But ATM is shown as 7800 and not 7850. I could not understand why it is so. Also, the volume traded appears to be less at 7850 rather than 7800. When the same index is being traded why is the volume traded so different.
    Is there any other tutorial on how to use pi other than the youtube video.
    You can reply as and when you are relatively free as I think you are doing a wonderful job to help others.

  7. R P HANS says:

    Sir, very nicely explained with details. Its going to affect our trading style and life too.
    The gap of 300 points for nifty is as per your experience. What shall be the strike price difference for bank nifty and other important scripts (that you are normally trading) like SBI, TATA Mot and L&T INfy etc.?

  8. Madhujeet says:

    Sir will this strategy work if we are kind off bullish or bearish only for the next 2 to 3 days. So is it worth putting a bull call spread for only a small amount of time say ranging from 2 to 5 days.

  9. R P HANS says:

    One more thing sir,

    When you said two spread position, 2 ATM and 1 OTM then you meant to say that two different OTM strike price call for shorting. Is it right. One may be far OTM and one may be OTM so that we will have two type of bull-call-soread at a time. Probably due to the fact that the exact time for anticipated move in the price is not possible to know so we can take two strategy, one for say 5 day expected move and 15 days expected time for movement of the price. Is it correct?

    • Karthik Rangappa says:

      Bull Call Spread is done with a 1 : 1 ratio…meaning for every 1 option bought, 1 option has to be sold. You can choose to do it in any combination – 1 ATM 1 OTM or 1 ITM 1 ATM or 1 OTM 1 OTM. The risk reward is gets skewed based on the combination of strikes.

  10. R P HANS says:

    Sir, Is there any excel sheet or calculator is handy for knowing option price if the spot price moves by ‘X’ amount over , say 5, 10 or 25 days considering all Greeks effect? IV may be assumed to be same.

  11. R P HANS says:

    R P HANS
    Sir, Is there any excel sheet or calculator is handy for knowing option price if the spot price moves by ‘X’ amount over , say 5, 10 or 25 days considering all Greeks effect? IV may be assumed to be same. This will be helpful in calculating R/R ration, target etc. We may estimated probable price movement of the underlying by TA. that price change shall be translated to option premium using all Greeks if it is for more than one day trade. I think my question is valid.

  12. Khyati Verdhan says:

    Hi Kartika
    DLF 15 Dec 130 CE expires on 15 Dec or 31st Dec??????????????????????????????????????

  13. Abhijit Hendre says:

    Sir – I am regular trader at Zerodha. Recent move from Zerodha of 0 brokerage is promising to boost reatil participation. Thanks for that.

    Question – This chapter explains P/L considering position is held till expairy ? Can you please help me to understand P/L if one decides to exit position before expiry?

    • Karthik Rangappa says:

      The P&L calculation during the series is not easy to calculate as there are many forces action on premium simultaneously 🙂

      • Abhijit Hendre says:

        So do you mean, if one wish to use bull spread strategy, he needs to hold position till expiry?

        • Karthik Rangappa says:

          The trader can experience the full payoff of the strategy only if he holds the position till expiry. If he close the position before that then the payoff will be slightly different.

  14. Delbhi says:

    Set 2 – Bull call spread with ATM and OTM strikes (classic combo)
    Lower Strike (ATM, Long) 7800
    Higher Strike (ATM, short) 7900…. Should be OTM as per SET-2 .
    pl clarify my doubt here. When nifty spot in the example is at 7883, 7900 is ATM or OTM? How about 7800…ITM OR ATM?

    Set 3 – Bull call spread with OTM and OTM strikes

    Lower Strike (ATM, Long) 7900 ….Should be OTM as per SET-3
    Higher Strike (ATM, short) 8000 ….Should be OTM as per SET-3

  15. PRASHANTH AV says:

    would you also be discussing about pair trading and ratio trading in this modulr

  16. sandesh says:

    i request that next module should be on commodities before taxation. pls complete the current module within jan

    • Karthik Rangappa says:

      Thats the idea – next module on Commodities, Currency, and Interest Rate Futures!

      Btw, taxation module is complete already.

  17. bharat says:

    I request that the module on Option Theory for Professional trading should be available to the readers in a PDF format just like other modules. That will be very helpful to the novice traders like me.Thanks for your excellent work.

  18. Revathi C says:

    I download the excell and I taken position ATM buy and OTM SELL. can i exit the position when i get profit even before the expiry or else i have wait till the expiry.

  19. Raghunathan says:

    Excellent material, Karthik. How do we get the Profit/Loss% vs Strike graphs with the time dimension, that you have provided in this module for Bull Put spread strategies?

    • Karthik Rangappa says:

      Logic is from Black & Scholes model and they are rendered in ‘R’ 🙂

      • Chandra says:

        Hi Karthik,

        In the graphs for profit/loss%, is it based on formula profit/net premium paid ? Or Do we include margin also?

        And is it the assumption that we hold options till expiry? If we hold it till expiry what difference does it make in % whether we achieve the result in 5days or 25days?

  20. ANAND says:

    One can adjust bull call Spread as follows:-
    a.If the index or stock is expected to move further than the Strike price of Shorted Call, then one can Buy to close the short position and then Sell another further out of money call
    b.If the rise is very strong , one can buy the short positions and leave the Long Call options alone making it Naked Call long, but it has to be monitored without overnight positions-for intraday only
    c. If the index or stock is expected to decline after reaching or close to reaching the short strike price, one can close the long call position and buy further out of money to make it a (bear call spread – a possibility of decline in the underlying with protection )
    please suggest anything further on this if you know and let it be simple for everyone to understand

    • Karthik Rangappa says:

      This is ok, but your transaction costs go up. If you are not with a broker like Zerodha then your broker eats up the spread and you would be left with an empty plate!

      For all the other variants you have suggest, here is my thought – the bull call spread and bull put spread are simplest spread strategies, its best kept that way 🙂

  21. naresh says:

    dear sir
    I hv fe queries in general about options.
    if u see there are the contracts available for next 4 months and then some months missing. as u go futher in time the missing months increase. why it is so. What if some one wants to but the contract which is not listed.
    2. if we go further in time the contracts have some fields missing some contracts dont have LTP, oi, IV, ASK BID PRICE ETC. So what is there significance.Con u tell with screen shot.
    3. better have one class specifically on option chain and its componets like i mention above and their implication on our trade especially in long/ far contracts

  22. Vaibhav parmar says:

    @karthik : Do we need to check any implied volatility conditions before initiating bull call spread trade?

  23. T Gopinathan says:

    Why cant we trade options in a similar way like we trade futures ie with technical indicators and stoplosses? I have not been able to understand this ,as it looks like we have to calculate so many things in option strategies. Does it really make money ?

  24. T Gopinathan says:

    Hi ,
    Is it possible to trade options in a similar fashion as futures? ie buy options when future gives a buy signal and vice versa. What are the negative implications in this.

    • Karthik Rangappa says:

      Technically you can, but do remember these are two different instruments all together. For the same market situation they can behave differently.

      • Sandeep says:

        The max profit is difference between premium paid for lower strike price minus higher strike price,right.Higher strike moves less than the lower strike.the difference is between them.Why spread is considered here.We are only bothered about premium,right.

  25. vikas yadav says:

    can this strategy be used in intraday.?

  26. sudeep says:

    i cant understand selling call option does it means short selling call option?

    • Karthik Rangappa says:

      Selling can mean two things based on the context. If you have an existing long call position, selling here would mean squaring off the long position. If you want to initiate a fresh short position, then you would be required to sell first. Here selling refers to shorting. In case of a bull call spread, you are required to short the call option.

      • surya says:

        can we sell european option before expiry date ?
        if i got some profit in european option example from rs 1 it raised to rs 5
        can we sell european option before expiry date ?

  27. surya says:

    when ur going to upload other 3 modules eager to read

    • Karthik Rangappa says:

      We are starting Module 8 on commodities, currencies, and IFR…once this is done, we will be working on the other modules.

  28. Sourabh Sisodiya says:

    When will other modules like currency derivatives, trading psycology be released ?

  29. rama devi says:

    You are suggesting to create a spread of 300 pts difference. But in your examples you refered 100 pts difference every where. pl.clarify.

    • Karthik Rangappa says:

      Well, technically you can create the spreads for any difference. The higher the difference the lower is your risk and reward.

  30. SANDEEP REDDY says:

    In study 1, it has to be -54,right.Capital is going out.Strategy failed here,right.

  31. SANDEEP REDDY says:

    It is net debit,whether max profit or max loss.Why spread is coming into picture.I don’t get this.Please clarify.

  32. Deepshikha Bhardwaj says:

    Hi, why no iBook for this section? Thanks

  33. Naresh says:

    Dear Karthik – Can you help clear this confusion. I am viewing bull call(debit) as an mirror image of bear call (credit). So if one is successful, the other has to be weak. For eg. if you recommend buying a bull call at start of cycle with say 5 days, then you are saying buy deep OTM and sell deeper OTM. I guess the same should NOT favor bear call as you have mentioned in chapter 8 !! I hope this makes sense ..

    • Karthik Rangappa says:

      Naresh – I’m a bit confused, can you explain your query in more detail please? Thanks.

      • Naresh says:

        Dear Karthik, My understanding is that a bull call and bear call should be inverse of each other. If a far OTM call pair is suitable for bull call early in the cycle, then obviously, the same pair should not be suitable for a bear call credit spread. Because the debit bull spread is geared up for increasing premiums whereas the credit bear spread is geared up for falling premiums. However, if one refers to your chapter on bear call credit spread, the suggested pair selection for an early entry in cycle is again same as bull call spread. This is creating confusion. Can you advice. Thanks

        • Karthik Rangappa says:

          Naresh, I’m getting a bit lost with your query. Can you please pick an example, that will make it easier. Thanks.

          • Naresh says:

            Hi ! If you choose a far OTM bear debit CE spread like 8900-8600 ( 8600 long and 8900 short) early in the cycle to make money assuming spot is at 8000, then my assumption is that the opposite of bear call spread is actually a bear credit call spread of 8900-8600 ( 8600 short and 8900 long ). IF this assumption is correct, then both of them cannot do well at the same time. Hence for a bullish person, the choice of 8600-8900 is as recommended by you a far otm pair. However, a far OTM pair should NOT be chosen if you are a bearish for the same reason. Is this logic correct ? Hence one should NOT choose a far OTM for a bear credit CE spread and choose some other pair which is not a far OTM ? Does this make sense or have I confused myself !

          • Karthik Rangappa says:

            Naresh I get a feeling you’ve confused your self 🙂 – you describe 8600 CE long + 8900 CE short as a Bear debit CE spread, this is not. It is a normal bull call spread.

            You cannot think in the lines of 1 set of position being exactly opposite of another set of positions, this is especially true with options because options are non linear instruments. The payoff;s depend on multiple factor. When you initiate position think in terms of the premium, theta, and volatility.

          • Naresh says:

            Small correction – ignore the previous comment
            Hi ! If you choose a far OTM BULL debit CE spread like 8900-8600 ( 8600 long and 8900 short) early in the cycle to make money assuming spot is at 8000, then my assumption is that the opposite of BULL call spread is actually a bear credit call spread of 8900-8600 ( 8600 short and 8900 long ). IF this assumption is correct, then both of them cannot do well at the same time. Hence for a bullish person, the choice of 8600-8900 is as recommended by you a far otm pair. However, a far OTM pair should NOT be chosen if you are a bearish for the same reason. Is this logic correct ? Hence one should NOT choose a far OTM for a bear credit CE spread and choose some other pair which is not a far OTM ? Does this make sense or have I confused myself !

          • Karthik Rangappa says:

            I just saw this message !

            By the way my previous comment still holds true 🙂

  34. gvsanthu10 says:

    Hi, it will be very useful if we get a chapter showing how to use option strategy planner in NSEindia Patatshaala. the website is loaded with very good option strategy planner and is good for learning. Teaching with screenshots will be very helpful.
    Thanks in advance.

  35. harsha says:

    can anyone tell me is there any difference if we buy OTM PE instead of writing OTM CE

    • Karthik Rangappa says:

      The decision will depend on how the premium is playing out in the market. You would prefer to buy an option only if the premiums are attractive (cheap)….and you write an option if the premiums are bloated.

  36. Sanjeeb says:

    HI Karthik,
    I found the “Strike Selection” section most interesting and am wondering if you can shed some more light on the construction of the graphs. When you say “target hit in 5 days” and then show that the 8000 strike is most profitable, can you share the logic and working behind it?

    Thanks a lot.

    • Karthik Rangappa says:

      These graphs are developed using a software called ‘R’, and I in fact requested a friend to do them for me 🙂

  37. Sanjeeb says:

    I just wanted to understand the construction. What were the parameters used for the optimization and what were the variables and constants?

    • Karthik Rangappa says:

      I’m afraid I may not be the right person for this, will try and get a note on how these graphs are constructed. Thanks.

  38. chouhan says:

    sir,when we buy naked call suppose 8000 @100 .we have to pay premium rs 7500.but when we make it bull call spread to reduce risk. we have to pay more margin to exchange.why? if our maximum risk is less ,why exchange take more margin?

  39. Sethu says:

    I am new to options trading. towards the end of the expiry, do I need to square of the 1ATM that i bought and 1OTM that i sold when the Bull Call Spread was initiated ? I am confused on this part, since you mentioned that this is best executed as a set , so a square off is required again or not?

    • Karthik Rangappa says:

      Yes, its best executed and closed as a set. So when you are closing the position, its best to close all the legs.

  40. Akshay K says:

    Sir can we just buy a plain call option and put a stop loss in place for the same risk to reward ratio ? That way we can make more money at the same risk

  41. Rakesh.K says:

    hi karthik, a small doubt.
    In this strategy(bull call spread) ,i have to wait till expiry for the full premium for(short call OTM)
    My question is whether i have to square off (both legs) on the expiry date OR if i dont square off these positions,then will the exchange itself squares off (both legs) in the closing of the expiry date?
    Thanks & Regards

    • Karthik Rangappa says:

      Upon expiry, all the strikes will cease to exist…and if you do not close, then the exchange will settle them for you. Btw, you need not really wait for the expiry…if you are happy with the profits, you can close it anytime you want.

  42. Vishal says:

    Hi Kartik,
    If we expect stock to be moderately bullish then we can buy at the money call and and buy out of the money put. Why we need to sell out of the money call, because generally as soon as you get into profit position ,one will book profit, I am assuming most trader won’t wait till expiry to book profit. If we opt for selling a call then obviously our margin will be blocked.

    • Karthik Rangappa says:

      When you sell the option, you receive the premium, with the premium received you finance the purchase of the call option thereby reducing the need for excess funds.

  43. Vishal says:

    I understand if only a day or two to expiry remaining then it may be sensible to sell but otherwise I think buying a put option should also work.

  44. bbhalaji says:

    Hi Karthik, great work !! every time I read a new chapter, more than I learn something new, I start realising what went wrong in my trades and strategies . Thanks for the work! Coming to my question, I came across a great bull spread opportunity where the net debit was zero and the profit was capped. This happened when I was scouting for strike selection for bull spread strategy in TATAGLOBAL on 01/10/16 using NSE Paathshala. The strikes selected were 147.5, 150 . Can you please explain why this is happening. Additionally I have request to Zerodha, to add a option strategy tester tool to the website so that we can simulate these calculation which you have done in the website directly(something like the one in NSE Paathshala). Thanks.

  45. bbhalaji says:

    Hi , I have one more question. When we do a bull call spread, do we have to worry about theta and vega as they will get negated ? Thanks.

  46. Abhijit says:

    Hi Mr karthik,
    You are supposed to have separate chapter on trading calendar spreads in futures in the trading strategy module. Kindly update on the same.

  47. sarath says:

    hy Karthik,

    i want to do bull call spread strategy, when i look margin calculator for this, i can find lot of margin benefit for this strategy ,,how i trade this strategy.

    1. i have to put separate order for both leg?

    2. when i put separate orders which leg order should put first for getting margin benefit.?

    3. is there is alternate way for putting spread (bull call spread , bear put etc..) orders in pi..?

    Please help..

    • Karthik Rangappa says:

      Yes, there is a margin benefit for this. The strategy requires you to buy one leg and sell and another. You will have to place the trades, one at a time…and once both the legs are executed, the system will recognize the spread benefit and the additional margin charged will be released.

      • Abhijit says:

        What if we execute spreads from ZT or nest? Is it required margins shown for spreads in margin calculator? Or will it release additional charged margin later?

  48. Prateek says:

    Good one Karthik! Is there an option in Zerodha to initiate spread trade at the same time. For ex: Buy ITM CE and Sell OTM CE in the same order

  49. I am a member of Z club. Please confirm if premium collected when selling a call,in the option strategy, in the beginning of the series will remain the same in the the series expires.

    • Karthik Rangappa says:

      What is Z club?

      Anyway, the premium varies based on how the underlying trades. However, the premium that you’ve collected remains constant and does not vary based on how the underlying trades.

    • Tarundeep says:

      Thanks Karthik. What I meant was that I have a Zerodha account. Found the Varsity site very informative. Will stick to the guidelines mentioned. Warm regards.

  50. RIZVAN says:

    i m zerodha clinte
    module 5 option theory k bad module 6 ka hindi version kab tak aaega.
    ya me ise kis tarah hindi me convert kr k study kar sakata hu ?

  51. Samir Patel says:

    If i buy Call Spread/Put Spread, I have to wait till expiry or i can sell at any level when i get profit ?

  52. balu says:

    hi karthik
    is there any tool box to plot payoff diagrams for the given strike prices,strategy etc..

  53. FIROZ says:

    i just want to know how you created these p&l diagram that will help us to identify the best possible strikes based on time to expiry. For first half and second half .and you have added these p&l diagram for almost every strategy . i want to create these diagram by myself, how cahn i do it please explain.neither you have uploaded any excel sheet which shows effect of theta on strick price. please upload one.

    • Karthik Rangappa says:

      I took the help of a friend, he did this in ‘R’ 🙂

      • FIROZ says:

        Hi KARTHIK
        if i am n ot wrong its based on theta decay not for particular strike price but for complete strategy and for every strategy there is different p&l chart. it is like mugging up for every strategy which is not an easy task.please build a execl sheet to make it easy ask your friend if he can make for all of us. please
        thanks anyway

        • Karthik Rangappa says:

          Firoz – actually it is a simple logic. No need to mug up anything 🙂

          Anyway, I’ll try and put up a consolidated excel.

          • FIROZ says:

            HI KARTHIK ,
            thanks again for your reply,i have a request build this p&l chart consolidated excel which we can use for all strategy not only for bull spread, but also for other strategy as well 🙂

          • Karthik Rangappa says:

            Sure, will keep that in mind. Thanks.

  54. mohit_1607 says:

    Karthik, thanks for the explanation. Some queries posted below:
    1. Don’t u think, it would be a better choice to always trade both legs of ITM. Reason- The probability of success is more as ITMs will have more chances of staying ITM.
    I understand there is a downside to the setup above mentioned in terms of RRR and premium, but chances of success are more. Your comments Karthik.
    2. Sometimes noticed, the actual profit comes out to be more than the expected(Spread-net debit), if the position is closed pre expiry. From my understanding, this is due to increased volatility which impacts the extrinsic value taking the option prices higher. Please clarify.


    • Karthik Rangappa says:

      1) Sort of, but this comes at very high premiums. Also remember, if the option turns OTM from ITM, your P&L would be hit quite hard.

      2) Yes, although the chances are vey low for this happen.

      • mohit_1607 says:

        Agreed there will be a high premium attached but could not understand the latter part. From my understanding, the loss is always fixed which is equivalent to the net debit. Please elaborate.

        • Karthik Rangappa says:

          I meant to say the same 🙂

          Premium will be high therefore if the position goes wrong, your P&L will be hit hard (to the extent of premium paid).

  55. kumaran says:

    sir very well explained , it taken a long jouney to reach this place after loosing heavily on options, even the paid class dont teach this good, fit for award from zeroda and all of us

  56. kumaran says:

    ur excel sheet is too good , any updates on exclel pls let us know, thks a million

  57. kumaran says:

    sir one small doubt how to find strke price according to expiry, any software avaiable sir

  58. parje says:

    how can pssible squre off before expiy 7700ce buy at100 &7900 [email protected] at 50 hpw canisquare off before expiry

  59. Girish Prabhu says:

    Please clarify, what do you mean by target hit in 5 days. I suppose its about 8000 to 8300 in 5 days. If so, whether this imply we should close out once the target reached and not to hold till expiry?

    • Karthik Rangappa says:

      Girish, it means you expect your target to be achieved in 5 days. Yes, its something like a 300 point move over 5 days. You can choose to exit once your target is hit or you can even continue to hold assuming you continue to be bullish. This is entirely upto how you feel about the position.

  60. sunny says:

    Hi, I have 700 Sun pharma shares in my account. i want to write OTM calls, the losses for which would be covered by rise in value of my stock. Today, when I sell calls, I still need to put Margin and this means I need to have more money. How could I write calls to hedge against downside, and the losses for which are negated due to rise in value of my stock. ??

  61. anil bhasein says:

    dear mr kartik ,
    thanks for the excellent video , i have just one question pl resolve it ,
    i have purchased 2 lots of 9200 call @ 164 and sold 2 lots of 9450 @ 36 .
    i trade daily and make at least 500 rs daily . on each leg
    supose i intend to keep both my positions till the end of the expiry , can i reduce these profits from the initial premium s and then calculate my P/L

  62. anil bhasein says:

    dear mr kartik , pl help me in understanding this
    i have sold 9400 call @ 53.25 , two lots . and i have purchased two lots of 9450 call @ 33.90
    i gain 19.35 as per the above caluclations
    when i put these figures in the payoff graph i see there is zero loss at any of the given strike prices , only gains
    am i correct ?? pl guide

  63. anil bhasein says:

    the excel format worked wonders for me ,
    anil bhasein

  64. anil bhasein says:

    dear mr kartik ,
    i plan to buy an atm 9600 call @ 90, co my investment will be 6750 , simultaneously sell 10 lots of 9900 call @ 9 value 6750
    so my net investment will be zero , is this a safe strategy ??? , pl correct me if im wrong .
    my perception is i will start making a loss only if nifty moves above 9900

    • Karthik Rangappa says:

      You will be creating a delta neutral strategy here. Remember, no strategy is 100% safe.

  65. Hey Karthik,
    In the example in the youtube where you have showed the bull call spread. You are selling a long Call option as MIS. Can we do this in Normal mode as well and hold it till end of the expiry?

  66. Nitesh Sharma says:

    how to place an order so that it gets triggered after reaching certain price level. Like Price of a equity is now Rs.1000/- and my research say that we price go above 1030 then it will go upto 1080. In this case if I have placed an order for equity stating the purchase price Rs 1030 then it will trigger the order and I will get the equity @ 1000/- but I want my order to get triggered at 1030.

    • Karthik Rangappa says:

      Nitesh, you can always buy using a stoploss order to buy. For example place the order to buy at 1030, with trigger as 1029.

  67. Gokul says:

    Hi Karthik,

    Thank your for the informative content. I had some doubt.
    Won’t the premium not change, if the spot price increases and it changing the delta and premium. This should bring a change in the debits?


  68. Rajesh says:

    Dear Karthik, Magical Morning. Bull Call Spread Strategy You are Explaining Buy ATM, Sell OTM Options. But NCFM & NISM Module They are Explaining Buy ITM Call, Sell OTM Call. So Kindly I Request You To Clarify Which Strategy is Correct. Iam Awaiting for Your favorable Reply. Thank You.
    Rajesh Kode.

    • Karthik Rangappa says:

      Hi Rajesh, magical morning to you too 🙂

      There is no correct or wrong way here. I personally prefer buy ATM + Sell OTM combo.

  69. The author keeps mentioning in various chapters in Option theories and strategies modules that, “If the market will increase by 5%/10% in the next 5 days/15 days/25 days….”. How to determine if the market is going to increase by what % and in how many days? I have not gone through the technical analysis module but is that what I should go through first or should I read and understand something else?

  70. Kritesh says:

    Hi Karthik, Great Article. The Bull Call Spread Excel sheet is really helpful. Thanks for sharing this post.

  71. Yuvaraj says:

    Hi , Good Time.

    In Earlier chapters, you have said that shorting is strictly for INTRADAY. (For Futures we can carry forward). Fine.
    My question is, in Bull call spread,
    BUY – 1 Lot in – ATM (Sine we bought we can carry forward)
    SELL -1 Lot in -OTM (Because we sold, is it that we should buy back in same day?)

    So, the option we sold in OTM, can be carry forwarded or will it auto square off on the same day..?

    Thanks in Advance.

  72. lakshmi sujatha annam says:

    Sir, today I know about you and your company through the article which is printed in Eenadu Sunday Book. Sir I wish to learn about stock market. I am a house-wife. I have lot of questions in my mind. Today some it is clear. I want to do work in shares. But I don’t know how I am enter into that. Please suggest me what are the steps I will do.
    Thank you sir

  73. Gokul says:

    Hi Karthik,

    If I buy a escorts ce 1 lot of 1100 shares for 17 rupees 680 strike and spot at 675. If the spot moved to 682 and the premium increased to 24. Can I sell and close my position. Will 24-17 be my profit? I feel I am missing something here. Please advise

    • Karthik Rangappa says:

      That’s right. You can square off the position anytime you wish. Your profit will be Rs.7 multiplied by 1100.

      • Gokul says:

        Thanks Karthik for your prompt response, if the trade had gone the other way and the spot was at 670 and the premium going down to 15. I can close my position at 15, so 2 * 1100 rupees loss? Is this correct?

  74. Can Spread trades be placed on Kite as a single trade or should they be placed as two trades separately?

  75. Paul says:

    Can You please explain the effect of volatility on Bull call spread strategy? Shall we use the strategy when the volatility is high or low?

    • Karthik Rangappa says:

      Since BCS is executed in a 1:1 ratio – the effect of volatility is not really significant. However, as I’ve explained in the chapter, I look at Volatility to decide which strikes to trade.

      • Paul says:

        Hi Karthik,

        Thanks for the quick response.
        Sorry, I am a bit confused here. In the chapter, only the effect of time wrt to ITM,ATM & OTM options are explained. Can you please explain how the volatility is used to strike selection?

        • Karthik Rangappa says:

          True, there could be multiple scenarios on Volatility, quite hard to generalize the same. Hence, we have taken up only time.

      • Paul says:

        Hi Karthik,

        Using historical volatility and average returns to calculate the upper and lower band of underlying’s movement — is this the method you employ to decide which strike to trade?

  76. Vijay says:

    Hi Karthik

    Let me see if I have understood correctly (green plots)….OTM – with longer time to square off, the time decay (theta) > delta (which is close to zero), so the price erodes more…ATM – with more moneyness (less out of moneyness, like a 8400 strike vs a 8600 strike), the impact of theta decay is counterbalanced by delta (which increases) and hence the erosion is slower….whereas for ITM – the delta impact becomes stronger as it gets deeper in money so option value increase due to delta is >> option value erosion due to theta.
    Is this correct?

    Second part – for target met in one day, I understand that .1 point gain on a premium of .1 on an OTM is 100% gain (highest) but for far OTM option, delta and gamma are zero so moderate price moves may not impact the premium at all….then how the gain?

    • Karthik Rangappa says:

      You are right with the first part.

      Delta/gamma is not zero for OTM, they can never be as time always has a value.

      • Vijay says:

        Thanks Karthik

        I did some modelling on BS worksheet…very small moves (say 15-20 points on Nifty) actually erode OTM price but yes the inflexion point comes soon thereafter.

        One basic question – can one square off bull/bear spreads/ iron butterfly before expiry? if yes, then it suggests that a person can take net credit (say in iron butterfly) and square off immediately with profit…is there some holding period?

        • Vijay says:

          I thought about pre-expiry square off of trades in which one gets upfront credit…I reckon that pre-expiry, P/L is a function of premium, which in turn should be driven by perceived risk (moneyness) of the option. So, if I write a put option at a strike of 70 and premium of 5 at a spot price of 100, I get 5 rupees but that is “locked”.

          Please let me know if the below scenario correctly illustrates the pre-expiry P/L scenario based on spot price/premium movement:

          Spot: 50 60 70 80 90 100* 110 120 130

          Premium : 30 20 15 10 7 5* 4 3 2

          Pre-expiry P/L : -25 -15 -10 -5 -2 0* +1 +2 +3

          * t -0 scenario

          • Karthik Rangappa says:

            The pre expiry P&L is not linear, Vijay. The one that you’ve shown is valid for expiry.

        • Karthik Rangappa says:

          Yes, you can square off before expiry. No holding period as such.

  77. Sunil Iyer says:

    Hi, I was wondering that if I sold an Out of Money put, I will always be in profit. Would not that be a sure shot way of making money?
    Example, I wrote an Oct 2017 Put at strike price 9700 and the nifty closed at 9800, then i would pocket the entire premium amount Rs 25335/-

  78. Kratika says:

    Hi, I wanted to ask if we could create a bull call spread by using an OTM and ITM option as we do in bull put spread?

  79. ramdevi says:


    how to evaluate whether volatality high or low to a particular index or stock.

  80. ramdevi says:

    where can we get the historical data, can you help.


  81. Raj Alok says:

    Hi, Can’t find the excel sheet. Can you please post the link

  82. Samir says:

    Thanks for making such great module but
    This strategy is suited for traders who hold position till expiry but if we are in the start of the series and target is suppose to hit in next 2 -3 days than is their any strategy for trading based on premiums and how to set stop loss in such condition.
    Thnx sir in advance

  83. Gulshan says:

    sir according to bull spread i have to buy atm and write slight otm
    spot – 7440
    atm will be 7500
    slight otm 7600
    expected move – 3%
    1. above atm and itm are right ?
    2. delta of atm is .5 and otm is 0 to 4 so graphs show above based on delta only or delta + gamma or delta+gamma+theta ?
    4.whats about volatility? i cant get delta ,& gamma without IV as per black & scholes
    5. sir i don’t get about graphs of atm,otm so please share excel sheet of it

    • Karthik Rangappa says:

      ATM will be around 7450 or the nearest strike. 7500 is OTM.
      The graph is delta only. You can enter the price of the option in the B&S calculator and get the IV. I’ll look for an excel sheet, will share if I get it 🙂

  84. Mohana Murali says:

    Great work Karthik……!!
    I can’t stay without appreciating your efforts…!!
    Things you explain are very clear and believe me they helped me a lot in my professional exams …You are just like an indirect faculty to me …???
    Really Thanks a lot from my heart…and keep posting more and more on markets and it’s related things…Thank you once again.

    Regards ,
    Mohana Murali.

  85. samir says:

    Hi I am new to options trading & had done bull call spread for sun pharma in current expiry when the spot price was 573 & it had gone to 603 which was my target & I squared off the strategy at that time. but didnt get the full profit of 14k which was as per calculation. Does it mean that the expiry has to be at or above 600 only then will get full profit? for this strategy to work do i have to wait for expiry?
    Pls help

    • Karthik Rangappa says:

      You will make the full estimated profit (minus the applicable charges) upon expiry. Have you checked the breakeven point for the trade?

  86. Shravan says:

    Hi Karthik,

    Almost all these strategies are explained with the view of holding till expiry. Do you have any chapters or references to learn how to trade/setup intraday options?

    • Karthik Rangappa says:

      In fact, I strongly feel options should not be employed for intraday trading (unless you have a specific expiry day strategies).

  87. Azeem says:

    I am moderately bullish on auropharma… cuz its at a strong support zone and formed a piercing bullish candlestick pattern
    CMP 614 i expect a move to around 650-655 which is around 6%
    Expiry 22/2/18
    (working) days to expiry 13
    Lot size : 800 Max loss : 10,400 plus charges
    So according to this strategy i should buy CE 620 which is available at 24.40 and sell CE 660 which is available at 11.40
    Paper trade 1. Lets see if this works out 😛
    Correct me if i am wrong anywhere

  88. Pravin says:

    Hi Shree Rangappa,

    This query is regarding “Module 6 — Option Strategies Chapter 2 Bull Call Spread” (2.3 – Strike Selection),
    I am not clear about how these graphs are being generated. Do you have any excel sheet to get understand the formulation of these graphs (especially how P&L % is calculated) then please share.

    • Karthik Rangappa says:

      Yes, in fact you can download the excel sheet at the end of the chapter.

      • Pravin says:

        Thank you for your reply and best efforts towards the market education.
        At end of this chapter excel sheet is specific for that strategy (for this case P&L are capped). When we refer to the bar chart (mentioned in my query) P&L varies w.r.t. strike price.I am specifically trying to understand the formulation for P&L variation in bar chart. Pls revert

        • Karthik Rangappa says:

          P&l is purely based on the way premiums move. The bar chart only helps you identify which strike you need to consider given the time to expiry. The time to expiry itself is split into two halves, the first 15 days of expiry and the last 15 days to expiry. The explanation is given right below the graphs.

  89. Jamal says:

    Hi Karthik,

    Great work.

    I am also not understanding bar charts in chapter 2 of this module 6.
    I have the excel sheet which u mentioned.

    Could you explain from where did you get bar values in bar chart.

    • Karthik Rangappa says:

      The bar chart only helps you identify which strike you need to consider given the time to expiry. The time to expiry itself is split into two halves, the first 15 days of expiry and the last 15 days to expiry. The explanation is given right below the graphs.

  90. Nikil says:

    Hello Karthik,
    I had a doubt on IV. Since we are long on 1 option and short on another option do we have to worry about IV? Wont they offset each other? I know there will be some difference but it wont cause such a trouble right? I am new to options correct me if I am wrong.

  91. Sastry says:

    Sir, I wish to know 5-8% of Nifty Volatality is whether Daily Volatality or Annual Volatality which we can find on Nifty Future current price under other information. However I think it is Daily Volatality. Regards. Sastry

    • Karthik Rangappa says:

      That cannot be daily vol as its too high nor can it be annualized as its too small. Has to be the volatility for a shorter term, say – for a month or 2.

  92. sastry says:

    Sorry Sir. I could not understand your reply regarding 5% to 8% Volatility. Hence I request you to clearly illustrate with a simple example for my reference and guidance in trades. Thanks a lot. Best Regards, Sastry

    • Karthik Rangappa says:

      Volatility is usually expressed in annualized format. When I say Nifty’s vol is around 20%, it is implied that it’s on a yearly basis. Nifty’s vol is around 18-20%. So when you say 5-8%, I thought it was too low to be an annualized vol, hence suspected it to be 6 months vol.

  93. Mohan says:

    Firstly Karthik Rangappa…a lot of namskarams for your patience…you reply to each and every comment of everyone irrelevant he invests with Zerodha or not…Secondly subject you explain really very very much better than most of the faculties do in most premier b schools …Trust me which school gives you an excel sheet example for Bull call spread…I have only one question for you…Please answer this without fail…How did you get this knowledge…?? If it is from books please share the titles and authors so that we can acquire some…if it is through work ex..we will gain from this varsity…???

    But please answer my question…


    • Karthik Rangappa says:

      Mohan, thank you so much for the kind words 🙂

      Everything I’ve learned (and continue to learn) is from markets. There is no better teacher than the markets itself 🙂

  94. paresh says:

    Which strategy is best when we are moderately bearish? i mean opposite to bull call spread

  95. Manish Mehta says:


    For an Iron Condor strategy, what are the margin requirements ?

    Is it simply the short put strike – the long put strike like done in the USA markets ?

    Or is margin calculated separably for each of the four legs ?


  96. MagicTee says:

    Hi Karthik,
    My query is regarding the charts/graphs given under section 2.3 – Strike Selection. Same graphs are explained in previous module also (in chapter 22). But I can see differences in graphs and explanation in both places. Especially about the correct strike to be selected.
    Eg. in previous module it is ==> 1st half of the series – On expiry day – ITM is most profitable
    but here in this chapter it is ==> 1st half of the series – On expiry day – ATM is most profitable
    These graphs are supposed to be generic right? why there are differences in both chapters? Please let us know if we need to consider different charts in different cases.

  97. Anup says:

    Hi Karthick,

    Can you please upload excel for the calculation of P&L for option strategies for intraday (any one strategy) or atleast give some pointers, i have been trying to calculate using option greeks from Black and Scholes calculator.

    • Karthik Rangappa says:

      Estimating intraday option P&L is hard to figure out, Anup. You only have to make an estimate on the likely premium price at the time of squaring off and figure out the P&L.

  98. jignesh says:

    Hi There,

    Is there any web tool available to back test these strategy with historical data, let’s say how this bull-call-spread really performed over last two years on monthly basis ? we as community, trying to achieve through url oss dot dvsupplies dot com/option_backtesting.php

    does zerodha has any facility than we don’t really need to invent the wheel again ?

  99. Raj says:

    Good stuff. It would be good to have max loss, max loss and break even in the spreadsheet as another table. If we could include the lot size, we can even show the P&L amounts. I modified the spreadsheet for myself, however. Looks pretty cool now 🙂

    • Karthik Rangappa says:

      I understand, Raj. Btw, we will soon announce a product with more option capabilities 🙂

  100. Aadit says:

    Can you please explain the strike selection part (where the OTM is 8600 and 8900 in the first set of graphs) with an example including premiums ?

    • Karthik Rangappa says:

      Aadit, when are better off selecting slightly out of the money options when you expect the market to hit your target expectation within a week or so and assuming you are at the start of the expiry series. The details are with examples are mentioned in the chapter itself.

  101. ALM says:

    Dear Karthik,
    Do u have plans to write a module on Algo trading.?

  102. pratik says:

    Sir whether we can place stoploss for options also? Means i bought xyz call for 100 then whether i can place stoploss of 80 for it?

  103. AKSHAY says:

    Current Scenario : I have a 100CE option which I bought 10 days back.
    Now I want to implement this strategy. I want to sell 140CE option. As suggested I should get the premium back for 140CE in my account and I am eligible to sell the CE even if I don’t have margin. But in Kite the order got rejected saying Margin is less.
    Can you elaborate if I need to take this trade on the same day itself ?

    • Karthik Rangappa says:

      Akshay, to sell options you need margin amount. You can check the margin amount required here –

      • AKSHAY says:

        Hi Karthik,

        Thank you for your Reply.
        I do understand in a normal case I need Margin to sell a Call Option but as mentioned above by you

        Sell 7900 CE and receive 25 as premium. Since I receive money, this is a credit transaction
        *****The net cash flow is the difference between the debit and credit i.e 79 – 25 = 54.*****

        So by this what do you mean by credit transaction. I thought If I already had a CE (already paid 79 margin) then I should be able to sell other Call option as I would be limiting my loss and my profit. Could you please elaborate a bit.
        Thanks in Advance 🙂

        • Karthik Rangappa says:

          By this, I mean that I receive a net premium instead of paying a premium. However, to take up the position, you will still need to deposit the margins wherever applicable.

  104. Rohit says:

    Hi Karthik,
    I wanted to clarify a couple of things.
    1. We are discussing two different broad strategies here. One, where we hold the Option to expiry (first and last part of section), and Two where we trade with premiums, squaring off just before expiry (beginning of 2.3).
    2. I need some clarity on the second strategy which you have touched upon in the beginning of Section 2.3.
    Lets take variables:
    [taking positions] Net Payment- P: (Low Strike Premium Paid) – (High Str Premium Recd)
    [square off] Net Receipt- R: (Final Low Str Premium Recd) – (Final High Str Premium Paid)
    P&L= (R-P)/P
    i) “P” is the same across 4 scenarios of the first half trades, and 4 of the 2nd half. Hence the change in final P&L % in each scenario depends on “R”
    ii) For the 1st Half trade, the 8000 Str shows increasing Profit % as time increases (15, 25,etc). Since Theta dominates closer to maturity, premiums reduce over time. Theta is less negative for the High Str Premium, given it is more OTM. This implies that the High str premium reduces at a slower rate than the ATM-ITM 8000CE. Based on this logic, R should decrease. But the increasing Profit % implies increasing R.
    Could it be because of reducing volatility across the 4 scenarios, the ATM-ITM 8000CE delta increases across the 4 scenarios while the 8300CE delta reduces (flattening of the Delta vs. Moneyness curve), hence R increases overall?

    • Karthik Rangappa says:

      Rohit, I took a while to understand your query, I’m still not sure if I get it completely 🙂
      1) Yes, the P&L is dependent on the premium you receive at the time of selling
      2) These charts don’t consider volatility at all. R increases due to the passage of time (effective for short options) and of course the delta.

      If I have not answered your question properly, request you to break down your query into smaller bits so that I can understand them better.

      • Rohit says:

        Thanks Karthik. Yes, the query may have become confusing (Sorry!). 1) you got correctly. Let me try to rephrase 2).
        I am trying to understand the 4 scenarios in the first half trade in Sec 2.3 purely based on Greeks.
        I guess the fact that the variation in profit % across the scenarios depends on the net Receipt (R) is clear. So lets take it from there.
        What I am trying to get at is why the 8000CE-8300CE Spread profit % increases (50% to 140%) as time to target increases: 5 days, 15 days, 25 days, Expiry.
        R: (Final Premium Recd for 8000CE) – (Final Premium Paid for 8300CE)

        – A: Time decay (Theta) is highest for ATM options and reduces drastically for OTM and ITM. Thus, the High strike (8300CE) premium (OTM to ATM) reduces at a much slower rate than the 8000CE which goes from ATM-ITM. Hence, R should decrease. But the increasing Profit % implies increasing R.

        – B: This means that, the rise in premium through Delta across the 4 scenarios should be more dominant than fall through Theta. It is here that volatility came into the picture.

        – C: Since the target is hit fastest in the first case, wouldn’t it imply that the scenario has the highest volatility of the 4? If that is true, then volatility should decrease as time to target increases.

        – D: In highly volatile scenarios, the delta-moneyness curve is not flat at its OTM and ITM ends. However, as volatility decreases, the curve gets flattened. The OTM delta decreases towards zero, and ITM Delta increases towards 1. Therefore, the 8000CE which is always in the ATM ITM region, shows increasing Delta (thus, higher premiums for the same change in spot) as we move across the four scenarios. Whereas, for 8300CE, which moves from OTM-ATM, Delta reduces (lower premiums). This leads to greater “R”.

        Hope this explanation makes more sense.

        • Karthik Rangappa says:

          Yup it does, Rohit!

          But, please note, in ‘C’ – target hits in 4 days implies that the momentum is greater and not necessarily the volatility. They are two different attributes of the market.
          The rest is perfect 🙂

          • prasad sarwate says:

            isn’t it the effect of short covering since most of the option writers would be completely unprepared for the sudden drastic move against their directional call and initial covering would act as a catalyst for stronger short covering.hence the 100-150% profits.correct me if i’m wrong!!

          • Karthik Rangappa says:

            Prasad, this can potentially happen, but not necessarily leading to a 100 or 150% movement.

  105. Chirag says:

    In case of expiry at HS price, in your excel calculator, you are taking IV as the premium value which we will receive given our Long Call is expiring in the money (7900-7800) in your case = ₹100-79₹ premium paid while long call + ₹25 premium shorting = ₹46 profit per unit.

    Now today Bank NIfty on expiry closed at 26503. The 26500 CE closed at 0.30 which is not the IV. Also 26400 closed at 70 something which should have been ₹26503-26400= 103

    If say in Ur excel the premium is between 60-70 and not 100 as provided in the excel then the profit will go down to less than ₹10 per unit or maybe even loss.

    Why did 26400 close at 70 and not between 90-105?

    • Karthik Rangappa says:

      Chirag, you are looking at the last traded price..this will be different from the settlement price, which is the weighted average of the last 30 minutes of the trade.

  106. SHyam says:

    Hi kartik,

    What are put and call calendar spreads?

    can you add this in this module with a excel sheet?

  107. Sandeep says:

    How can we buy and sell same stock at different strike price at same time .

  108. Avijit Goel says:

    Hi Karthik..

    I have initiated a bull call spread for the first time. There is a slight confusion. Please help me out. At spot price 572,
    Buy 570 CE call 1 lot of 1000 @ 17.2
    Sell 580 CE call 1 lot of 1000 @ 12.2
    Net difference between premium is rs. 5.

    At spot price 592,
    If I square off before expiry. The difference between buy and sell premium is rs 5 only.
    The transaction will be
    570 CE sell @ 33
    580 CE buy @ 28

    I want to understand the P&L in this scenario and if this is a loss making transaction.

  109. Avijit Goel says:

    Hi Karthik

    I have noticed that at times the premium of 2 different strike rates is equal or a higher strike call option has a lower premium. Why do such situations arise and is it worthwhile to get into these options.

    For example, Jubilant Food Aug18 option premiums were the following some time back:
    1375 CE – 95.25
    1400 CE – 79.6
    1425 CE – 95.25
    1450 CE – 84.4

    If someone initiates a spread between 1375 CE & 1425 CE, then there is 0 debit.

    I am wondering if this is an anomaly or if this is due to low liquidity.

    Should one take a position in such scenarios?

    • Karthik Rangappa says:

      Abijit, 2 things –

      1) The difference in prices may occur (although its very rare) due to supply/demand/liquidity issues
      2) The trading in these options could be thin, and the price that you see is the last traded price which could reflect an old LTP. To get the accurate picture, look for the bids and ask.

  110. Eldhose Mathew says:

    In this bull call spread, do you always till expiry or is there a scenario where you would have squared off earlier ?

    • Karthik Rangappa says:

      You can square off anytime you wish, however, the payoff that you see in this chapter is applicable only if you hold the position to expiry.

  111. Shashank says:

    Hi Karthik,
    Thanks for the wonderful guide on options! I’ve downloaded the excel and was playing around with the nifty values and came across this interesting case. When I buy LS at 11300 at premium 164 and sell HS 12000 at premium 4.35 (premium values taken from NSE site), the strategy payoff is always a positive number (GAIN!) for any value of nifty. Did I just bump into strategy that always has gains or am I missing something here? Please clarify!

    Particular Value Premium
    Underlying Nifty
    Spot Price 11346
    Lower Strike (LS) 11300 164
    Higher Strike (HS) 12000 4.35
    Debit (LS) 159.65
    Credit (HS) 540.35
    Net -380.7

    Market Expiry LS – IV PP LS Payoff HS – IV PR HS Payoff Strategy Payoff
    11000 0 -159.65 -159.65 0 540.35 540.35 380.7
    11100 0 -159.65 -159.65 0 540.35 540.35 380.7
    11200 0 -159.65 -159.65 0 540.35 540.35 380.7
    11300 0 -159.65 -159.65 0 540.35 540.35 380.7
    11400 100 -159.65 -59.65 0 540.35 540.35 480.7
    11500 200 -159.65 40.35 0 540.35 540.35 580.7
    11600 300 -159.65 140.35 0 540.35 540.35 680.7
    11700 400 -159.65 240.35 0 540.35 540.35 780.7
    11800 500 -159.65 340.35 0 540.35 540.35 880.7
    11900 600 -159.65 440.35 0 540.35 540.35 980.7
    12000 700 -159.65 540.35 0 540.35 540.35 1080.7
    12100 800 -159.65 640.35 100 540.35 440.35 1080.7
    12200 900 -159.65 740.35 200 540.35 340.35 1080.7
    12300 1000 -159.65 840.35 300 540.35 240.35 1080.7
    12400 1100 -159.65 940.35 400 540.35 140.35 1080.7
    12500 1200 -159.65 1040.35 500 540.35 40.35 1080.7

    • Karthik Rangappa says:

      Suggest you re-look at the numbers, there is no free lunch, at least in markets 🙂
      You have paid 164 on one hand and received 4.35 on the other, hence your today debit is 159.65 🙂

  112. BARUN DEY says:

    Dear Karthik ,

    Good morning .
    How can I place Vertical Call Spread , Vertical Put Spread , Iron Condor or Butterfly Option Strategies in one single trade on ZERODHA trading platform so that the fund used for the entire trade would be minimum than the orders placed separately .

    Are there any facilities on Zerodha ?

    Thanking you and your guidance is highly solicited .


  113. Rahul S Shah says:

    Where can i track
    Option payofflive meaning live prices

  114. Unmesh Kulkarni says:

    Hi Karthik,

    I had a query on how to place a stoploss and target in Option spreads like bull call spread

    Should we decide on these based on option premiums or price of underlying stock ?

    Also, is there any automated process to set these in Zerodha and that too for positional trading (not intraday) ?

    • Karthik Rangappa says:

      These strategies have very minimal risk involved, ideally, you should execute these strategies for a complete payoff. I’d suggest you check

  115. Aditya says:

    Hi sir,
    Sorry!! as the question is not related to above topic…
    Sir, I m a TY graduate student and further planning to do PGDM(SM) from NISM. Is this course worth as costs Rs.11 lac.

    • Karthik Rangappa says:

      Aditya, I’m really not sure about this. Request you to kindly check the credentials from ex-students or faculty of NISM. Thanks.

  116. Nirmal Gupte says:

    Hello Sir,
    I am new to options and just began reading this module. Supposing I execute the bull call spread, is it advised to wait till the expiry of the series, or if the premium goes up, exit and take profits trading premiums. The calculations shown in the above lessons are assuming that we wait out till the expiry of the contract.

  117. venkat says:

    Hi Karthik,“Three keys to more abundant living: caring about others, daring for others, sharing with others.” you are great. Thanks for sharing.

    Between small doubt,for set 2:how the breakeven of 7860 is higher if the spot is 7883 and same for set 3 also compared to set 1,am i missing something,could you please clarify?

    Best Regards

    • Karthik Rangappa says:

      Thanks for the kind words, Venkat.

      I’d suggest you download the excel and play around with the numbers once. Most of your doubts will be cleared 🙂

  118. ac says:

    Hi Karthik,

    If we do a protective put option strategy using BNF futures and BNF put options such that the stop loss set for the futures contract will result in a loss which is atleast equal to the profit made by the put option (if price moves downwards upon entry), then in such a case how do we determine which strike for put should be selected? i would want it to be as less expensive as possible hence I would be interested in buying slightly OTM strikes..

  119. mk says:

    karthik …i m new to options …what i understand is , in order to use any option strategy , one has to know the direction of move of market/ stock , and then only one can use a syrategy accordingly ….but the big question is how to predict the direction of move of mkt/ stock …can u guide how to predict ..

  120. Shriharsha says:

    Dear Karthik,

    Thank you for wonderful writing on Option Greeks and Strategy with good examples.
    I have a basic question here regarding P&l, pay off is mentioned as either max gain or loss, but it is calculated only on the basis of difference between current value of market and strike price. Practically premium values for ITM may be entirely different even at expiry, so how can so sure about mainly our loss. Kindly explain..

    • Karthik Rangappa says:

      That is because upon expiry, the option premium will take the value of the intrinsic value of the option.

      • Shriharsha says:

        Thanks Karthik,

        I noticed this point.
        But closing price of underlying on expiry date and premium price are 1 or2 point different. I think this should not be a factor of worry.

        Thank you once again since I learnt a lot of options stuff through your Modules…


  121. Navin says:

    — Do remember your outlook is ‘moderately bullish’. Given this buying an OTM option is ruled out.

    When your outlook is bullish, why can’t we buy OTM options which have lesser premium?

    • Karthik Rangappa says:

      Outlook is moderately bullish, hence buying OTM option does not make sense. If your outlook is very bullish then you can buy OTM option.

  122. arun says:

    Query regarding profit calculation-
    I haven’t traded Option yet, but i have seen one video on intraday option trading.

    Underlying = Bank Nifty – 26526
    he buy 1 call option with 1 lot (40 shares) = 26400 CE @138.
    he sold same @156. and Bank Nifty was trading at 26561.

    Now his profit was 720 that is difference between premium * lot size.
    156 – 138 = 18.
    18 * 40 = 720.

    But so far we have seen profit calculation based on underlying change , so here why difference in premium ?
    Does that mean profit calculation on expiry is based on underlying change and before that change in premium ?

  123. Shyamal says:

    If I am bullish on Yes Bank and expect the spot price to go up to say Rs. 340-350 level by October Expiry. Will it make sense to take the following position.

    Sell 360 Call @ Rs.5
    Buy 330 Call @ Rs.13.50

    Margin Holding in Zerodha would be around Rs.55145/-
    There could be a fair probability to make profit in both the positions while having defined risk also.

  124. Harsh Singh says:

    Good morning dear Karthikji… I understood completely this chps thanks to your wonderful writing with examples. I myself experimented theoretically on few other stocks on paper. There’s only few questions here if my view is not proper kindly correct here…

    1) As you had taught in Futures trading the Beta of stocks. Can we consider Beta of stocks instead of volatility of stocks since high beta of > 1 is considered highly volatile & similarly for Low Beta
    2) I found that buying one ATM options for Bull-Call strategy(assumption only) & shorting two to three options ( One OTM & 2 far OTM say) lessen the net debit. Or in other words, Can I short 2 more far OTM options when there’s less than week remaining to expiry & on volatility cooling down??

    Your Courtesy 🙂

    • Karthik Rangappa says:

      1) Yes, you can do that
      2) Yes, you can but only after ensuring the premiums are priced correctly in order to reduce the net debit. Further, it is also important for you to look at the max risk here. I’d suggest you plot the payoff on excel and study the P&L behavior.

      • Harsh Singh says:

        Thanking you for your wise advice Karthikji. Yes I’ll plot by downloading on excel sheet. And of course I’ll check if OTM premium is correctly price as you’ve taught in volatility chapter that when volatility is high it’s better to short & pocket the differential amount when it cools down 🙂

      • Harsh Singh says:

        Sorry for double comments… 🙁

  125. Anmol Verlekar says:

    Target is achieved in 5 days and we expect nifty to move by 3.6 % or 300 points. Now we are buying 8600 CE OTC. In 5 days spot price will be 8300 but OTC is under loss sinc we are paying Premium and not gaining any value. Then we have maximum profit in OTC case.

  126. ARUN says:

    Sir, for calculating the Volatility, SD etc we need to take 1,2,3,4,5 yrs or more closing data.

    Pls suggest.

  127. Shobhit says:

    Pl. Help me understand how you have calculated Profit/Loss % at different strikes in above graphs.

    I read on varsity but didn’t understand

    • Karthik Rangappa says:

      Which part is confusing you, Shobhit?

      • Shobhit says:

        How you have made, Red and green graphs to select best strike price at different time of expiry.

        I revisited theta chapter but still not able to understand computation of profit & loss percentage to draw graph.

        Can you share an excel else pl. Help me to understand?

  128. chanu says:

    this strategies to be applied intraday/ day till option expired? if implied on the intraday basis the all the game will be of Premium.

  129. Santhosh says:

    1. I sell 2 lots of ATM call option and buy one lot of future of a stock
    2. I sell 2 lots of ATM put option and sell one lot of future of a stock
    3. I sell one lot of call and put option each
    In all the cases, I am making it delta neutral (as the delta of an ATM strike will be nearly 0.5). I want to target days before expiry.
    So I will not affected by any small changes in the direction of the market. If there is not much change in volatility, then I will be benefiting the theta decay. I need the price not move above 2% to 3% in any direction in a day for me to be in the profitable side, especially near expiry dates as the theta decay will be faster. Of course, Change in gamma and vega affect my trade but that is the risk I have to take. But if there is not special news/event regarding the stock, it is not likely to move much. Is my understanding right? Please let me know the flip side of this strategy…

    • Karthik Rangappa says:

      Yes Santosh, you are more or less right. The biggest problem with delta-neutral strategies is that they don’t remain delta neutral. You will have to keep adjusting these strategies to ensure its delta neutral. This can turn out to be expensive.

  130. Gaurav says:

    I am in learning stage and while I was trying to replicate Bull call spread in excel which I have downloaded from this article only. I could see if I buy 1-LS and 1-HS than I see strategy paying in negative as well positive values. But If I buy 1-LS and double the quantity of HS than I see no loss (means HS short in a way that it’s NET payoff value is higher than LS). All values in excel showing positive. This way , this strategy giving me Profit all the time, no losses. Is it possible or I am making some mistakes.

  131. Prashant says:

    Hi I have one query I have short December 2018 nifty strike price 10650 call as per theory on expiry I will make loss if nifty closes above strike price plus premium(10650+168=10818). But nifty expired at 10779. So I should be able to keep the entire premium but when I checked my statement its showing 10650 call strike got assigned at 129 and 9k got deducted from my account.. Can anyone tell me is it brokers error or some thing else.

  132. Arpit Bansal says:

    Hey! Bull call spreads are usually used to as a good alternative to naked calls as stated in the text above as well mainly to reduce the premium required and thereby increase the number of lots that can be purchased. But, I find the margin required to execute such a trade (even after including margin benefit) to be manifold when compared to the premium. I feel this beats the purpose of executing a bull call spread and a trader will be better off buying naked calls instead.

  133. Aditya says:

    I have a doubt
    In Set 1, the breakeven is below Nifty spot.
    I dont understand this

    • Karthik Rangappa says:

      Which part, Aditya?

      • Aditya says:

        In 2.3 Set 1 where the spread created with ITM and ATM options
        Nifty spot is at 7883 while the breakeven point is calculated as 7769
        Now if the outlook is moderately bullish why to initiate a spread with selling ATM option?
        And suppose we do then my confusion is that the Nifty spot is already above the breakeven point. What does that show?

        In fact i was trying to apply my learning of this chapter in a demo account in which i tried to create a bull call spread for IOC with buying ITM and selling ATM option. When I calculated the breakeven point for that spread it came out to be less than the spot value of IOC just like in the your example. I understand that bull call spread is suutable for moderately bullish outlook but in these cases spot is already above the breakeven point. How does that fare out can u please explain?

        • Karthik Rangappa says:

          Aditya, the breakeven is upon expiry and not at the time of initiating the spread. Hope this clarifies your concern.

          • Aditya says:

            Would it be correct to say the folllowing?
            Selecting long ITM and short OTM
            will be profitable on expiry if Nifty on expiry is above the breakeven point, no matter where the nifty spot is currently.
            That it doesnt matter whether the nifty is already above the breakeven point.

            If nifty does not move at all till expiry we have locked in the max profit and max loss, infact it will make some profit surely at expiry since the Nifty is and will be above breakeven.

          • Karthik Rangappa says:

            Broadly yes, but this really depends on the premium paid and received.

  134. Aditya says:

    Also another question,
    In 2.3 Strike Selection Graph 1
    You assume nifty to be 8000
    Traget is 8300
    Long Call OTM 8600
    Short Call oOTM 8900
    Since this is a net debit spread
    I dont understand the statement where u say that if the move(8000 -> 8300) is expected in 5 days then the above combination will be most profitable.
    But from what i understood both options will be OTM even if the target of 8300 is hit. And since this is net debit spread, it should result in loss, how will it result in max profit?

    • Karthik Rangappa says:

      Both the call could be OTM, agreed. But what we are trying to look for is the rate at which the premiums change for an expected movement in the market, within an expected time frame. Given this, you need to select an option which has the maximum gains the premium.

      • Aditya says:

        So does this mean that if the Nifty target of 8300 is hit in 5 days, premiums of 8600
        OTM and 8900 OTM will be so priced that if we square off (need not wait till expiry) at that moment we will be making a profit.
        And if we had selected any other strikes (everything else same) this profit could have been lesser.

  135. pratik says:

    Sir, if i had sold weekly 19 march 11600 call yesterday at Rs. 10. and also sold 11500 put 19 march expiry at Rs. 40. Bcoz my prediction was nifty will expired between 11500 to 11600. Today premium of same is Rs. 2 and Rs. 4. Now i want to exit my position so can i exit now?
    I have query that when i want to exit above position someone else have to buy it. Why anyone will buy it from me for Rs. 2 and Rs. 4.?
    and what if i do not exit my position till 3:30.?
    Thank you in advance.

    • Karthik Rangappa says:

      Yes, you can exit the position whenever you want. No need to wait to expiry. Ppl will buy it because they have an opposite view, thats why this is a market 🙂
      If you dont exit, then the option will expire worthless (if OTM) and you will get to retain the entire premium.

  136. Sanjay says:

    Sir, where to check margin required for making bull call spread on nifty

  137. Harsh Singh says:

    Dear Karthikji

    There’s one demoralising thing I’ve heard many times that hedge fund managers traps retail investors b’coz of superfast software & trading machines they possess. So all of our analysis for short term trade like technical, quantitative ones go for a toss. For eg suppose if Candlestick like dark cloud cover appears after market tumbles & other indicator shows bearish patterns but market MANY TIMES do exact opposite next day. It rises. So I heard these are game of hedge fund managers to trap many small investors. My question is…
    1) How much TRUTH are there is to these stories/rumours in media or other financial sources ??
    2) I heard they’d data points where most traders entered
    3) Is most liquid options like Nifty, BankNifty, RIL or TCS can also be manipulated by these top fund houses operators ??
    4) And last things as per your long trading wisdoms what should we do to prevent falling in such traps??, although I agree market can’t be accurately timed.
    Kindly provide some moral boosting answer to above query as our mentor 🙂

    Thanking you & Good night 🙂

    • Karthik Rangappa says:

      1) Not really. Retain investors and traders have a huge advantage in terms of size. Since the trade size is small, they can easily get in and out of the trade
      2) Not true, but yeah, around the S&R region many trades do happen
      3) Nope
      4) The only trap that you have to deal with is your own thinking and biases, dont worry about anything else.

      Good luck, happy and safe trading 🙂

      • Harsh Singh says:

        O ho… absolutely brilliant answers I got. Especially 1st & 4th one I loved it. It’s been positive boost to me. They say Wisdom is better than tons of treasures.
        I’m happy & will trust ur wisdom & move forward 🙂
        Thanking you so much

  138. vinay says:

    Hi,today (23-05-19/Election counting Day) as bjp is leading and sensex is rising in the morning half ,during that time I observed some of the nifty call buy option expiry date 23rd & 30 th of this month like 12200ce,12500ce,12100ce are all losing about 100 percent even though sensex was gaining.I expected the premium of those calls will rise like anything as sensex was gaining.But it did not happen.May I know what is the understanding behind this.

    • Karthik Rangappa says:

      Vinay, this is because the volatility would have crashed. Remember, as volatility cools off, the premiums also would (for both CE and PE).

      • vinay doki says:

        Thank you Karthik. How to see a particular day intraday graph of options ( BankNifty) ? Is this feature available in zerodha or any other screener?

  139. Srikrishna Rowthu says:

    Hi Karthik,

    If I am buying an option using this strategy and think that the option expires worthless, then I would loose the premium.

    But if say like in the above,
    SPOT – 7846
    STRIKE – 7800
    PREMIUM – 79

    And think that the index/stock closed at 7900, then we would be profitable, but won’t be STT since the option is exercised?

    If that’s so, how to tackle that situation.


    • Karthik Rangappa says:

      Yes, STT will be charged on ITM options, hence its advisable to close the position just before the expiry.

      • Srikrishna Rowthu says:

        But if I bought an option and if I close it near to expiry using this strategy, then Theta effect would have eaten my premium.

        For ex:
        I bought an option at strike 7800, spot 7700 at a premium of 100.
        After a few days , spot has increased to 8000.
        Premium has increased to 220.

        Using this strategy, I have even sold an ITM option while I bought the above option. Now, if I hold both these until expiry, then I would lose money on option I sold since the spot has increased.
        At the same time I would gain money on option which I bought earlier, but STT agains eats money.

        So, is my understanding correct?

        If above is true, one shouldn’t hold any option which he bought till expiry, so any strategy which involves buying of an option should better be closed some days before expiry atleast? Am I correct here?

        • Karthik Rangappa says:

          Srikrishna, the bull call spread has to be executed by buying an ITM option and selling an OTM option. You seem to be executing the trade in the reverse direction 🙂

  140. hiren says:

    hello karthik
    first of all amazing and simplified explanation to all these complex process….thank you very much for all these teachings
    you have mentioned theta plays an imp role in selection of strike price..can u b more specfic as to wat value and how to select strike price based on theta value

    • Karthik Rangappa says:

      Thanks Hiren.

      Theta does play an important role. If there is more time to expiry, then you do get the flexibility to select an OTM option. If there is not much time to expiry i.e less than a few days, then you should look at selling option, especially the OTM options.

  141. Sumit says:

    Hello Karthik,
    Hats off to you for your excellent teachings! I would like to know is there any way we can entrust options trading to an expert – Just the same way we buy a mutual fund – is there a structured product available for retail options investor.

  142. Melwin says:

    Hello Karthik,
    Nice explanation, Do I Need to keep the positions till the end of expiry(say last day 3PM) to achieve the max gain or max loss mentioned in all above calculations? Is there a possibility that the max gain or max loss achieved before that, after 2 days I took the positions?

    • Karthik Rangappa says:

      Yes, Melwin. The explanation is based on the assumption that the position will be held to expiry. However, this is not mandatory, you can book the profit or cut your losses anytime before expiry.

  143. vidit d says:

    in the above graphs,you showed about which strikes to select,how you got to know which strikes are profitable?

  144. vidit d says:

    Where did you get the graphs from or are these assumptions? Like you mentiopned in one of the points that “…It is also interesting to note that the strikes above 8200 (OTM options) make a loss.” for graph 3 (blue color one)..” How you know that,is that assumption or any sort if calculation? If its assumption,can we use it right away or test it?

    • Karthik Rangappa says:

      These are not assumptions, but rather conclusions are drawn by running simulations based on Option theories.

  145. vidit d says:

    Can you briefly explain,if possible? I am confused with this.

  146. vidit d says:

    You ran the simulation and drawn out conclusions?

  147. vidit d says:

    When a buy set up is made through charts on index or stock,the premiums of calls are already shot up,do you prefer buying options at those premiums or we should wait? If we wait,could there be chances of opportunity lost? How should we deal the situation?

    Also,can we apply technical analysis on option strike prices also only after confirmation with underlying?

    • Karthik Rangappa says:

      Vidit, TA should be applied on the spot, based on what you deduct, you can either decide to trade in the spot, futures, or options. I’d suggest you do not apply TA on option charts.

      In the situation you explained, I’d look at the volatility as well before deciding on what to do.

  148. vidit d says:

    Thanks for all your answers.

    Pls do tell,are spreads means to be kept till expiry or we can exit whenever we want. Majority of traders play with premiums only,then why our calculations are based till expiry period?

    I was using contrarian trading,it was all going well,i bought Naked call option but my stop loss triggered after 3 bars of my purchase,in such situation would you suggest to always trade using spreads?

    Now zerodha started GTT orders,do we need spreading then?

    • Karthik Rangappa says:

      I’d prefer to trade spreads to expiry, but not all do. As you said, people play the premium and exit positions way before expiry

  149. vidit d says:

    We calculate pay offs etc,max loss or max profits but majority of times we dont wait till expiry rather trade on premiums,but only after there is indication of buy or sell on underlying,so how these payoffs affect fluctuation in premium?

    For ex,there is a buy on underlying,all greeks are working in my favour,i have read payoff graph which is till expiry but i get a good return on premium before expiry itself,then whats the use of calculation?

    • Karthik Rangappa says:

      Well, you can exit the position before expiry. The calculations play a part when you want to hold the position to expiry.

  150. vidit d says:

    What is the best best time frame to trade options? I am using 30min right now to sense early. I prefer to carry options overnight move in any stock or index,so pls tell accordingly. But i like to square of in 2-3 days maximum.

    What are the intraday time frames and if we wish to carry forward our positions,what are those time frames? Pl tell.

  151. Balasubramaniam says:

    Hi, Whats the difference between buying a Call option and selling a Put option. Similarly difference between selling a Call option and buying a Put option.

    Please explain with latest market examples.

    • Karthik Rangappa says:

      The difference is in terms of the risk undertaken. Besides, volatility plays a key role. If the volatility is high, you are better off writing options, else buying.

  152. Sujyot says:

    Hello sir,

    If we allow option to expire then we will receive or debit according to its intrincik value ?
    I was just back testing this with Aug data, on 5th Aug Nift was closed at 10862 if I bought one call of 10800 at closing price of 225 and sell 11000 call for 120, then on expiry when Nifty 10948, in long position I earn 10950-10800 = 150, minus premium 225 My net loss in long position would be -75, and in short position I will retain 120. So Net profit would be 45.

    Correct me If I am wrong?

    • Karthik Rangappa says:

      This depends on your position. If you’ve shorted, then you will have credit upon expiry and if you are long, you’d get credit. This also depends on how the option expires.

  153. praveen reddy says:

    Dear sir
    On 04/09/2019 I have taken
    Bull call Spread:
    1.Buy ATM call option and Sell OTM Call Option. Spot price is at 26711. SEP 26th expiry.
    2.ATM will be 26700CE and OTM will be 26900CE.
    3.Premium required to buy call option 26700CE is Rs 650/-.
    And premium received by selling 26900CE is Rs 550/-.
    Max loss of this Strategy or net premium debited = Premium received – Premium paid = 550-650=100/-
    Max Profit of this Strategy=difference between SPREAD – net premium debited
    = (26900-26700)-100
    On expiry day my profit or loss will be Rs100/-.

    On 9th Sep morning at 10 AM BANKNIFTY is trading at 27150 and 26700 CE premium is at Rs 1040 /- and 26900 CE premium is at Rs 650/-. At this time if I square off my positions I will get a profit of Rs 290/-. (LONG Option profit will be Rs 390/- and SHORT Option loss will be Rs 100/-)
    My question is : is it common to have more profit or loss than expiry date profit or loss ?? when we exit before expiry?

    And one more point : On the same day ie 9th SEP 2019 at 10:45 AM BANK NIFTY was trading at 27450. Here the premium of 26700 CE Long option is at Rs 1000/- and the premium of 26900 CE Short option is at Rs 850/-. Here at this point if I exit from the trade my profit will be Rs 50/- only.
    My question is: At 10 AM when BANK NIFTY is trading at 27150 the strike 26700 CE premium is Rs1040/- but when BANK NIFTY raised to 27450 the premium of 26700 CE is at Rs 1000/-. How did this happen??? Please explain Sir

    At closing on 9th (today) :
    BANK NIFTY SPOT: 27504.65
    Premium of 26700 CE: 1031.40
    Premium of 26900 CE: 876.90

    • Karthik Rangappa says:

      That’s possible, Praveen. This is because the options have their own demand-supply scenario which won’t be captured by the greeks. The variation in the premiums at different time intervals can also be attributed to this along with, of course, the change in volatility.

  154. Yash says:

    Hi Karthik,

    I don’t get the logic behind the selection of strikes with respect to the number of days in expiry. Could you please elaborate?

    • Karthik Rangappa says:

      The idea is to figure out which strikes to select give the number of days to expiry and also the speed at which the target is expected to be achieved. You need to look at it by keeping both these points together. For example, you expect the target to hit in 5 days, but also have 15 plus days for expiry, in such a scenario, you are better off buying a slightly OTM strike.

  155. avinash says:

    i want to learn about banknifty in hindi any one there plz contact me 7740999995

  156. Raj says:

    Karthik Sir ,
    Can you please clear following
    1) According to new SEBI Notification options will be converted into Future contract at the end . That mean this stratergy won’t hold true for last 2 days, will it? As at the end ATM short position amount to short future position for a given month and long OTM position amounts to long future position . Resulting to net cash settlement prior on conversion and having no obligation regarding delivery am I right ? as I won’t hold any future contract.
    2) Are you going to update stratergy module ?

  157. kiran kumar says:

    hi please gide me how to trade bull call spread option in zerodha kite software

    • Karthik Rangappa says:

      All you have to do is load the option in your market watch and execute as per the requirement. Is there anything particular you’d like to know?

  158. Niraj Vijay Sakhala says:

    Hi Sir, For the strategy to work, we have to wait till expiry?

  159. charles says:

    sir, I have a following doubt, please clarify with example sir
    1. what is assignment risk for selling options
    a. how it differ for naked selling option and spread strategies.
    b. how we can calculate our risk tolerance before applying strategies, assignment risk and margin amount.
    2. what type of strategies applicable for intraday options trading other than selling options on expiry date.
    3. when multiple leg strategies applied, whether margin amount required for all the legs.
    4. whether sensibull subscription is worth for small retail trader.

  160. SUDHAGAR says:

    Sir, plz explain the theta and delta values of strike prices that is preferable for every statergy ?

  161. Kiran says:

    Hi Karthik,
    If bank nifty is at 32,000 on weekly expiry day, is it possible to sell 32,300 call options at 2:30pm? I mean will there be any buyers at last hour.
    Also suppose if i sell bank nifty at 32,000 call option before the expiry day and on expiry day if the bank nifty goes to 32,100, will there be more STT charges like 0.125 if i leave it to expire as it became in the money now?

    • Karthik Rangappa says:

      Yes, you can sell, provided there is liquidity. Yes, STT will be applicable provided the option gets exercised….but I doubt so, for a 100 point ITM for bank nifty.

  162. Kiran says:

    Hi Karthik,
    How to check weekly nifty and bank nifty margin requirements in zerodha.
    In the below link i see only for monthly margin requirement

  163. Kiran says:

    Hi Karthik,
    If nifty 50 for weekly expiry is started at 12000 on Thursday and if i sell weekly expiry at 11850 and if it closes at 11860, still will i get benefit of out of the money? i.e if nifty 50 premium is 20 at 11850 and when nifty goes from 12000 to 11860, premium will be around 35. as i have sold 11850 weekly expiry, will i get full benefit of 20 as nifty has not gone below 11850

  164. Kumar says:

    Sir, I have implemented the strategy buy TCS 2260 CE at 7.5 (CMP=6.5) and sell TCS 2300 CE at 4.05 (CMP=4.00), and I am already in loss. Is there a mistake in this strategy and should I exit or hold on to this position? Thanks for your help.

  165. koushik says:

    can we buy OTM and sell OTM ,so that loss would be less and profit would be bit more
    ex; nifty stop =12090
    buy 12200ce at 26rs
    sell 12300ce at 10rs.

    • Karthik Rangappa says:

      Yes, you can do this. In fact, you can do this any combination ITM – ITM, ITM ATM, ATM OTM, OTM OTM, ITM OTM etc. You really need to see what works for the given situation.

  166. koushik says:


  167. koushik says:

    thank you sir.

  168. Sachin says:

    Hi Karthik,

    Twice I have gone thru section 22.3-“Effect of Time” from “Options Theory for Professional Trading”s chapter “22-Re-introducing call and put options”. But I’m bit confused on usage of this approach in section “2.3 Strike Selection” of this chapter.

    My confusion is arising from the fact that the graphs are shown for long positions, but the same graphs have been used to identify p&l for a short position too. Let me elaborate-

    For a *long* position, if expected target is achieved in expected time frame, then these graphs show possible profit/loss for various strike prices. Till this point, no doubt. As part of this strategy (or even other strategies), we’re talking about combination of long and short positions. Now, other leg of strategy is short position. How does that same graph show p&l for a short position? For e.g., from the graphs shown in this chapter, for start of expiry series graph, Graph 1 (top left), blue bars of various strikes represent profit for long positions. Then how come the same graph help identify p&l for a short position?

    May be I’m missing something here, please help.


    • Karthik Rangappa says:

      Sachin, I’m not sure if I fully understand your query. However, the P&L graph is that of the entire position considering both long and short legs of the strategy. So look at it as a combined view.

  169. satish says:

    ok taking knowledge excel is good

  170. Abdul says:

    Just completed Bull call spread chapter today morning …and zerodha posted a webinar on ” Choosing a right options strategy ” that contains bull call spread !!! 🙂
    Things got more clear 🙂
    woh kehte h na ” jise pure shiddat se chaaho puri kainaat tumhe usse milane m lag jaati h ” 🙂
    Thank U Zerodha Thank U Varsity.

  171. Abdul says:

    With all due respect sir ,, I have a doubt in strike selection.
    1) In blue color chart,Graph 1 says the most profitable range is 8600-8900.
    ( and 8900 is nowhere to be seen in graph)

    2) In the beginning you I read
    Buy 1 ATM call option (leg 1)
    Sell 1 OTM call option (leg 2)
    So going by your eg. if Nifty is around 8000,
    8600 cannot be ATM, however 8900 is still far OTM. Confused here in strike selection
    3) i made chart, nifty around 8000 ( assuming premiums )
    buy CE 8000 (ATM) premium paid 90 rs
    sell CE 8300 (OTM) premium recieved 30
    strike: net P/L
    7900 (-60)
    8000 (-60)
    8100 40
    8200 140
    8300 240
    8400 240…continues 240 from here
    so my max loss is 60 and max profit is 240.
    So according to my trial ( well i may be wrong here ) range of 8000-8300
    and 8600- 8900 is giving same profit .
    SO how is far OTM most profitable.

    Thank You Sir .

  172. Shree says:

    Hi karthik .,

    Will you please let us know where you have explained about the possible time to achieve a particular target. How do we calculate the expected time to achieve a target based on bullish marubozu, bullish harami, bullish hammer. With identification of support and resistance using your article on support and resistance.
    How to be sure about the period to accomplish the given target?.

    • Karthik Rangappa says:

      Unfortunately, we cannot peg a timeline for target or Sl to trigger. Once you initiate, you have to wait until one of the price event triggers.

  173. shree says:

    hello Karthik ,

    How do we test the 200 day moving average. and how to read the results , please explain .

  174. Suresh says:

    Prashant says:
    December 28, 2018 at 8:04 pm
    Hi I have one query I have short December 2018 nifty strike price 10650 call as per theory on expiry I will make loss if nifty closes above strike price plus premium(10650+168=10818). But nifty expired at 10779. So I should be able to keep the entire premium but when I checked my statement its showing 10650 call strike got assigned at 129 and 9k got deducted from my account.. Can anyone tell me is it brokers error or some thing else.

    Karthik Rangappa says:
    December 29, 2018 at 10:46 am
    Prashanth, you will make a loss if Nifty moves above the strike price i.e 10650 and not 10818.

    Dear Karthik Sir, I am not able to understand the above.
    he has sold 10650 CE with premium 168. that means he is receiving a premium of 168 . Nifty expired at 10779. So P&L for a call option will be Premium recd – [(max,0,(spot – strike) ]
    168-(10779-10650)=168-129 = 39 PROFIt

    thank u

    • Karthik Rangappa says:

      I’m guessing he would receive the balance as credit. Not sure what happened eventually. But yes, you are right.

  175. Suresh says:

    thank u Karthik Sir

  176. rahul says:

    sir in the strategy notes in the ATM and OTM selection combo both are ATM options plz clarify
    in the 3rd set also OTM OTM strike is their but in the exmpleonly the ATM is their plz clarify as it is not being answered in the above query.

  177. RAHUL says:

    sir, have u checked it ?

  178. Abdul says:

    A big Thank U to Varsity and Kartik Sir for providing Excel sheets for options strategy.

  179. Shri says:

    Can you please elaborate on the Quantitative Perspective of the three perspectives (Fundamental, Technical and Quantitative Perspective) mentioned at the start of the chapter ?

  180. Pranay says:

    Hi Kartik,

    Since the max Loss is capped at “Net Debit” and Profit at ” Spread – Net Debit”.
    Should it Not be simple enough to just select the Strike Set with the minimum Difference in the Premium?


  181. Pranay says:

    Adding to Above the need to ensure that the Target price should eventually cross the Break Even Point else there will be loss in case that fails.
    So will selecting High OTM Options have more probability of resulting in a loss?

    Kindly correct me If I am wrong.

    • Karthik Rangappa says:

      Yup, everything is a trade-off between risk, reward, breakeven, and the breakdown points.

  182. Pranay says:

    The Question Came up considering the below:

    We are considering Price Movement of 3.75% i.e from 8000 to 8300.

    Following Graph 1 (top left) – You are at the start of the expiry series and you expect the move over the next 5 days, then a bull spread with far OTM is most profitable i.e 8600 (lower strike long) and 8900 (higher strike short)

    Even If the Price increases to 8500 (More than Our expectation ) We would still be at Loss won’t we?

  183. Rahul says:

    Hi Kartik,

    This P/L calculation is only valid if we exercise the Options right??
    I mean if we want to close the position before the expiry then the Net Profit/PL should also factor the P/L made as a result of closing the positions.(since the difference in the New Premiums will not be the same)

    Kindly correct me If I am wrong.

  184. upesh says:

    Hi Sir,
    In blue charts, in graph 1, if the move is bullish, at far OTM strikes, delta, theta will increase, theta maybe not very high as we are at the start of the expiry series. But with the spot movement, far OTM may become OTM and delta and theta will also increase as the selected far OTM strikes near OTM. How come I get good returns with slight increase in delta and no big change in theta at far OTM than slightly OTM strikes?
    Thank you

    • Karthik Rangappa says:

      Thats because of the low base of far OTM option. A 1 Rupee premium changes to 1.5/- the return is 50%.

  185. Anant Jain says:


    I am have in doubt regarding the max loss, i had taken
    Buy – Nifty 8000ce @ 225
    Sell – Nifty 7900 [email protected] 325

    Net credit is 325-225 = 100
    So max loss in this case would be 0, given the difference in spread and premium difference is same .

    But at the expiry

    i had loss of around 4 pts i.e. 75*4 = 300
    Isn’t this violating the above rules of max loss and max profit.
    please help me in this regard as i faced the bigger loss in the real market

  186. Anant Jain says:

    Yes, i am preety sure about these number..
    i developed almost 10-12 strategies after seeing nse option chain and formed such strategies which had max loss of Rs 0/- and i even entered the same strategies in my sensibull virtual trade it also showed me max loss zero, it had profit of around 10000+ but i wanted to check my strategy so i kept the position open so that it may expire, but on expiry it gace loss of 4000/-

    • Karthik Rangappa says:

      Hmm, one possible explanation is that the strikes could have lost its volatility premium….which implies that you would have written these options at very high volatility premium.

  187. Anant Jain says:

    Exactly telling above are just the number which had same scenario.
    Let me share you the original number.

    BHARTIARTL 30 Apr 2020 470.0 CE @ 23.00
    1 lot = 1851 qty

    BHARTIARTL 30 Apr 2020 460.0 CE @ 33.20
    1 lot = 1851 qty

    In the above case my max loss should have been limited to 1851*.20 = 370.20 or less…
    But at the expiry my loss was 4257/-

    Below is the screenshot of the strategy. pls help me in this regard

    • Karthik Rangappa says:

      Anant, this is not a bull call spread. In a bull call spread, you are always supposed to BUY a lower strike and sell a higher strike. This could have been a bull call spread if you had done the opposite i.e. but 460CE and sell 470CE.

  188. Anurag Singh says:

    Sir, I am a final year Engineering student. I have started learning the basics of stock market from the varsity app. However, I would want to know which all things I need to know to read the – The intelligent investor by Benjamin graham. I don’t have any commerce background. Basically what are the prerequisites to read that book .

  189. Anant Jain says:

    I agree sir this is not bull call strategy but complete opposite, but still the max loss should have been limited. why did it went against the bookish concept??
    If these can happen the what’s the point of showing max loss (no matter whatever reason).

    • Karthik Rangappa says:

      Have you seen the payoff of this strategy before deploying? I’d suggest you look at the attributes once.

  190. Anant Jain says:

    Sir i deployed this strategy in sensibull paper trade and it showed me payoff graph.

    It even showed me max loss and max profit.
    I don’t have the screenshot but i have seen sir.

  191. Chirag says:

    Hello Karthik,
    I am trying to understand the scenarios under which it makes sense to use this strategy, I am not sure if I understood it fully. The only upside of using this strategy seems to be that it locks the loss potential if markets move in the opposite direction of our view. But it also restricts our profit potential, so shouldn’t we use stop-loss to restrict our loss potential rather than using this strategy.

    Am I missing something? Thanks!

    • Karthik Rangappa says:

      Compare this to buying a ITM naked call option – here you pay a large premium (which means loss is higher)….but with a bull call spread, you minimize the premium outflow, but as a trade-off you cap your profits too. For a lot of traders, this does the job – gives them a good night’s sleep compared to an open naked position.

  192. Chandrasekhar says:

    Explained in simplest way and with good example. Thank you sir.

    Sir, however the net pay off in the “scenario 1 Market expires at 7700”, the pay would be -54. It appears to be a typo.

    May make changes if find it correct

  193. Akshay says:

    Hi Karthik,

    The excel calculations posted in the varsity app for this chapter is different than the example.

  194. Akshay Jain says:

    Even for bull put spread. The app has different Excel calculations..

  195. Sid says:

    Hi Karthik,
    What about the vega factor during the course of trade?
    As it is an overall bullish strategy, is increase in vega during the trade preferable?



    I have gone through bull /bear spread , but wanna know best way to find trend of market & how to choose strike price for weekly index series.

    Intersted in learing option any course in which practily get know that how can apply in real trade

  197. R VINOD KUMAR says:

    Hi Karthik
    Correct me if I am wrong,

    1. As hinted at the last para we need to consider the THETA before deploying the strategy and i assume vega will also play a vital role
    2. Assume if we deploy bull call spread anytime in the start of the series when the IV is low or normal then the lower side protection of this strategy may also increase (Net Debit) in points owing to vega when the IV goes up. – Eg on day 1 of the strategy the maxi loss may be 56 but due to Vega at play it may change to 60 or more in coming days if IV shoots up during the series
    3. Even if one deploys the strategy as per the above charts suggested if the targets are not met in the stipulated time Theta will erode the premium which will lead to loss and wont it be better to close the position if the markets moves in a range.

    thanks in advance

    • Karthik Rangappa says:

      1) Yes they certainly do
      2) Yes, with an increase in Vega premiums will go higher
      3) True.

  198. savan patel says:

    How you created this Graphs ?Please explain in detail???

  199. k.seetharaman says:

    sir how to execute sell one call and buy one call combination in a single order

  200. savan patel says:

    Explanation of Graphs talk only about which strike to choose which is apparent from Graphs but how Graphs are created?

  201. Rajesh says:

    Hi Karthik,
    There was a recent circular where hedged positions the margin required will decrease from 1 June 2020. Is the span margin calculator of Zerodha updated for the same? I see the margins required for covered calls are still pretty high

  202. Tejkaran Singh says:

    Hi Karthik . Thnaks for your all the knowledge you have made available at Varsity.

    I just wanted to know that while executing this strategy if I Place the Buy Order for the lower call option First and then try to place the sell order for the same security aand same series after that ,my overall risk gets minimized. So, should the margin also not decrease , as the purpose of margin as you have explained is to cover the Risk for the Trade/Broker and prevent insolvency.
    Here when Total profit loss is already limited why is such huge margin required.

    • Karthik Rangappa says:

      Yes, margins will be reduced. But at the time of placing the 2nd order you will need full margins, once placed, whatever excess will be released.

  203. […] Check this below example of margin required for a bull call spread. […]

  204. Athul says:

    Hi Sir,

    This strategy can be applied even if we don’t hold until expiry , right ?

  205. Ashish Gupta says:

    Dear Karthik

    I do not understand how to select the Strike Prices , Graphs given in article are difficult to understand .

    Is 3.75 % move in Nifty considered as Moderate move ?

    • Karthik Rangappa says:

      3.75% on the index is quite a bit. I’d suggest you stick to ATM and 2 strikes away from ATM for this strategy, irrespective of what the market situation is.

  206. Uday says:

    Hi Karthik

    Very good explanation.

    I have a question.. while selecting 2 strikes, lets say on expiry day; if i go with LS as ITM(sometime far) and HS as OTM(not too far). This does enable me to be in profitable trade for the range between x & y (and my guess is underlying will close in between x & y). Is it correct way to trade with bull call spread strategy? Or am i missing something? May be i am not thinking about the margin requirement and % return on it?


    • Karthik Rangappa says:

      Ah, this might be complicated a bit. I’d suggest you stick to ATM and OTM, it is probably the best for bull call spraed.

  207. Rishi Saxena says:

    Is it possible to create a bull call spread with both ITM calls?
    and if yes, then why not prefer it?

  208. Ron Kalra says:

    HI Karthik,
    Hope u r doing good. I was wondering how do we know if an expected move in an underlying is a big move or small move. Not sure how should I put this question to you but lets say I’m looking at a stock and I’m expecting it to go up by 5% in 1 month’s time. How do I figure out if it’s a big move for that particular stock or is it a small move. B’coz based on that I will choose my options strategies.

    Also, how do I know what’s a big move for an index ( not only indian markets but few international markets too ). at the moment I’m trading 1 international index too, so I was wondering if there is any way to calculate if a particular percentage move in an index is big move or a small move.

    I’ll really appreciate if you can let me know both in terms of day and monthly basis.

    Many thanks
    As always respect you can appreciate you taking out the time to help all of us.

    • Karthik Rangappa says:

      You need to study its behaviour. If historically the stock has done 5% easily and frequently, then it is not a big move, else it could be. The same holds true for Index too. You can do this across any time frame, for example, if I need to look at monthly, then I can perhaps look at the return behaviour for 12 or 24 months and see how easily the stock or index does 5% and develop a perspective.

  209. Naveen says:

    Hi Karthik,

    Is it possible to create a bull call spread with both ITM calls and few days to expiry(like 2 days)?
    What is the downside of the strategy ?

  210. Ron says:

    Thank you so much Karthik, really appreciated.

  211. manish says:

    hello karthik,what is relation between probability of profit percentage, breakeven and maximum profit/loss.
    is this statement correct:
    Higher the breakeven lower is probability of profit but risk reward is attractive.
    IF THIS STATEMENT IS CORRECT when creating spread what should be sequence of determining factors.1) probability of profit 2) risk reward ratio

  212. Milan Nagori says:

    Hii karthik,
    How much money should be there in a demat account for placing any short sell order.

  213. Aqdas says:

    So, I had been looking at ITC’s option prices and in the wake of the upcoming earnings release event I was moderately bullish about the stock. Hence I decided to implement the bull call spread
    Now, when I went through the zerodha margin calculator for buying ITC JUN 192.50CE the margin that showed up was NaN and the sections ‘Initial Margin’,’Exposure’,’Total’ went into an indefinite loop of processing and did not display any results whatsoever whereas when I entered the details of the 195CE sell option the calculator displayed the details perfectly fine. Please help me out here.

    • Karthik Rangappa says:

      That’s because you don’t need any margins to buy options, you need margins only to sell options. Anyway, have escalated this, getting it checked. Btw, full margins are charged since we are close to expiry.

  214. Aqdas says:

    Also, the margin requirements for selling the ITC JUN 195CE are around 1.91 Lakhs. So does that mean I have to have 1.91 Lakhs in my account to initiate the sell trade even if I am implementing a bull call spread by buying the 192CE option?

  215. Aqdas says:

    No, what i meant to say is do I need to have that amount of money in my zerodha account (the margin while selling the 195CE was shown to be 1.91 lakhs) considering I am capping my losses by implementing the bull call spread.

  216. Shanmukh Sripada says:

    Hi Karthik,
    In the section 2.3 – Creating Spreads, you have illustrated using an example with Nifty Spot at 7883.
    Now in the “Set 2”, the breakeven is 7860. That means on expiry, Nifty spot should be trading at least 7860, for me to get 40 as profit. Since I enter the trade when Nifty spot (7883) is already greater than breakeven (7860), and also considering my bullish prediction, does it make more sense to have a larger spread?
    Also, are Nifty Options cash settled? Because I believe stocks are physically settled now.
    Thank you so much. 🙂

    • Karthik Rangappa says:

      So if you are very bullish, then you can increase the spread. But then if you are really bullish, why not futures? Offers better payoff right? Yes, the index is cash-settled.

  217. krishna says:

    Hi Sir,
    You are helping us a lot by answering all the questions. Thanks a lot for this.
    I have bought Reliance 1780 Call and Sold Reliance 1860 call July Expiry. It required around 32,000 rupees both the options. I am planning to hold both the trades till 3rd week of July.

    My question is,
    1) Do I need to have more funds to hold both the trades till I square off in 3rd week?

  218. NAGESH says:

    Hello sir, I started learning options recently I have a doubt that can I exit the trade as soon as breakeven is achieved or should I have to wait till expiry? Can we execute these strategies on intraday basis r few days basis?

  219. Aqdas says:

    Hi Kartik,

    My bull call spread strategy on NIFTY was:
    Lower Strike: 10700 CE (BUY)
    Higher Strike: 10800 CE (SELL)
    I selected the aforementioned strikes because I expected the move to happen in 12-15 days.

    Now, my breakeven was 10700+46.3(217.4-171.1)=10746.3
    Nifty crossed 10800mark today and the Profit that I had calculated was 4027.5 according to the Bull call spread spreadsheet
    But, in the trading terminal the Profit that was being showed was only somewhere between 950-1000 which confused me.
    So, I decided to square off my position and subsequently in the funds section the used margin was being displayed as -4458.75 which signifies that I had made a profit of 4.5k on the trade. My question is why did the terminal not display the profit of 4.5k that I had made before squaring my position?

    Also, when i squared off my position the sell order was executed first and then buy order with a time interval of 1 second. So, I received a margin call mail from zerodha when I squared my position. But when I checked the funds section I had sufficient funds. Should I be concerned about this?

  220. udbhav says:

    As you have mentioned, for moderate bearish view as well we can use this strategy, in that can we have to sell lower strike and buy higher strike. Right?

  221. udbhav says:

    Then as you have mentioned, it can be used for moderate bearish view as well. What do you mean by that ? Pls clarify

    • Karthik Rangappa says:

      If you are bearish, you either short naked futures or buy a naked put. If you are moderately bearish or bullish, then you set up a spread strategy such as the bull call spread or the bear put spread.

  222. Saravana Kumar says:

    Sir, I am a beginner to options trading. I bought a lot in nifty in sensibull and then after the premium went up, I clicked on exit position in kite app when P&L was positive. But, before clicking exit, I could see that when I click on sell option in option chain window (sensibull) for the same option in sensibull, it asks me for a margin again. So, clearly the sell option on sensibull is different from clicking exit in kite for the same. So, I’d like to know the difference between them.

  223. Bhuvan Jain says:

    Hello Karthik,
    Kudos to your work.

    I am a newbie and my doubt may vouch for it.
    But I would like to clarify something about the P&L charts that were presented in this chapter.
    Are these charts meant to represent holding till expiry or exiting once your target is achieved?
    Thanks in advance.

  224. Niranjan Kumar says:

    Hi sir
    I m beginner in trading & rying to learn through youtube & google. Problem is that I m not learning systematically. I don’t know where to start from. When I watch any youtube video, I feel problem due to some technical words or some basics required to understand that video.
    I went through your this blog. I understood almost 100% concept you delivered.
    I want to go throu

  225. Niranjan Kumar says:

    ……..Want to go through your all blogs regarding trading.
    Please guide me where I should start from?
    Eagerly waiting your reply.

  226. Vishal Pawar says:

    2 Questions:

    1st. above Example Profit is 46 in Scenario 3. but the Net Debit was 54 Right ?
    then Net Debit – Profit is 54 – 46 = 8 right ? that means it is still Debit. No Profit Actually.
    means assume,
    7800 CE bought = 79, Lot x Prem.= 75 x 79 = 5925/- Direct Debit (Direct Loss) Right ?
    7900 CE Sold = 25, Lot x Prem.= 75 x 25 = 1875/- Direct Credit right ?

    Now, Paid – Received = 5925 – 1875 = 4050/- Direct Loss or Debit Right ?
    so as per Scenario 3/4. we made profit 46.
    means, 7800 CE = 75 x 200 = 15000/- and 7900 CE= 75 x 100 = 7500/-, Right ?
    so, 7800 CE = 15,000 – 5925 = 9075/- and,
    7900 CE = 7500 – 1875 = 5625/-, Right ?
    finally, in paid prem. – recvd Prem. = 9075 – 5625 = 3450/- Right ?
    in Actual Net Debit was 4050 and final is 3450, so 4050 – 3450 = 600/- Still Net Debit ? its not Profit I guess ? 46 ?
    we are still in Debit ? then what is the Use of this Strategy if making Loss.
    [if i am wrong please Correct me.]

    2nd Q.

    if I bought CE in Stock on day 1st day of month. as per physical Delivery Settlement by which day i have to exit entry ?
    before Expiry that i know but in Actual what day or date. Like 2 days before or 3 days before, or tomorrow is expiry and i can exit today without physical Del. Settlement. ?

  227. Vishal Pawar says:

    Ok Sir, But what about 2nd Q. ?

    what will be the exact timing to square off the position in stock to avoid physical del. Settlement. before expiry like 1 Day Before or 3 Day before ?

  228. Santosh says:

    Here the maximum loss is 54 and max profit is 46.

    But if I buy a naked Far OTM option, then the premium paid will be low, say 25 or less than 25. The maximum loss is now capped to 25 and the maximum profit is not limited. Don’t you this buy a naked far OTM option will be better in this case?

    • Karthik Rangappa says:

      I agree. Naked positions are best when you are 100% sure about the direction. Otherwise, you need to go with a spread.

  229. Sharan says:

    Hi Karthik,
    In a Bull-Call Spread, why does a Broker need to block a Margin which is way more than the maximum potential loss for that Trade setup? If maximum that I can lose is Rs 10,000, then what is the need to block Rs 50,000 as Margin?

  230. rakesh goutam says:

    What happens if I took a bull call strategy of “x” stock and both the call options are in the money at the time of expiry?
    Am I oblige to take delivery (in this case I guess, sell).

  231. rakesh goutam says:

    You mean to say, even if I won’t square off my positions before expiry, I won’t be obliged to take exercise the sold call position?
    Just to inform, I don’t have any shares or capital to exercise the position.

    • Karthik Rangappa says:

      Yes, you cannot exercise the position before expiry, but you can square off the position anytime before expiry. Remember, both exercise and square off are two different things.

  232. Yets says:

    Hello sir I have doubt on “Scenario 2 – Market expires at 7800 (at the lower strike price i.e the ATM option)” , In the example you mean to say 7700 and 7800 has 0 IV, right? please explain if I misunderstood here.

    • Karthik Rangappa says:

      No, if market expires at 7800, then 7700 CE will have an intrinsic value of 100 but 7800 CE will have no intrinsic value, hence worthless.

  233. Yets says:

    Yes I actually revisit IV module, understood now. Thank you. 🙂

  234. Soumen Siddhanta says:

    If I want to square off Call sale option, then what should do I first? As I have not any margin amount. Then 1) At first I have to square off Buy Call option. Because I have taken a bull spread , but I square off buy call first and Zerodha Wants to mergine for sale call option. So please clarify me about that?

  235. Roop says:

    Is it a MUST that we need to wait till expiry for the options strategy (other than naked calls) to turn profitable or we can exit all the legs (squear off) in between and make profit?
    Or the answer depends on the strategy in question?

  236. MAHESH says:

    is have any hedging or spread strategy works in intraday. please explain me

  237. Jyotiram Sonwane says:

    1) How many shares /future contracts or call options contracts can we buy or sell in a day as an intraday trader?
    2) Is there any limitation on it or not?
    3) If there is not any limitation, how we can sell them, in a lot or in a whole quantity?
    Plz clarify…

  238. Jyotiram Sonwane says:

    I mean,
    1) How many shares of stocks can we buy or sell (short ) in a day as an intraday trader?
    As well as same about the futures and options (calls and puts).
    2) If I buy 1000 shares of any stocks, can I sell them at a time or in a lot (i.e. 200, 500, 700 etc.) For intraday trading and same about the calls and puts.
    Plz clarify…

  239. Jyotiram Sonwane says:

    Ok, thank you sir.

  240. sandip maru says:

    hi karthik,
    may be small typing error in set 3 in last section..
    both r OTM and its mention as ATM..
    thanks for your wonderful explanation

  241. Srinath jayanna says:

    Sir here you have mentioned like this,Here is something you should know, wider the spread, higher is the amount of money you can potentially make,but as a trade off the breakeven also increases..But in sensibull they have mentioned closer the breakeven probability of winning will be higher.

  242. Ananth Gopal says:

    Dear Karthik Sir,

    If I am trading with anyone of the option strategies, is it compulsorily that I have hold the strategy till the expiry day or can I square it off when my target is hit. Please suggest. Thank you.

  243. rahul says:

    sir how much minimum and maximum points we can consider high volatile and low volatile.

  244. Vivek Shukla says:

    Why should we go for two far otm options when target is to be achieved in 5 days….

    • Karthik Rangappa says:

      The risk and reward pay off is better with these strikes, have explained the same in the chapter.

  245. jagadish pandey says:

    hai karthik i have a doubt for example i have taken a position in SBI CALL SELL means im a option writer..
    200 call sell for premium of 5/- which i received..n if that option closes at the premium of 2/- during that time receive only 3rs premium or 5rs total premium pls guide me..

  246. Siddharth says:

    Hi karthik,

    Firstly Thanks for the awesome content, I am enjoying reading it.
    I have a doubt, it’s mentioned that the profit and losses are capped (depending on premium paid at time of purchase and spread). If I am holding my long and short positions till expiry then I understand the capping of profit and loss. But if I were to square off my positions before expiry , can’t profit and loss exceed the values mentioned in the chapter. Before expiry, P&L would be decided on premium and as mentioned in the previous module about volatility smile, will my long position having higher volatility and my short position having lower volatility can’t lead to deviation of P&L from capped values mentioned in the chapter . I hope my question make sense.


    • Karthik Rangappa says:

      No, the P&L is largely within the range keeping expiry in perspective. In the case of extreme volatility, there could be a slight deviation though.

  247. jagadish pandey says:

    sorry i didnt get u…will i receive 3rs or 5?

  248. koushik says:

    small confusion while doing directional spreads ,i had a bear put spread position ( both slightly otm legs ) on hindalco where spot was around 170 (on date : 21 sep ) if i were to exit position on 23 sep where spot is at 165 it show me a profit of 18k . but now as the new month begins when i apply same strategy ( both slightly otm legs ) again according to present situation it isnt that profitable as the previous trade ( the fall in stop was also same )is this because it is the beginning of the month or what please explain ,thank you .

    • Karthik Rangappa says:

      Koushik, that profitability would depends on the movement right? If the movement exists then yes, this could be result in better P&L since the time to expiry is higher.

  249. Shiv says:

    Why to risk Rs.54 to gain Rs.46
    It’s not even 1:1 RR ?

    • Karthik Rangappa says:

      Yeah, each set up (with different strikes) has a different RRR, you need to figure what works for you.

  250. Bhaskar says:

    hello Mr Karthik…
    technically most percentages of people don’t trade till expiry…most people square off their trade after a certain profit…is this the case for the strategies also…like can they square off before expiry, if yes, how the p&L statement would look like..?

    • Karthik Rangappa says:

      You can initiate and hold and sq off before expiry. I’d suggest you use Sensibull to get a perspective into the P&L changes.

  251. Likith reddy says:

    all the calculations seems to have been done with a delta of 1 whereas the respective change in premium price is not exactly commensurate with the underlying like you have discussed here . any insights on how likely these calculations are supposed to hold up ?

    • Karthik Rangappa says:

      In reality, all the Greeks change on a real-time basis. Btw, not all calculations are down with Delta of 1, have included many different delta scenarios across the module.

  252. Rajeev says:

    Hello sir ,
    I have taken a Bull call spread for Oct 15 weekly options on Oct 13
    Nifty Spot 11925 while taking the spread.
    I took 11600 buy call and sold 11800 call as part of Bull call spread
    11600 Buy call – 340
    11800 Sell call – 165
    Now Breakeven is 11600+ 175 -> 11775 on expiry
    On October 14 close of market, nifty was at 11971
    11600 Buy call – 390
    11800 Sell call – 188
    Now Breakeven is 11600+ 202(390-188)-> 11802 on expiry
    1.So does breakeven on expiry changes everyday from the time we take trades, as it has changed from 11775 to 11800 post 1 day.I thought it was a constant value ?. Plz explain.
    2.Since I dont foresee big movements in prices,I have taken a far deep ITM and near ITM call for the bull call get max profit Vs a bull call in ATM and OTM calls.Is that a good way to trade as Oct 15 is a expiry day?
    nifty data:
    Date Open High Low Close
    13-Oct-2020 11934.65 11988.20 11888.90 11934.50 458304851 29403.22
    14-Oct-2020 11917.40 11997.20 11822.15 11971.05 569245407 29940.62
    3.Since, Im using sensibull , it says max profit is 2k and Max loss s 5K.Should I put a stop loss on both trades to reduce my max loss of 5K.plz explain.
    4.Does Hedging strategies require stop losses in general to reduce max loss. It could be an Long straddle, short straddle or spreads.Plz explain.

    • Karthik Rangappa says:

      1) It is a constant, but keeping expiry date in perspective. During the expiry, things change, not too drastically from the expiry values though. You can check sensibull for more values

      2) Yeah, but if you don’t see a reasonable movement, why the spread? For a BCS, you need to be at least moderately bullish.

      3) You can do that

      4) Short strategies would need since they are open-ended. Things like Iron condor would not.

  253. Rajeev says:

    Thanks for the prompt response sir !!! Kindly explain the below query?

    1.How to put Stop loss for spreads.Explain with example for a bull call spread and short straddle. Thanks in advance !!!

  254. Mahesh says:

    What will happen when we left both these legs active till expiry without closing.? Will there be cash settlement for Index and profit or loss accounted to our accounts without any delievry etc..
    Thanks in Advance..

  255. Aarti says:

    Sir under Scenario 1 you mention that if we write a 7900CE and at the time of expiry the nifty spot is at 7700 then the IV is 0(exact statement-“The 7900 CE option also has 0 intrinsic value, but since we have sold/written this option we get to retain the premium of Rs.25.”) but i do not understand how that is possible?? indices are cash settled, so upon expiry the IV should be: Strike-spot price=200 and overall gain should be 200x25lot size=Rs 5000+625(premium received)=Rs. 5625

    May be am grossly mistaken, but I don’t know where exactly. So sir please correct me!

    Many thanks:))

    • Karthik Rangappa says:

      7900CE expires worthless when the spot is at 7700 right? Hence the option has no value, therefore the 7900CE will expire worthlessly.

  256. Jitu says:

    I made bull call spread on srtransfinance
    Bought 820 CE-23
    Sold 860 CE -13
    So when it touch 860 that spread should give profit of around 30(Spread(40)-Net premium(10)) but when price touches 860,the profit was 22(i.e 860CE-59,820CE-37).
    Why is that huge difference(30 & 22)sir…..any suggestion on that sir?

  257. Bubul says:

    I am very scared of trading these days. I started with 89k and made it 1.5L. But then I lost all with 30k left. I was new and was not aware where to put stop loss, how to apply strategies etc. I traded naked in banknifty future.

    After that loss, I started learning. I learnt from Varsity and other online videos. Now even though I feel confident, I am very scared of facing another loss.

    How do I overcome it ?

    • Karthik Rangappa says:

      I’m sorry to hear about your financial loss. This happens to the best of traders. Start by placing small bets, making small gains. With each gain, your confidence level increases. That will help you overcome fear.

      Good luck!

  258. Tarang says:

    Sir, I want to know how to square off the bull call spread at the end of the month expiry ??

    • Karthik Rangappa says:

      YOu square it off by buying the higher strike and selling the lower strike. Basically, you need to square off both the open legs of the trade.

  259. biswarup mukhopadhayay says:

    sir,a great elaborated lesson,it was interesting to learn…only one remarks i.e MARKET WILL EXPIRE IN BETWEEN THE STRIKE PRICES,LIKE LETS TAKE 7978 (SPOT) ,SO ONE SUCH EXAMPLE IN SPREAD SHEET MAY BE INCLUDED WITH REALISTIC IN BETWEEN EXPIRY…for naives like me.

  260. Sathish says:

    Once after getting into the Bull Call Spread trade – does it mean we hold the trade until expiry as we are writing an option in one leg or are we allowed to square off at any time? If the expiry is just around the corner within 3 days it’s fine. Let’s say if the expiry is far like 25 days or so?
    Or it’s because of the strategy that we are either ways in a limited loss and profit, so it doesn’t matter?

  261. Djay kadam says:

    Banknifty spot 29656
    30200 call buy at261
    30500call sell at 95in 2lots
    Sir pl tell me lower and upper breakeven points of this stratergy .and how to calculate them

  262. Ayush says:

    Will I generate regular income from options trading

  263. Kiran says:

    Hi Karthik
    How to check margin requirements for weekly option for nifty and bank nifty. I only see zerodha margin calculator for monthly expiry
    Also i hope we wont get leverage for options like as we get in equity. correct?

  264. Kiran says:

    Hi Karthik,
    I am not finding weekly expiry margin calculator in zerodha. not sure what margin is required for weekly expiry. Only monthly expiry margin calculator is there. can you let me know on it

  265. Indra says:

    Hi Sir,

    First of all, let me thank you for writing these informative articles. I have just started reading them and found them very useful. Kudos for taking up this initiative.

    In the first scenario, I have a question. I think we will be losing in the below case, right? For example, the loss per 1 lot would be (54 [the difference of premium paid/earned during the buy and sell]*75 [lot size])=4050.

    Scenario 1 – Market expires at 7700 (below the lower strike price i.e ATM option) => We will be making a loss of Rs.4050/lot as per above. Please confirm, if this is correct understanding?

    So, this strategy of Bull Spread will click for us only when the markets turn bullish, right? Otherwise we will be in a loss.

    Thank you.

    • Karthik Rangappa says:

      I’d request you to look at both the scenarios again, have put in an explanation. YEs, its profitable only if the market is slightly bullish.

  266. Harsh says:

    Dear Sir,
    Please clear my confusion that, How Breakeven for Combination of ATM with OTM IS Higher than ITM with ATM?? Stated above
    Are you saying it High because of Breakeven value OR Difference btw HS&LV.

    • Karthik Rangappa says:

      The breakeven is a function of the option premium as well, which is higher for ITM options. Hence larger breakeven.

  267. Harsh says:

    Dear sir,
    In SET 3 OTM with OTM Combo,
    IN L.S. There is ATM Long written in it
    and in H.S. There is ATM Short written in it
    Am i interpreting it wrong? or there is any logic behind it??

  268. Manoj says:

    What if market be in sideways or not move even can we make money In bull call spread ?

  269. Amit Parikh says:

    Sir, I prepared the excel sheet for P&L calculation for Bull call spread strategy. My confusion is when we use this strategy we are not trading on Option’s premium, instead we hold them till expiry. Then how does theta matter?

    • Karthik Rangappa says:

      At the time of initiating the trade, if the theta factor was high, then the erosion of premium would be on the higher side.

  270. T S VASUKI says:

    Wrong screen shot linked in the mobile version of Varsity, location Chapter 2, page 04/07

  271. Tango says:

    Hi sir,
    My question is,
    1)in above case what if both legs expired as ITM. Say, nifty expired @ 8000 ,Then is it compulsory to give physical delivery for ‘ sold 7900CE ‘ ? Or position will be ‘netted off’.
    2) How one can take physical delivery of indices like Nifty in case of hold it till expiry & naked position ? How there can be debit/credit of nifty underlying in demat account like other stocks?🤔

  272. Bob says:

    How to analyze fir weekly strategy?

  273. Prasad says:

    Dear Karthik,
    Thank you for the wonderful article. in 2.3 section of strike selection could you please help me understand how was those charts were created (profit/loss vs strike wrt to time) ?

    • Karthik Rangappa says:

      Prasad, these are charts which indicate the probability based on the time to expiry and the speed at which the market moves or rather the speed at which you expect the market to move. Based on this, the strikes you choose varies.

  274. Bhanu Singh says:

    More details are needed on Strike Price Selection, Can you please write one chapter covering the details.

  275. Bob says:

    In the above article it is stated that
    The bull call spread is optimized and the spread is created with 300 points difference.
    How do you optimize a spread?

  276. Sarfaraz Alam says:

    Hi Karthik,
    I am very keen to learn very deeply about Option Writing completely practically and theritically. Please suggest How could I do that?
    Need your support in this regards would be highly appreciable.

  277. Chandra says:

    Hi Karthik R,

    I have a basic question on how to close the bull call spread position in kite ? if both the legs are in the money (i.e underlying spot greater than the strike of sell call option leg), Should i just let the positions expire in Kite to realize the max profit ? Will the positions get auto assigned ? OR Do i need to buy back the positions before expiration ?


  278. Varun Kumar Singh says:

    In this article it’s said that this strategy is for to reduce the cost. But this strategy need more cash instead of buying the option only. Than what is the use of this strategy.

  279. v vamsi krishna says:

    The video from zerodha:-
    Options Trading – Learn to plot the Option’s P&L payoff on MS Excel and articles are very helpful.could you please provide the excel used in the video to my mail [email protected]

  280. mahendra says:

    Suppose we got correct direction…and bnf cross our second leg..i.e otem sell strikes…now if we exit from otm sell option and keep only atm strike with strict SL-M …is it not a good idea…thanx in advance .

    • Karthik Rangappa says:

      Hmm, lots of traders do this. But this is exposing yourself to directional risk. No harm holding, as long as you know the risk involved.

  281. Rajat pahuja says:

    hello sir ,
    i tried to paper trade on bull call spread , market touched the upper strike (which was suppose to have a maximum profit at expiry ) , and i squared off . i was supposed to pocket 337 instead i received 80 providing there is ample time to expiry . Is this work well if we hold it till expiry ?

  282. Priyank Bhatt says:

    I have a spread which is ITM now – HAVELLS 1120 PUT SELL hedged by 1110 PUT BUY.
    My maximum loss is 8000 as per the position.
    I am confused if my loss will be more than 8000 as the bid/ask are illiquid now. Another confusion is if I would have to take delivery as shorted PUT is ITM. I read Zerodha document on this and assume that it will be net off i.e. no delivery. This is first time that I’m facing this scenario so don’t know what will happen to this postion.

    • Karthik Rangappa says:

      Priyank, yes, there will be no delivery obligation if both the options are ITM. Max loss will remain the same (provided you’ve calculated correctly), upon expiry.

  283. Priyank Bhatt says:

    Thanks Karthik for your reply!! It helps.

  284. Aravinth kalaiselvan says:

    Say I have 3200 ITC stocks in the cash market (no. of shares in 1 LOT) and I sell far OTM call option. Will I get margin benefits?

    * Am 22 years old, started my job this year…saved a lot of capital in college and been in the options market for more than a year now…I understand the risk, reward and options geeks, thanks to you Karthik. But, I don’t have the money to execute the above mentions covered call right now, but if you say we will get margin benefits, I will plan and save accordingly, Thanks!*

    • Karthik Rangappa says:

      I’m glad you liked the content on Varsity 🙂

      No, unfortunately, there is no margin benefit here.

  285. Siddharth says:

    In graph 3 and 4, why after certain OTM strike we would start making loss?

  286. Anand says:

    hello sir
    when i use the option strategy builder of sensibull
    If i buy Nifty CALL ,29APR2021 at strike price 15000 @ Rs.214 and also i buy Nifty CALL, 24JUN2021 at strike price [email protected] Rs.459 , it shows the breakeven point is just 15100.
    How it can happen that the breakeven point is just 15100?

  287. vaishakh says:

    Sir, does the above mentioned analysis of selection of strike price based on time to expiry works for weekly expiry too ?

  288. Anant Saraogi says:

    Hello Sir

    How do we get/create the graphs used for strike selection as given in Section 2.3?

  289. Abhishek says:

    Hi Karthik,

    What if I use 2 deep ITM calls say buy 14200 and sell 14250, since currectly markets are showing a pretty strong support at 14300, will I be guranteed a profit?

  290. Snehal Talati says:

    Dear Karthik,
    Your efforts of Varsity has greatly enhance my knowledge on stock market. I have one query on above article:
    1) Can you explain me how you plot Profit/Loss chart (Target hit 5,15,20,expiry days etc.) on Bull Call Spread strategy for different strike?
    I want to learn techniques and calculation.

  291. Bhav says:

    In your graph example. you mentioned spot price as 8000. and expectation is that it will go up to 8300. then why would one purchase 8600 call and sell 8900 call ? because my expectation is only it will increase till 8300? so both option will expire worthless anyway? Am I missing something here?

    • Karthik Rangappa says:

      Hmm, depends on the time to expiry also. If there is ample time to expire then buying a slightly OTM option also helps.

  292. bhav says:

    Thanks, But can you explain how that would help? I am a little confused.

  293. bhav says:

    Hi Karthik,
    Below is my exact confusion
    we do a bull call spread if we are moderately bullish
    when I am getting into my trade, the assumption ( as mentioned) is that I expect the price to rise only to 8300 ie expire at 8300, from the current 8000 spot. ie

    “The thought here is that the market will move up moderately by about 3.75% i.e from 8000 to 8300. So considering the move and the time to expiry, the graphs above suggest –

    Graph 1 (top left) – You are at the start of the expiry series and you expect the move over the next 5 days, then a bull spread with far OTM is most profitable i.e 8600 (lower strike long) and 8900 (higher strike short)”

    However:: if we expect expiry to be at 8300, then 8600 anyway expires worthless. and hence our loss is will be net premium ( premium gained on selling 8900 and on buying 8600.) So if we are anyway expecting 8300 expiry from start , wasn’t It better to buy 8200 call and sell 8500 call? so that we can at least make a gain ?

    • Karthik Rangappa says:

      Yes, but you need to think about the time to expiry as well. Thumb rule is longer the time to expiry, the further you can go in terms of moneyeness. You don’t want to lose the premium with theta erosion, sticking to ATM of ITM is like a hedge against that.

  294. Abdul says:

    Hello Sir,
    I have a doubt
    U said ( Do note you can create a bull call spread with 2 options, for example – buy 2 ATM options and sell 2 OTM options. )
    And in key takeaways, it was written (Classic bull call spread involves buying ATM option and selling OTM option – all belonging to same expiry, same underlying, and equal quantity) plz note equal quantity.
    so a bit confused here.
    what if a person wants to trade in higher lots?
    hope I have placed my question.
    thank u sir

    • Karthik Rangappa says:

      Ah, no..what I meant is that don’t do it unevenly. Like sell 1 and buy 2. Do it equally on both legs.

  295. Chandra says:

    Hi Karthik,

    I am assuming the P/L graphs are based on the profit/Net-debit formula. But in reality, it should be profit/margin as we are blocking margin for that period right?

    If profit/margin is the way to look at profit percentage, will the above strike selection work according to graphs?

    Thanks in Advance.

    • Karthik Rangappa says:

      You can calculate P&L based on margins as well as the absolute difference between P&L. We have used the diff in the premium method.

  296. Chandra says:

    If the margin is used as the denominator in P&L% calculation, regardless of what time we are entering into strategy and when the target is achieved won’t it be always best to select ATM as the strike as that will be the biggest gainer in case the target is achieved?

  297. Abdul says:

    Thank u sir for Varsity.
    You have explained all the things in a very lucid manner.
    With all due respect, Only one thing I’m unable to understand is the bar diagram (strike selection, P/L w.r.t. expiry)
    Also, I observed in comments many have doubts too in charts.
    My humble request, It would be very helpful if this concept is explained in Zerodha youtube channel.
    Thank You Sir for all ur efforts.

    • Karthik Rangappa says:

      Sure Abdul, we will try to do something related to that. Meanwhile, if there is something, do let me know. Thanks.

  298. Japan Dhameliya says:

    Hi Karthik,

    In the Bear Put Spread Chapter, you mentioned that it is “advisable to take the bear put spread only when the volatility is expected to increase, alternatively if you expect the volatility to decrease, its best to avoid the strategy”.

    Does the same hold true for Bull Call Spread as well?


  299. alok says:

    is there any chance to get a risk reward ratio of 1:2

    • Karthik Rangappa says:

      Yeah, markets give that opportunity every once in a way. You need to watch for it.

  300. raghav ralhan says:

    to have the payoff that is computed using the excel sheet do we need to wait till expiry ?

  301. Aditya Garg says:

    Hey Karthik.
    In this module you have discussed about the right strike selction.
    Lets take we are in starting of series( STarting 15 days) and we expct the target to be met on expiry day.
    So we look at graph4 and we clearly see that ****ATM options give the most profit*****.

    Now we had discused the same concept in OPTIONS TRADING module as well.
    There in the REINTRODUCING CALL AND PUT OPTIONS you have disccused the same concept(Right strike price selection).
    Now in that chapter; if we loook at the same thing that is we are in starting of series( STarting 15 days) and we expct the target to be met on expiry day then we see ******ITM options give the most profit******.
    Also the graph 4 from both the modules look very different. How is it possible??

    • Karthik Rangappa says:

      Its not different, Aditya. As we introduce newer concepts, we are trying to arrive at the best possible strike to select given the strikes.

  302. Aditya Garg says:

    Also Karthik; how can we determine when the target will be met?
    I understan if we know target is met in 5 days and you are in starting of series; then buy far OTM option.
    But how do we deteremine if it will be met in 5 days?

    • Karthik Rangappa says:

      This is based on your expectation from the market, one way to derive this is by looking at the S&R levels.

  303. Kiran says:


    I have query regarding banknifty position. Suppose now if Banknifty is at 34000 and if i sell Banknifty call option at 34000 and if suppose market goes up by 500 points, can i shift my position from 34000 to 34500? If directly not possible, is there any other way to do it. I dont want to do additional sell at 34500. only shift my existing position from 34000 to 34500.

    • Karthik Rangappa says:

      Yes, you can. But you’ll have to pay for the additional costs involved in squaring off 34000 and initiating the 34500 position.

  304. Kiran says:

    Thanks karthik. is there any link where steps are mentioned? i am not getting the steps to do it. Kindly help me on this

    • Karthik Rangappa says:

      Can you search for ‘Download’, on the page? You will get the link to download the excel which has all the steps.

  305. Suvendu says:

    Hello Karthik,

    Lets say I intiate a spread of ITC for June expiry.
    I purchase 220 CE and Sell 230 CE.
    Net debit is 5 points. ITC spot is 211 currently.

    Now assume ITC is trading at 225-235 over the next 2 weeks. Can I exit once it crosses 230 or do I need to only exit once expiry happens?
    If I exit earlier I do not get the full value of 10 points? Why is that the situation?

    • Karthik Rangappa says:

      YOu can exit it before expiry. However, the P&L may not be exactly as per the calculation since before expiry there are other factors that influence the premium. I’d suggest you check Sensibull for indicative P&L before expiry.

  306. Kiran says:

    Hi Karthik
    I downloaded the excel file. There is no steps mentioned in it. Kindly can you check once on it.

    • Karthik Rangappa says:

      The excel is the complete model Kiran, please look at that along with the notes mentioned here.

  307. Turbhe says:

    Hi Karthik,

    I have seen on the news someone suggesting to buy Nifty 24 June CE and sell Nifty 10 June CE both at the same strike price of 15200.

    I fail to understand what kind of position is this.
    Could you care to explain why someone would hedge a position over 2 different expiry dates. The position is not hedged correct?

  308. Turbhe says:

    Dear Sir,

    I did some research and it is a calendar spread.
    It says that this strategy is neutral and benefits with an increase in IV.

    I set this up on sensibull at it shows that the max profit occurs when Nifty remains at 15200 (strike price of the spread).

    I don’t really understand this as an increase in IV increases option premiums.

    Could you explain what is at play here?

  309. Kalyan says:

    Sir. Can i do spreads like this., I made a buy call of bank nifty at 35000 while it is trading at 35200 around and put call at 35500 in normal days not on expiry day

    • Karthik Rangappa says:

      Yup, you can. Make sure you put the numbers on excel (or Sensibull) to see how the payoff works.

  310. jose FRANCIS V A says:

    have a feeling i am seeing light at the end of the tunnel/ if i use elliot wave tyhere is always a chance i would make a mistake/ even in that case the loss is
    limited and i dont have to Sel m y house! thank you Mr karthik.!

  311. Prashanth says:

    Hi, Karthik.
    This is regarding breakeven point: at break even i.e. 7854 we will be positive with Rs 25 which we have received for writing the 7900CE not zero, please confirm.

    • Karthik Rangappa says:

      Not really, at breakeven, your Profit or loss is 0. It is only after this point that you will make money (upon expiry).

  312. Harshad says:

    Hello Sir,

    Assume SBI future is around 440.
    I currently feel SBI will move up,

    So I initiate A bull Call spread buy buying 440 CE and selling 460 CE.
    In 5- 10 days SBI does rise to 462. There are around 7-8 days to expiry.
    I currently feel SBI still could move up some more.

    Do I exit my position and re initiate a bull call spread by buying 460 CE and Selling 480CE or should I continue to hold my existing position.

    I currently do not gain my max profit and there is still time to expiry and there is still time premium left.

    • Karthik Rangappa says:

      YOu can continue holding the spread, no point exiting a profitable spread and reinitiating the same.

  313. Harshad says:

    Hello Sir,

    Assuming that expiry is still 20-25 days away.
    What should be done?

    As my profit gets capped at 460 levels so what can one do about that?

    • Karthik Rangappa says:

      The full profits can be got only upon expiry, before expiry the profits would be slightly lesser even if the position has moved in your favour.

  314. Kumar says:

    Hi Karthik, An ITM-ITM bull call spread has a higher probability of profit. Are there any risks in implementing an ITM-ITM bull call spread?

  315. RAHUL says:

    Do I need to square off my positions in bull call spread.
    NOTE- NRML order

  316. Kumar says:

    Hi Karthik, An ITM-ITM bull call spread has a higher probability of profit. Are there any risks in implementing an ITM-ITM bull call spread?

  317. shubham says:

    Sir, I am not sure if you are still active in the comment thread but your content has help me immensely. CFA become too monotonous sometimes but this helps me take off heat learn interactively.

    • Karthik Rangappa says:

      I’m active in the comments section, Shubham 🙂 I’m glad you found the content useful in Varsity 🙂

  318. Trader says:

    Hello Karthik,

    I am trying to use the protective call/put strategy using futures and long options on Banknifty. I have the following questions:

    1) usually as per the margin calculator on zerodha website, it takes about Rs. 40-45k per lot (long/short futures + 1 lot of long options). However, i have noticed that the “margin available” value on Dashboard of Kite gets lesser if the futures position is going through a loss. I will be using a strict stoploss in the futures leg too (all my trades are intraday) but to be on a safer side can you tell me how much more funds i should maintain above the total margin requirement so that even if banknifty goes in an opposite direction then my “margin available” balance doesnt become zero?? (i assume sebi would charge peak margin penalty if it goes into negative even in intraday trades)
    2) How does the “margin available” balance change wrt to an opposite movement of change in the underlying? (eg. If banknifty moved down by 10 points when I was in a long trade then will the margin available balance change by ((10*25) points * total lots i have) or minus Rs. 250 per lot?
    3) Does the margin benefit offered for hedged strategies like Protective call/protective put remain same for all expiries or does it differ according to the expiry (since zerodha margin calculator doesn’t have weekly expiry for Nifty/Banknifty)?
    Thank you

    • Karthik Rangappa says:

      1) This is just a personal preference, I prefer at least 10-15% more as a buffer
      3) It depends on expiry and strikes as well.

  319. Jon says:


    Assume I simply I initiate a atm/otm bull call spread.

    Since this position is nearly theta and vega neutral in the short term. The only play here is delta.

    Now, spot instead of moving up it reverses. Should I exit my position or should I slowly wait till expiry?

    • Karthik Rangappa says:

      That depends on the extent of down move. If its sliding fast, then maybe you can unwind the position. But if its within the volatility range, then you can consider holding on.

  320. Sai Krishna says:

    Hi, First of all, thanks a lot for the wonderful explanation.

    I have in question in basket calculation. I tried adding a long option into the basket. Margin required is Rs.54000 and Final Margin is Rs.54000 all good till now.
    Then I tried adding a short option into the basket. Same underlying but different strike price. Margin required is Rs. 32805 and Final Margin is Rs. 48,200. How exactly is this amount calculated? what is the logic behind this?

    • Karthik Rangappa says:

      Margins are based on the overall portfolio. When you add an instrument, the margins either goes up or down based on the overall riskiness of the portfolio. This is called SPAN based margining system.

  321. Deepesh says:

    Excel sheet please send to my mail id…d

  322. Prashant says:

    Sir in a Bull Call Spread, why do we need to wait till expiry to realise the maximum possible profit? For example today Dabur closed at 590. If we buy 590 CE and sell 600 CE and the target i.e. 600 is hit in 10 days, Sensibull’s strategy builder is showing the projected profit as Rs 1,910. However if the target is hit on expiry i.e. 29th July, the projected profit is Rs 6,875. This is perplexing. If the target is hit in less time, shouldn’t the profit be higher?

    • Karthik Rangappa says:

      Because on expiry date settlement happens, as in the price wont change after settlement is done. Its tricky, but you will appreciate this once you start trading options.

  323. Prashant says:

    It indeed is tricky. Even after understanding the option strategies thoroughly, it’s a tough task to decide which strategy and what strikes would be apt in a particular situation. For me none of it would’ve been possible had you not been there. Thank you very much for authoring Varsity 🙂

    • Karthik Rangappa says:

      I understand Prashant. It takes time and experience, but once you hit the flow, its easy to figure this out. But you got to have patience 🙂

  324. Jamshed says:


    I decide to initiate this position.
    What kind of stop loss should I put assuming i don’t want to lose my entire amount?
    This position is also hedged so I wouldn’t have a large loss but still

  325. Prashant says:

    Sir, can we improvise a Bull call spread when the trade starts working in our favour? For instance, yesterday Tata Chemicals closed at 767 and I executed a Bull call spread by buying 760 CE and selling 790 CE. Now we know that the maximum profit would happen at 790 and it would stay capped even if the stock moves above that. When the stock reaches 790, can we buy back 790 CE and sell 810 CE so that the trade keeps making money as the stock keeps moving higher?

    • Karthik Rangappa says:

      Sure, you can do this. Just ensure that the stock is bullish enough for you to make this adjustment.

  326. Prashant says:

    Yes Sir, I shall ensure that. In case the stock is bullish and goes beyond 790, should I sell 810 CE first and then buy 790 CE so that the hedge stays or should I buy 790CE first and then sell 810 CE?

    • Karthik Rangappa says:

      Yeah, the leg that you want to sq off, its equivalent should be bought and then sq off.

  327. Hasnain says:

    Hello Sir,

    I hope you are doing well.

    In the Earlier example of Mr. Prashant where he has a Bull call spread of 760 CE and 790 Ce. He decides to square of the 790 Ce and sell 810 CE.

    Wouldn’t that cause a large loss if you square off an OTM strike price at ATM? There would be a good chance the 810 strike price does not even overcome the benefit correct?

    For writing weekly nifty options.
    Lets say I write 16100 CE. Should I protect with 16200 CE or 16500CE?
    16500 CE gives me a little leverage in the sense worst case I can buy back 16100 CE and sell 16200 CE if I am going wrong.
    However, The max loss becomes substantially greater if I am completely wrong.

  328. Samuel Putla says:

    Hi Karthik Rangappa!
    Initially thanks alot for presenting the strategies in a simple way, where layman like me can easy get into it.

    I’ve a doubt that popped in my mind while creating the a Bull Call Spread today i.e., 6th Jul 2021 for Nifty.
    Nifty Spot is at 15865, to plot BCS I’ve picked one ITM(15700 CE Long) & one OTM (15900 CE Short) strikes.
    Since my view is very bullish today I’ve choose that strikes to take advantage of delta.
    May I know the cons if I consider picking the strikes like this?

    Thanks in advance

    • Karthik Rangappa says:

      Samuel, yes, BCS is usually with one slightly ITM and then with a OTM strike. I think you can even consider 16000 strike.

  329. Hasnain says:

    In the Earlier example of Mr. Prashant where he has a Bull call spread of buy 760 CE and sell 790 Ce. He decides to square off the sold 790 Ce and again sell 810 CE.

    Wouldn’t that cause a large loss if you square off an OTM strike price at ATM? There would be a good chance the 810 strike price does not even overcome the benefit correct?

    For writing weekly nifty options.
    Let’s say I write 16100 CE. Should I protect with 16200 CE or 16500CE?
    16500 CE gives me a little leverage in the sense worst case I can buy back 16100 CE and sell 16200 CE if I am going wrong.
    However, The max loss becomes substantially greater if I am completely wrong.

    • Karthik Rangappa says: