10.1 – Model Thinking

The previous chapter gave you a sneak peek into the first option Greek – the Delta. Besides discussing the delta, there was another hidden agenda in the previous chapter – to set you on a ‘model thinking’ path. Let me explain what I mean by this – the previous chapter opened up a new window to evaluate options. The window threw open different option trading perspectives – hopefully, you now no longer think about options in a one-dimensional perspective.

For instance, going forward if you have a view on markets (bullish for example) you may not strategize your trade this way – ‘My view is bullish, therefore it makes sense to either buy a call option or collect a premium by selling a put option’.

Rather you may strategize this way – “My view is bullish as I expect the market to move by 40 points, therefore it makes sense to buy an option which has a delta of 0.5 or more as the option is expected to gain at least 20 points for the given 40 point move in the market”.

See the difference between the two thought processes? While the former is a bit naïve and casual, the latter is well defined and quantitative in nature. The expectation of a 20 point move in the option premium was an outcome of a formula that we explored in the previous chapter –

Expected change in option premium = Option Delta * Points change in underlying

The above formula is just one piece in the whole game plan. As and when we discover the other Greeks, the evaluation metric becomes more quantitative and in the process, the trade selection becomes more scientifically streamlined. Point is – the thinking going forward will be guided by equations and numbers and ‘casual trading thoughts’ will have a very little scope. I know there are many traders who trade just with a few random thoughts and some may even be successful. However, this is not everybody’s cup of tea. The odds are better when you put numbers in perspective – and this happens when you develop ‘model thinking’.

So please do keep model thinking framework in perspective while analyzing options, as this will help you set up systematic trades.

10.2 – Delta versus the spot price

In the previous chapter, we looked at the significance of Delta and also understood how one can use delta to evaluate the expected change in premium. Before we proceed any further, here is a quick recap from the previous chapter –

  1. Call options have a +ve delta. A Call option with a delta of 0.4 indicates that for every 1 point gain/loss in the underlying the call option premium gains/losses 0.4 points
  2. Put options have a –ve delta. A Put option with a delta of -0.4 indicates that for every 1 point loss/gain in the underlying the put option premium gains/losses 0.4 points
  3. OTM options have a delta value between 0 and 0.5, ATM option has a delta of 0.5, and ITM option has a delta between 0.5 and 1.

Let me take cues from the 3rd point here and make some deductions. Assume Nifty Spot is at 8312, strike under consideration is 8400, and option type is CE (Call option, European).

  1. What is the approximate Delta value for the 8400 CE when the spot is 8312?
    1. Delta should be between 0 and 0.5 as 8400 CE is OTM. Let us assume Delta is 0.4
  2. Assume Nifty spot moves from 8312 to 8400, what do you think is the Delta value?
    1. Delta should be around 0.5 as the 8400 CE is now an ATM option
  3. Further assume Nifty spot moves from 8400 to 8500, what do you think is the Delta value?
    1. Delta should be closer to 1 as the 8400 CE is now an ITM option. Let us say 0.8.
  4. Finally assume Nifty Spot cracks heavily and drops back to 8300 from 8500, what happens to delta?
    1. With the fall in spot, the option has again become an OTM from ITM, hence the value of delta also falls from 0.8 to let us say 0.35.
  5. What can you deduce from the above 4 points?
    1. Clearly as and when the spot value changes, the moneyness of an option changes, and therefore the delta also changes.

Now this is a very important point here – the delta changes with changes in the value of spot. Hence delta is a variable and not really a fixed entity. Therefore if an option has a delta of 0.4, the value is likely to change with the change in the value of the underlying.

Have a look at the chart below – it captures the movement of delta versus the spot price. The chart is a generic one and not specific to any particular option or strike as such. As you can see there are two lines –

  1. The blue line captures the behaviour of the Call option’s delta (varies from 0 to 1)
  2. The red line captures the behavior of the Put option’s delta (varies from -1 to 0)

Let us understand this better –


This is a very interesting chart, and to begin with I would suggest you look at only the blue line and ignore the red line completely. The blue line represents the delta of a call option. The graph above captures few interesting characteristics of the delta; let me list them for you (meanwhile keep this point in the back of your mind – as and when the spot price changes, the moneyness of the option also changes) –

  1. Look at the X-axis – starting from left the moneyness increases as the spot price traverses from OTM to ATM to ITM
  2. Look at the delta line (blue line) – as and when the spot price increases so does the delta
  3. Notice at OTM the delta is flattish near 0 – this also means irrespective of how much the spot price falls ( going from OTM to deep OTM) the option’s delta will remain at 0
    1. Remember the call option’s delta is lower bound by 0
  4. When the spot moves from OTM to ATM the delta also starts to pick up (remember the option’s moneyness also increases)
    1. Notice how the delta of option lies within 0 to 0.5 range for options that are less than ATM
  5. At ATM, the delta hits a value of 0.5
  6. When the spot moves along from the ATM towards ITM the delta starts to move beyond the 0.5 mark
  7. Notice the delta starts to fatten out when it hits a value of 1
    1. This also implies that as and when the delta moves beyond ITM to say deep ITM the delta value does not change. It stays at its maximum value of 1.

You can notice similar characteristics for the Put Option’s delta (red line).


10.3 – The Delta Acceleration

If you are fairly involved in the options world you may have heard of bizarre stories of how traders double or triple their money by trading OTM option. If you have not heard such stories, let me tell you one – It was 17th May 2009 (Sunday), the election results were declared, the UPA Government got re-elected at the center and Dr.Manmohan Singh came back as the country’s Prime Minister to serve his 2nd term. Stock markets likes stability at the center and we all knew that the market would rally the next day i.e. 18th May 2009. The previous day Nifty had closed at 3671.

Zerodha was not born then, we were just a bunch of traders trading our own capital along with a few clients. One of our associates had taken a huge risk few days prior to 17th May – he bought far off options (OTM) worth Rs.200,000/-. A dare devil act this was considering the fact that nobody can really predict the outcome of a general election. Obviously he would benefit if the market rallied, but for the market to rally there were many factors at play. Along with him, we too were very anxious to figure out what would happen. Finally the results were declared and we all knew he would make money on 18th May – but none of us really knew to what extent he would stand to benefit.

18th May 2009, a day that I cannot forget – markets opened at 9:55 AM (that was the market opening time back then), it was a big bang open for market, Nifty immediately hit an upper circuit and the markets froze. Within a matter of few minutes Nifty rallied close to 20% to close the day at 4321! The exchanges decided to close the market at 10:01 AM as it was overheated…and thus it was the shortest working day of my life.

Here is the chart that highlights that day’s market move –

Image 3_Story

In the whole process our dear associate had made a sweet fortune. At 10:01 AM on that glorious Monday morning, his option were valued at Rs.28,00,000/-  a whopping 1300% gain all achieved overnight! This is the kind of trades that almost all traders including me aspire to experience.

Anyway, let me ask you a few questions regarding this story and that will also bring us back to the main topic –

  1. Why do you think our associate choose to buy OTM options and not really ATM or ITM options?
  2. What would have happened if he had bought an ITM or ATM option instead?

Well, the answers to these questions lie in this graph –

Image 2_Delta accelaration

This graph talks about the ‘Delta Acceleration’ – there are 4 delta stages mentioned in the graph, let us look into each one of them.

Before we move ahead with the following discussion some points for you here –

  • I would advise you to pay a lot of attention to the following discussion, these are some of the really important points to know and remember
  • Do recollect and revise the delta table (option type, approximate delta value etc) from the previous chapter
  • Please do bear in mind the delta and premium numbers used here is an intelligent assumption for the sake of this illustration –

Predevelopment – This is the stage when the option is OTM or deep OTM. The delta here is close to 0. The delta will remain close to 0 even when the option moves from deep OTM to OTM. For example when spot is 8400, 8700 Call Option is Deep OTM, which is likely to have a delta of 0.05. Now even if the spot moves from 8400 to let us say 8500, the delta of 8700 Call option will not move much as 8700 CE is still an OTM option. The delta will still be a small non – zero number.

So if the premium for 8700 CE when spot is at 8400 is Rs.12, then when Nifty moves to 8500 (100 point move) the premium is likely to move by 100 * 0.05 = 5 points.

Hence the new premium will be Rs.12 + 5 = Rs.17/-. However the 8700 CE is now considered slightly OTM and not really deep OTM.

Most important to note – the change in premium value in absolute terms maybe small (Rs.5/-) but in percentage terms the Rs.12/- option has changed by 41.6% to Rs.17/-

Conclusion – Deep OTM options tends to put on an impressive percentage however for this to happen the spot has to move by a large value.

Recommendation – avoid buying deep OTM options because the deltas are really small and the underlying has to move massively for the option to work in your favor. There is more bang for the buck elsewhere. However for the very same reason selling deep OTM makes sense, but we will evaluate when to sell these options when we take up the Greek ‘Theta’.

Take off & AccelerationThis is the stage when the option transitions from OTM to ATM. This is where the maximum bang for the buck lies, and therefore the risk.

Consider this – Nifty spot @ 8400, Strike is 8500 CE, option is slightly OTM, delta is 0.25, Premium is Rs.20/-.

Spot moves from 8400 to 8500 (100 points), to figure out what happens on the premium side, let us do some math –

Change in underlying = 100

Delta for 8500 CE = 0.25

Premium change = 100 * 0.25 = 25

New premium = Rs.20 + 25 = Rs.45/-

Percentage change = 125%

Do you see that? For the same 100 point move slightly OTM options behaves very differently.

Conclusion – The slightly OTM option which usually has a delta value of say 0.2 or 0.3 is more sensitive to changes in the underlying. For any meaningful change in the underlying the percentage change in the slightly OTM options is very impressive. In fact this is exactly how option traders double or triple their money i.e. by buying slightly OTM options when they expect big moves in the underlying. But I would like to remind you that this is just one face of the cube, there are other faces we still need to explore.

Recommendation – Buying slightly OTM option is more expensive than buying deep OTM options, but if you get your act right you stand to make a killing. Whenever you buy options, consider buying slightly OTM options (of course assuming there is plenty of time to expiry, we will talk about this later).

Let us take this forward and see how the ATM option would react for the same 100 point move.

Spot = 8400

Strike = 8400 (ATM)

Premium = Rs.60/-

Change in underlying = 100

Delta for 8400 CE = 0.5

Premium change = 100 * 0.5 = 50

New premium = Rs.60 + 50 = Rs.110/-

Percentage change = 83%

Conclusion – ATM options are more sensitive to changes in the spot when compared to OTM options. Now because the ATM’s delta is high the underlying need not really move by a large value. Even if the underlying moves by a small value the option premium changes. However, buying ATM options are more expensive when compared to OTM options.  

Recommendation – Buy ATM options when you want to play safe. The ATM option will move even if the underlying does not move by a large value. Also as a corollary, do not attempt to sell an ATM option unless you are very sure about what you are doing.

StabilizationWhen the option transitions from ATM to ITM and Deep ITM the delta starts to stabilize at 1. As we can see from the graph, the delta starts to flatten out when hits the value of 1. This means the option can be ITM or deep ITM but the delta gets fixed to 1 and would not change in value.

Let us see how this works –

Nifty Spot = 8400

Option 1 = 8300 CE Strike, ITM option, Delta of 0.8, and Premium is Rs.105

Option 2 = 8200 CE Strike, Deep ITM Option, Delta of 1.0, and Premium is Rs.210

Change in underlying = 100 points, hence Nifty moves to 8500.

Given this let us see how the two options behave –

Change in premium for Option 1 = 100 * 0.8 = 80

New Premium for Option 1 = Rs.105 + 80 = Rs.185/-

Percentage Change = 80/105 = 76.19%

Change in premium for Option 2 = 100 * 1 = 100

New Premium for Option 2 = Rs.210 + 100 = Rs.310/-

Percentage Change = 100/210 = 47.6%

Conclusion – In terms of the absolute change in the number of points, the deep ITM option scores over the slightly ITM option. However, in terms of percentage change, it is the other way round. Clearly ITM options are more sensitive to the changes in the underlying but certainly most expensive.

Most importantly notice the change in the deep ITM option (delta 1) for a change of 100 points in the underlying there is a change of 100 points in the option premium. This means to say when you buy a deep ITM option it is as good as buying the underlying itself. This is because whatever is the change in the underlying, the deep ITM option will experience the same change.

Recommendation – Buy the ITM options when you want to play very safe. When I say safe, I’m contrasting the deep ITM option with deep OTM option. The ITM options have a high delta, which means they are most sensitive to changes in the underlying.

Deep ITM option moves in line with the underlying, this means you can substitute a deep ITM option to a futures contract!

Think about this –

Nifty Spot @ 8400

Nifty Futures = 8409

Strike = 8000 (deep ITM)

Premium = 450

Delta = 1.0

Change in spot = 30 points

New Spot value = 8430

Change in Futures = 8409 + 30 = 8439 à Reflects the entire 30 point change

Change Option Premium = 1*30 = 30

New Option Premium = 30 + 450 = 480 à Reflects the entire 30 point change

So the point is, both futures and Deep ITM options react very similar to the changes in the underlying. Hence you are better off buying a Deep ITM option and therefore lessen your margin burden. However if you opt to do this, you need to constantly make sure that the Deep ITM option continues to remain Deep ITM (in other words make sure the delta is always 1), plus do keep an eye on the liquidity of the contract.

I would suspect that at this stage the information contained in this chapter could be an overdose, especially if you are exploring the Greeks for the first time. I would suggest you take your time to learn this one bit at a time.

There are few more angles we need to explore with respect to the delta, but will do that in the next chapter. However before we conclude this chapter let us summarize the discussion with the help of a table.

This table will help us understand how different options behave differently given a certain change in the underlying.

I’ve considered Bajaj Auto as the underlying. The price is 2210 and the expectation is a 30 point change in the underlying (which means we are expecting Bajaj Auto to hit 2240).  We will also assume there is plenty of time to expiry; hence time is not really a concern.

Moneyness Strike Delta Old Premium Change in Premium New Premium % Change
Deep OTM 2400 0.05 Rs.3/- 30* 0.05 = 1.5 3+1.5 = 4.5 50%
Slightly OTM 2275 0.3 Rs.7/- 30*0.3 = 9 7 +9 = 16 129%
ATM 2210 0.5 Rs.12/- 30*0.5 = 15 12+15 = 27 125%
Slightly ITM 2200 0.7 Rs.22/- 30*0.7 = 21 22+21 = 43 95.45%
Deep ITM 2150 1 Rs.75/- 30*1 = 30 75 + 30 =105 40%

As you can see each option behaves differently for the same move in the underlying.

Before I wrap this chapter – I narrated a story to you earlier in this chapter following which I posted few questions. Perhaps you can now revisit the questions and you will hopefully know the answers .

Key takeaways from this chapter

  1. Model Thinking helps in developing a scientifically streamlined approach to trading
  2. The Delta changes as and when the spot value changes
  3. As the option transitions from OTM to ATM to ITM, so does the delta
  4. Delta hits a value of 0.5 for ATM options
  5. Delta predevelopment is when the option transitions from Deep OTM to OTM
  6. Delta Take off and acceleration is when the option transitions from OTM to ATM
  7. Delta stabilization is when the option transitions from ATM to ITM to Deep ITM
  8. Buying options in the take off stage tends to give high % return
  9. Buying Deep ITM option is as good as buying the underlying.


  1. Jagadeesh says:

    Option Greeks used to look like Greek and Latin for me. 😀
    Thanks for helping me with this stuff sir..

  2. khyati verdhan says:

    Hi kartik
    Thanks for new chapter. Its contents are very clear and understandable. The way you are managing and teaching contents is very good and appreciable.
    Q- I am an intra day trader and I use my full margin. Then in which I have highest profit potential – futures or option(if option then it should be deep ITM, ITM, ATM , OTM, deep OTM) ????

  3. khyati verdhan says:

    Hi kartik
    Clearly we have margin available on futures but when I check this for option it results N/A. Is margin is not available on option premiums. Please clear my confusion as the profit is heavily dependent on number of shares I can buy. I will make my check at https://zerodha.com/margin-calculator/SPAN/

  4. khyati verdhan says:

    Hi kartik
    If I write nifty CE at spot price 8250 at strike price of 8270 and premium of 117 with delta of 0.3. If nifty goes to 8200 at 12 :30 pm. If I square off my position at current price. Then my profit would be 15rs. Am I right ??please clarify

    • karan says:

      nifty goes from 8250 to 8200 and delta is 0.3 so premium would change by 0.3*50=15 points per contract . so ur profit per lot is 15*25=375 rs .

      • khyati verdhan says:

        Thanks for this information

        • Karthik Rangappa says:

          Thanks Karan for pitching in 🙂

          • rishabh says:

            since price has gone down so i think it will be loss of 375rs. am i right?

          • Pooja says:

            Please address Rishabh’s query – March 13, 2017

          • Karthik Rangappa says:

            The expected decline in number of points is 0.3*50 = 15….so your new premium is 117 – 15 = 102. In other words, you make 15 * number of lots. However, do note – this is an intraday transaction, there would be other factors (greeks) at play.

          • Kartik Padmanabhan says:

            Rishabh and Pooja. There will be profit in this transaction, not a loss. That’s because we are talking of selling a option (not buying). Jumping the gun a bit, since selling of options has not yet been covered. So relax and read further. Don’t worry if you are confused about this at this point.

  5. Ragunathan says:

    Hi Karthik,
    You are doing a great job…. This chapter opened another eye on option Greek. Thanks for the chapter… One more request…. Please enable consolidated PDF format Book for fundamental analysis and future trading chapters.

    • Karthik Rangappa says:

      Glad to know you are liking Varsity 🙂 There is lot more to come, please stay tuned 🙂

      We are working on the PDFs…we will make the same available as soon as possible. Thanks.

  6. NARSIMHA says:

    sir,tellhow can we plot historical chart in PI if we take timeframe of day the screen shows 3 months again for somemore we hav to drag&draw how can this be correct

  7. DeepWater says:

    Thanks a for the Information. Sure oneday we can all be very good and strategic option Traders. 🙂

    • Karthik Rangappa says:

      Thats the idea! To help traders develop trading ideas based on science and not really blind guesses 🙂

  8. khyati verdhan says:

    Hi kartik
    Very very thanks for clearing my doubts.
    Since market pre-opening session is 9:00-9:08. If I want to place orders in this session then at what price I can place order. Is it previous day closing price?????please clarify

  9. Vidhyalakshmi says:

    Hi Karthik! When the futures of an index is trading lesser than the index itself, does it signify something? Today, Bank Nifty was trading higher while its near-month futures was trading about 20 points lower than the index. Does it mean that the index will eventually fall to the futures price or vice versa?

    • Karthik Rangappa says:

      Situations like this when he futures trades below spot is called ‘Discount’. Otherwise its called ‘Premium’. Futures trading in Premium is usually the norm. Anyway, discount or premium is a function of demand and supply. Either the spot will do the catch up or the futures gains..really tough to take a call on it.

      • Nikhil says:

        Hi kartik,
        I have a question in PL concept u said that
        Our profit=(IV-premium).
        Now in the concept of deep OTM or OTM suppose
        Spot price = 8400
        Strike price = 8700
        Market gain =100
        Premium = 0.1
        New spot price =8500
        New premium=10.1
        Intrinsic value = 8500 – 8700 which will be in negative so intrensic value will be 0.
        PL = IV – premium
        Which will be
        PL = 0- 6.5

        So from this calculation I am making loss even the market is moving by 100 points.
        But if we will consider premium change then we will make profit because market is moving from deep OTM to OTM.

        Can u please clarify where I am going wrong In understanding this premium change.

        • Karthik Rangappa says:

          Nikhil, this calculation of IV is applicable upon expiry of the contract. Before the expiry, the P&L is the difference between the premium paid and the prevailing premium in the market.

  10. khyati verdhan says:

    Equity derivative – futures and options (NFO) – ( INDEX and underlying stock)
    Commodity derivative – futures only (MCX) – ( underlying commodity only)
    Currency derivative – futures and options (CDS) – USD-INR – ( INDEX only)
    Interest rate – futures only – ( ??? )
    Am I right?? What are trading days and timings of all this derivatives???
    On what ,price of interest rate futures depend????

    • Karthik Rangappa says:

      You need to check the individual product description provided on the exchange website for this.

  11. Jairaj says:

    Thank you,so clearly defined,cannot be done better, a very good step by zerodha towards positive momentum for clients,now to incorporate
    these adjustments new software to be incorporated on platform like available on some other platforms so as clients can benefit from that knowledge ,apply, and profit in turn overall development thank you once again

    • Karthik Rangappa says:

      Most welcome! We do have plans of having our own options calculator etc…but I’m afraid it may take some time.

  12. Deepu OK says:

    Dear Karthik,
    Is option greek analysis possible in Pi?
    Will you be covering Implied volatilty also in this module?

    • Karthik Rangappa says:

      Implied Volatility is a core topic and we will cover it in detail 🙂

      Option calculator is not available on Pi.

  13. DEEPU OK says:

    Thanks Karthik for your reply.
    I am newbie to the trading world. I don’t know whether i am talking sense or not. Please correct me if i am wrong about options Greeks. I think for option trading, it is required to analyze the delta values of puts and calls.
    so I am not concerned about the option calculator. It is the delta values.
    If it is not a part of Pi software, is there any alternative by which i can see the delta values for the options.

    • Karthik Rangappa says:

      Deepu – the plan is to have an options calculator on our website, this will take sometime but will certainly put it up.

  14. Prateek Nellikunja says:

    Great documentation. 🙂 Keep up the great work.

    I am curious to know if there is a module in varsity, to find out the market direction.
    If yes, what is the starting place to read?
    If no, is it planned for the future modules? Option strategies maybe.

    I ask this because many a times we are caught in the wrong side of the trade.
    At least a pointer to the right market direction can do wonders.
    Whether in OTM,ATM,ITM will only determine the loss %, but not make a profit.

  15. khyati verdhan says:

    Hi kartik,
    Suppose I have 50000 rs in my trading account. By checking at zerodha margin calculator under bo&co, I can buy 350 nifty JUN futures . Also, with same amount I can buy nifty 8020 CE at premium of 100 and delta of 0.4. If nifty moves 60 points in my favour, then by calculation we get;
    In futures, a profit of rs 21000 (350*60) – 14lots
    In options, a profit of rs 16800 (700*60*0.4)- 28lots
    ( I have ignored the effect of other Greeks like gamma, theta, Vega and Rio)
    Then I have conclusion is on the same movement in spot, futures give more return on intra day but when I want to carry position overnight or multiple days, option give more returns as in options , premiums give power to buy more shares than futures
    Am I correct???am I missing something????

    • Karthik Rangappa says:

      BO & CO are pure intraday products so you cannot use this margin for overnigh positions. So you will have to use NRML margins for overnight futures positions.

      Options should not used as a surrogate for Futures. Remember Futures is affected only by the direction of the market, whereas options has effect of other Greeks. In fact in the next chapter I discussed this point.

      Just to answer your question – You can get more exposure in options in terms of number of units..simply because the premiums.

      • khyati verdhan says:

        Very thanks for clearing my confusion. Very excited for next chapter. Please upload it as soon as possible.

        • Karthik Rangappa says:

          I get excited whenever new chapter is added 🙂

          The next chapter Delta Part 3 should be out sometime today or t’row.

  16. bbhalaji says:

    Hi Karthik,
    yet again you have made a great chapter. I feel very comfortable in learning the jorgans.. You have made such complex ideas into a simple step by step understandable chapters. Thanks a lot. Very useful for a beginner like me. I like your examples very much.
    I request you to make a chapter or a module altogether where you can share some real life examples/experiences/stories you have heard that happened in the market(like the OTM trade by your friend), so that we people can know what people have done with the available
    resources. Thanks a lot!

    • Karthik Rangappa says:

      Thank you so much for the kind words and suggestions. I will try to include as many anecdotes as possible.

  17. madhu nair says:

    Karthik, at the end of this chapter, the table that describes the moneyness of Bajaj auto has some errors. the strike of 2200 as slightly ITM and 2150 as deep ITM cannot be possible if the spot is at 2210.

  18. Rajesh Chindalur says:

    sir can we know the trend and target using options , if yes pls explain , eg seeing put call ratio and open intrest , how to interprate this in determining the trend . thank you

    • Karthik Rangappa says:

      We can use volatility to sort of set targets and stoploss. Will explain the same in the coming chapters.

  19. Vasanth says:

    As mentioned in the previous chapter slightly OTM delta value is around 0.3-0.45. But in the take off example slightly OTM delta value mentioned as 0.2/0.3.kindly clarify. 0.2/0.3 should be Deep OTM?

    • Karthik Rangappa says:

      Its always best to calculate the delta values…the numbers quoted were just a framework. To calculate the delta values you will need an options calculator. I will discuss how to use the options calculator soon.

  20. Adarsh MS says:

    Happy Teachers day wishes Mr.Karthik Rangappa……!!! You are one of the best !

  21. pankajbawdane says:

    HI Karthik

    I have a doubt over here in the example give by you in this chapter about your friend who made huge money by chosing OTM.

    Change in underlying = 100
    Premium = 20

    Delta for OTM CE = 0.3
    Delta for ATM CE = 0.5
    Delta for ITM CE = 0.7

    Premium change OTM CE = 100 * 0.3 = 30
    Premium change ATM CE = 100 * 0.5 = 50
    Premium change ITM CE = 100 * 0.7 = 70

    New premium OTM CE = Rs.20 + 30 = Rs.50/-
    New premium ATM CE = Rs.20 + 50 = Rs.70/-
    New premium ITM CE = Rs.20 + 70 = Rs.90/-

    So if he would have bought at ATM or ITM he could have make more than OTM
    becuase change in new premium is higer in ATM and ITM as campared to OTM.

    So why didn’t he bought ATM or ITM?

    Am i missing any point?
    Pleas ellobarate.


    • Karthik Rangappa says:

      Your calculations are right, however it does not consider time value premium. Also do remember the initial money required for trading OTM options is lesser hence the % increase turns out to be massive for OTM options.

      • Gokul says:

        Dear sir,
        The ans for why he choose Otm call… I will place my view points..
        Initially the Otm or say deep otm call was cheapest to buy and he was sure for rise in market.. The call which was otm initially and having delta say 0.1 becomes Atm or itm call on rise and delta becomes 0.5 or more… So he got acceleration when the call become itm..
        Am I right..??

  22. bharat says:

    How can we decide the moneyness of an option.Like Slightly or Deep OTM Option?Any quantitative value to decide whether it is Deep OTM or Slightly OTM?
    For Example:
    Nifty – Spot Price : 8400
    Strike : 8499 is a slightly OTM or Deep OTM?
    or 8401 to 8499 is called a slightly OTM
    Please clarify me like 10% above or below or called as slightly OTM or ITM?(8400-84=8316) slightly ITM or (8400+84=8484) as slightly OTM

    • Karthik Rangappa says:

      I look at it from strikes perspective for example 2 strike just outside ATM is slightly OTM and beyond is deep OTM. Likewise for 2 strikes below ATM is slightly ITM and beyond is Deep ITM.

  23. aehsan4004 says:

    question with reference to example of “TAKE OFF & ACCELERATION” POINT 10.3
    Q :- what happens if THE UNDERLYING FALLS 100 POINTS ?
    ( considering 0.25 delta , the new premium will be = 22-25 / zero ) will the premium simply loose its value and become zero .
    or something else .
    kindly explain .


    • Karthik Rangappa says:

      Delta is lower bound to 0 – so no matter what happens, delta cannot go beyond this. Likewise the delta is capped to 100 on the upperside…cannot move beyond that.

  24. Baba says:

    Hi, Is there an option to download the full module as pdf…as was the case with other modules

  25. Jagmohan Singh says:

    The way you divide the complex pro material into small and easily understandable chunks of knowledge is incredible. Keep up the good work.

  26. bharat says:

    If the content in Option Series module is available as a PDF format just like other modules will be very convenient to the readers. Great work hats of to you!

  27. Datta Raja says:

    Hi Karthik, Hats of for such a wonderfull explanation. I have gone through so many Explanation regarding F&O. But you are the Best.
    Because you have explained such a complicated information in such a interesting way.
    Good part is you related most of the things with Nifty. Lot of Option explanation avaialble over net is based on US market only 🙁

    Eagarling waiting for your Option Strateriges….

  28. Mahendrasingh says:

    My question is out of contest,reply if possible.On PI plate form I want indicator ICHIMOKU KYO. pls let me know if I can apply and how.
    [email protected]

  29. Srinivas says:

    Great work.all the while I was reading the article ,the concept of keeping a target for option trade depending on my expectations of the underlying stock/index movement by using delta is daunting me.can I also use delta for estimating target price in options depending on support and resistance levels of the stock

    • Karthik Rangappa says:

      Yes, you can keep use the S&R level to place SL. Although please make sure you use the S&L on the spot market.

  30. Bhavani says:

    My doubt is – if we’re looking at USDINR :
    Strike Price is 70 and currently assume its trading at 66.
    I want to buy a put option.
    Premium is 2.9 around.

    So when I buy a put option, I’d benefit if the price were to go down correct? It’s already ITM, so how much more would the underlying have to change to make myself a profit?
    If at all I make a profit, would it be because the USDINR went down, hence premium went up, hence I squared off at a higher premium than what I bought?

    • Karthik Rangappa says:

      Yes, when you buy a PUT option you will be profitable if the asset price goes below the strike selected. So upon expiry you will be profitable if the stock /currency pair moves below 70… however after adjusting for the premium, your breakeven will be 70-2.9 = 67.1.

      Yes, you will make a profit because the price went down and you decided to square off at a higher premium than what you bought.

  31. Avinash Punjabi says:

    While reading chapter 1 I could figure out that Delta is a continuosly variable value so how are you using a fixed value of say 0.55 in computing, however now I am happy to read it here in part 2 and also happy to know that model thinking is creeping in.

    • Avinash Punjabi says:

      Dear Karthik,
      Your DELTA part 2 explanation is even more engaging than part 1 as it dives deep in to the subject.
      However I have a few doubts, would be grateful if you can respond!
      1.As you have explained predicting the future price of option based on DELTA, how can we arrive at a more approximate price of the option as the DELTA is a variable factor.
      2. When the ITM and Deep ITM calls have a DELTA of 0.8 to 1 they will lose value equally if the underlying plunges so where is the question of safety, ultimately it boils down to predicting the direction of the underlying.

      • Karthik Rangappa says:

        1) Well, the prediction is not on the exact future price of the option, but rather the probability of the option expiring ITM. Also, the price of the option is a function of other Greeks such as Gamma, Vega, and Theta.

        2) Holding Deep ITM options are as good as holding a futures contract as essentially both of them have a Delta of 1. As you discover more option trading strategies you will realize direction is not important all the time…but volatility matters equally.

    • Karthik Rangappa says:

      Model thinking is a critical concept! We must incorporate that in every aspect of life 🙂

  32. narsimha says:

    sir,iam planing to operate 20 acc and these will be opened in zerodhawith capital of just 22000 with minimum returns of 5%permonth if ething goes well i tell them increase fund,now the problem i have two computers&3 smart phs,so how can i manage if opportunity comes regarding stategy first thought of trading nifty optins(hedging,cntra,etc)but because of theta it seems risky so now iam planning covered call r in ur way deltahedge ex buy dlf 50sh in cash&buy 1lot niftyotm put like this for all stcks what do u say ofcouse i get maintainence+referals so i need to achieve 12% here&there so pls guide i want to build empire on this&wants to show power of wisdom

  33. Tanmay Garg says:

    Hi Karthik,

    When you say buying deep ITM is same as buying the underlying, say spot remains the same, the futures contract will also remain the same but ITM will decay due to time.

    • Karthik Rangappa says:

      Option Price = Time Value + Intrinsic Value. As time passes, Time Value will decay…but deep ITM options will always have Intrinsic value as much as the spot/underlying.

  34. Manish says:

    Seriously, this is the only place in the whole internet where i have finally learned how to trade options. Seriously , this series of article is so good. Thanks a lot for you hard work , patience in making sure that every nitty gritty details gets slowly digested. Keep it up.

    • Karthik Rangappa says:

      Thanks Manish, we are trying our best to put up the best possible content for everyone to read and learn. Comments like this encourage us to be better 🙂

  35. Nil's says:

    Hey Karthik,
    Any compliments for your job will be less than worth.
    Can you show the calculation of 1300% gain on 18th May’09

    • Karthik Rangappa says:

      Ah! sorry I dont have the snapshots, you just have to take my word for it 🙂

      • Nil's says:

        I can’t take it because I didn’t get it. It would be a great help to me for calculating the return percentage.

        • Karthik Rangappa says:

          I understand, but the event happened in 2009!

          • Nil's says:

            On 17th May, the associate put an amount of RS 200,000/- in Nifty option while trading at 3671, and the very next day the Nifty rise to 4321 points where his option was valued at Rs.28,00,000/- a whopping 1300% gain all achieved overnight!
            My question is how the “1300% gain” has been calculated ?

            Using below method the % of return is not been calculated:
            Change – (Today’s price-Previous day’s price)=R
            Change% – (R/Previous day’s price)X100= R1

            Or you have just done as follows ?
            ROI= {(Gain from Investment – Cost of Investment)/Cost of Investment }*100

          • Karthik Rangappa says:

            Either ways is good – this one is intutive – {(Gain from Investment – Cost of Investment)/Cost of Investment }*100

  36. Nil's says:

    Thanks Karthik for your prompt reply

  37. Anil Kumar says:

    On the expire day, I have 10 lots of call/put options but there is no buyers what will happen to my lots (assume the perticuler share is on rally.
    To elaborate I am having call option of strike 100 (share price was 99 assume i purchased 2/3 weeks back) now the share value is 200, what will happen to my strike 100 lots

  38. Mrs. Shetty says:

    Your friend made this whopping profit bcoz he knew the result will hv positive effects and the mkt will rally, he bought deep OTM knowing fully well that on every rally the deep Otm will turn into slightly otm and atm, and with premium being a small amount for deep otm .. but again the mkt that day rallied so much that within 10 am it changed to deep itm where the effect is 0.05 to 0. this was the BONUS which he will relive the day for many years.

    Had he taken ATM or ITM , he wud still have made money going upto 1 delta , but the high premium and risk if mkt not rally was a dampner..
    but knowing that the mkt will move substantially worked in his favour.

    Am I right. I have read upto Gamma part 2 and came back to Delta to again understand little things I must have missed or not understood.
    Now the abv chapter made sense to me.
    Thanks once again. Pls let me know if my thoughts are right..

    • Karthik Rangappa says:

      I guess your thinking bang on the money ! Keep going, it may require several re reads. Good luck!

  39. Jagadish Kolanu says:

    I think its time for publishing this material as book to MASSES in print format at basic price….its literally AWESOME…

  40. Jagadish Kolanu says:

    On Political note…UPA 2 got into GOVT without the help of LEFT….thats the main reason market rallied…

  41. Vishal Saini says:

    Sir I am bit confused between futures and option….On what basis should I select one over the other….When to go for future trading and when for option trading??????

    • Karthik Rangappa says:

      This depends on many different things including the availability of capital, leverage that you need, time, conviction etc. Over time, experience will teach you which instrument to trade for the given circumstance.

  42. Jay says:

    This chapter points out that deep ITM is as good as buying underlying as its delta is 1. AFAIK futures are also having delta as 1. So what is recommended out of these two. Pros and Cons of these two. What will be your suggestion?

    • Karthik Rangappa says:

      Delta is transient – as the prices move the delta can change from 1 to something else. So this means it may not really be equivalent to Futures.

  43. Dr sravan says:

    Hi Karthik..I had been reading option chapters since few days..u had said extremely good and helpful..thanks a lot..

  44. Rishikesh says:

    Hi Karthik,

    I had a small query on options call. If I buy a options call for some premium, then can I exit/sell it before the expiry and book profit?


  45. Prasanna says:

    Hello Karthik, first thing first, this effort of yours is highly laudable, the simplistic way you have explained is brilliant, thanks a ton for the same. You have rightly mentioned Delta take off & acceleration when OTM option becomes ATM, assuming I prefer to SELL options and NOT buy options, can I assume the corollary of this is also TRUE. Meaning when the ATM option becomes OTM; let us take an example, Bank Nifty is @ 18500 and I am bullish for 28th Nov’ 16, then either I can BUY 18600/18700 CE [slightly OTM] alternately can I SELL 18500 PE ?? and is it safe to say the reverse acceleration when the price in a PE option when the price moves up from 18500 to 18600 since the ATM PE is now becoming a OTM PE.

    Please help clarify!

    Thanks once again for your brilliant effort in putting up this modules!!

    • Karthik Rangappa says:

      Thanks for the kind words, Prasanna.

      Yes, mathematically speaking, the corollary works equally well. However, writing ATM option can be a bit tricky and can keep you on the edge. Just in case, for whatever reason your point of view does not pan out the way you’ve imagined then the price you pay for the trade will be quite high. For this reason, I’d always prefer writing slightly OTM options. Its a lot more peaceful.

      • Prasanna says:


        highly appreciate the quick revert, thanks!

        Request if you could please suggest a good ‘INTRADAY OPTION STRATEGY’ which is DELTA neutral,

        Also, request your feedback on the below strategy for INTRADAY :
        if Nifty is @ 8100;
        a) Short Strangle: Short 8200CE & Short 8000PE
        b) Iron Condor: Long 8400CE & Long 7800PE

        To initiate post 10 minutes of market opening in the morning and exit the trade ten minutes before market closure.

        Thanks in anticipation!!

        • Karthik Rangappa says:

          Things like short strangle, short straddle works fine, but please make sure you also look at Volatility.

          I’d suggest you put these numbers on excel and visualize the payoff, unless you do that you will not gain meaningful insight.

          • Prasanna says:

            Karthik, Thanks for the response, here are you referring to any specific XL workbook which you can please share. Thanks!

            One elementary clarification, please:

            Whether we are discussing ‘Futures’ or ‘Options’ when we say ‘UNDERLYING’ it always means SPOT price, since both are derivatives of SPOT, is this right ??

          • Karthik Rangappa says:

            The excel sheet is available at the end of the chapter.

            Yes, underlying is spot in both the cases.

  46. Prasanna says:

    Hello Karthik, requesting your suggestion / best practice here please. in anticipation of a sideways / whipsaw market if I am planning to execute a short strangle what is the best tips/suggestions for selecting the strike price for intraday purpose,

    like elsewhere I read while executing combination of buying and selling options. the ideal hedge% = [Price of short option / Price of Long option ] *100, ideally the hedge % should be <30% for it to be qualified a good spread, similarly please guide if there are such thumb rules of hedge% for SHORT STRANGLE.

    Thanks much in anticipation!!

    • Karthik Rangappa says:

      There is also the dimension of time here. If the expiry is not too far, I’d be comfortable writing strikes near ATM. However, if the expiry is far…I’d stick to strikes far away from ATM. I consider the balance of time and strike a key component for success in short straddles/strangles.

  47. Nihal says:

    Hie Karthik,

    i am new with Stock market , and started study with VARSITY , and its simply awesome thank you and ZERODHA so much.
    My questions are –
    1) Can we set SL (Stop loss) wit F &. O ?
    2) Does SL work until we square off the position ? i mean does it work overnight ? or should we set fresh SL every day ?
    3) As we need to pay less Margin with BO n CO , if we buy Call , do we need to pay full Premium amount ? or there will be less Premium with BO and CO ? i never seen BO CO Premium offer on NSE site ?
    M sorry if my questions are not making sense.
    Thanks 🙂


  48. Nihal says:

    Thank you so much Sir for your reply.

    as we can square off our position in future trade for book profit , want to know that can we square off our position in option trading for book profit or we have to wait till expiry ?
    If we sell option – in this case option buyer is allowed to square off his position , but is option seller allowed to square off his position for booking Premium amount profit before expiry ?

    • Karthik Rangappa says:

      You can square off your option position anytime you wish. There is no need to wait to expiry. Good luck.

  49. Manan Vora says:

    Hi, That was a brilliant explanation.
    If i calculate the value of call, for a particular strike price, by using B&S model. And if calculate the the value of call by multiplying the change in underlying with delta (for the same strike) i don’t get the same Call value. why is that so?

    • Karthik Rangappa says:

      Manan, B&S model calculates the premium price incorporating the effect of all the greeks including the delta. So, as you may have realized, when you calculate the value of option using delta, you are essentially taking only delta into consideration.

  50. Vijay Kumar says:

    Great Series, but greeks are not available in Pi or Kite. How and where can we find all that live along with underlying and options chain?

  51. Vijay Kumar says:

    In My Kite system Bo does not work in buying options or in Cash, as trailing stoploss facility is available only in BO.

  52. KUMAR MAYANK says:

    Hello sir
    The graph plot delta vs spot (in red) is probably not correct. We know for PE , IV= strike -spot. Well to qualify as ITM, IV>0. Also for ITM delta varies from -0.55 to -1. Now according to the graph plotted as spot is increasing (from left to right) and crosses over strike for that matter enters into OTM zone the value of delta decreases below -0.5. While we know the value of OTM for PE varies from -0.45 to 0.

    I hope you got my point. Please do correct me if i am wrong.

    • Karthik Rangappa says:

      Do not assign values to the X-Axis. Read it this way – start from the ATM point. As the option transitions from ATM to OTM, both call and Put delta’s gain value…and likewise as the option transitions from ATM to OTM, the deltas of both call and put loses its value.

  53. Kedar Mahaddalkar says:

    Hi Karthik,

    Great job. Just a small doubt, Does buying at ITM means,being Venu expecting spot price to drop and making earnings from that.

    Or to frame question bit differently where does venu stands in the option contract graphs? (Is it in ITM ?? )


    • Karthik Rangappa says:

      You buy ITM (deep ITM especially) when you want to play it really safe. When you buy ITM, the probability of the option being worthy upon expiry is quite high.

  54. Mallikarjuna says:

    HI Karthik,

    It was really great explanation to understand the picking of strike price based on delta variation. I really don’t know about this, i’m going to finish all chapters for options.
    Thanks a lot for helping all…


  55. Gokul b says:

    Dear sir,
    I have gone through the options Greeks.. Let me ask some doubts…
    Suppose I m taking intra day position in option… With high volatile market… Suppose bank Nifty is at 23800 and at that time I purchased 23900 call and 23700 put… Then the scenario become like this….
    1) index moves to 23950:
    In this case my 23900 call becomes Atm and rate 23700 put becomes otm so my rate of appreciation in 23900 call is more than Rate of depreciation in 23700 call, as delta is increasing and all other factors does not affect much as its purely intra day call and with enough time to expiry… so I can make a profit?
    2) index moves to 23650…
    The same scenario repeats but in opposite way…
    So pls sir let me know if this works for smaller profits….

    • Karthik Rangappa says:

      1) Yes, you can
      2) Yes, you will profit

      During intraday, delta matters.

      • Jona says:

        but Sir assume the spot is 1000. If i buy an ITM 800 CE, the premium will be AT LEAST 200 right ? so if the underlying goes down to 900 at expiry, even though i can make a profit of 100, my balance is negative (-200 +100= -100). the conclusion is it if the underlying goes down just a little i start making a loss, hence a ITM option can not be a safe play, can it sir ?

        • Karthik Rangappa says:

          Nothing really is safe in the markets 🙂
          Each strategy comes with its set of risk and reward characteristics.

  56. deepak naha says:

    Hi Karthik ,
    I read your post , I also go through your tutorial—i would say , it is very informative, it creates confidence and tells lot about the market.
    Your explanations are very clear and less complicated.
    From your post it is very clear that you are quiet an expert in stock market, and you are also a regular trader (I guess) .

    To brief about myself –I have done some courses on F & O and basics on fundamental and technical but still I am not an expert like you.
    I find it very difficult to see the directions in the market, I always enter at a wrong point and make a huge loss,but after going through your tutorial, I find confidence building up in me slowly.
    I would like to start trading once again, but under your guidance — can you help me.
    I already have account with zerodha.


    • Karthik Rangappa says:

      Deepak, I’m glad you liked Varsity. Yes, I can certainly help you. However, all my interactions would be in this forum. Please feel free to ask your queries here. If I know the right answer, then I will certainly help you. Good luck and happy learning.

  57. anil says:

    Is there any way out to calculate slightly OTM strike price of underlying by spot price so as to get maximum return from call.

  58. MILAN AGRAWAL says:

    For Delta vs spot price curve, for put option how can the increase in spot price lead to moving ATM option to ITM option, it should be opposite of that, isn’t it?
    Put option value increases as the underlying value decreases but in the graph, it seems opposite.

  59. Arijit Banerjee says:

    Though I never had an idea what the options Greeks are and when reading option Greek comments in previous chapters, it all seems Hebrew to me !! Later on Module 5: Chapter 4, I opened that link http://premium.thehindubusinessline.com/portfolio/technically/when-options-strike/article7596687.ece, and develop an elementary idea what those Greeks are and how they affect on premium. Now as I progress further, so far understanding Greeks in depth seems quite easier to me. The way you teach us is never an overdose, but the most pleasurable learning experience I ever have. If we have such learning experience from our childhood to academic session, then we don’t need to find an excuse not to attend our classroom everyday, and it would be much easier every one of us to become whatever we want to be in our life.

    • Karthik Rangappa says:

      Thanks for the kind words, Arijit. Words like these motivate us to push ourselves harder to deliver better quality content. Thanks for being a regular reader of Zerodha Varsity!

  60. Balvinder Singh says:

    Hi Sir,
    As per calculus delta is instantaneous rate of change i.e. it is the slope of the tangent at a particular point. My concern is if the delta of an option is 0.5 this does not means 10 points moves in underlying security will lead to 5 points change in option premium because delta is changing at every instant. In fact this should not hold for even 1 point change in the underlying although the result is close enough. So to be on the safe side one should not consider constant delta beyond 1 point move.
    Correct me if i am wrong sir.
    Balvinder Singh

    • Karthik Rangappa says:

      Completely agree with you, Balvinder. Here the assumption is that the change in delta is one step at a time but in reality it’s not, it is continuous change. However, as you’ve pointed out, this is a good approximation.

  61. Balaji says:

    How to Construct a Model in Zerodha using the Dela , Deep OTM etc . Can you give a step by step example in order to apply and test the model

  62. Aneesh Nair says:

    Hi Karthik,

    First of all thank you for enlightening us new traders with such good knowledge. You’re doing a great job.

    Now the question,
    I haven’t read much about the Option greeks part so I don’t know if my answer is in that module but still was curious to ask….
    We all know OTM options have less premium but has less risk too which inturn means you will generate less returns as well, because the delta is below 0.3
    Now lets assume that I bought a call option (Deep OTM) of a ABC company and if the market gets a huge boost (as in the recent example of PSU banks) then it means that my OTM will be either reach ATM or ITM which inturn means I will get a huge return.

    1) But what about the people who had already bought ITM or Deep ITM in that jumping market. What do you term that ITM which went very very deep ITM because of the boost in the market?

    2) Also, if a market goes up and up for the entire month, does it mean an ITM option will give you exponential returns since its delta value is 0.8?

    3) Also does the increase in Deep ITM option premium stops at any point even if the market goes up ?

    4) And till when does ITM keep increasing….till it expires?

    Thank you again for helping us 🙂

    • Karthik Rangappa says:

      1) Well, they too would make a mad return in such a scenario, but in terms of % move, nothing really beats the guy who has bought deep OTMs which transitions to ATM/ITM. Btw, there is only Deep ITM/OTM, no matter how deep it goes 🙂
      2) Yes, at one point it will start behaving like a futures instrument – explained later in the module
      3) Not really – as long as the underlying moves the option would also move
      4) Yes, till expiry.

  63. Vinothini says:

    Hello Karthik,
    From what I understood, moneyness is a classification of an option strike whether it is ATM, OTM or ITM.
    What IS meant by (given below the delta vs spot price chart)” the moneyness increases as the spot traverses from OTM to ATM to ITM”?

    • Karthik Rangappa says:

      Yes, moneyness of option is about identifying if an option is ATM, OTM, or ITM. The option changes its moneyness based on how the delta moves – this is exactly what the chart is trying to convey.

      • Vinothini says:

        Thank you. One more query
        The delta of option can not be positive for all CALL options and can not be negative for all PUT options. IT depends on what option type it is AND whether you are a buyer or seller. Am I right?

        • Karthik Rangappa says:

          It is -ve for a Put, yes it depends on what position you take. It is -ve when you buy Puts and +ve when you buy puts. Likewise, +ve when you buy calls and -ve when you sell Calls.

  64. Hrushikesh says:

    How do other option Greeks other than delta interact with each other. And how do we can use them to build a strategy

  65. prakash says:

    Great Mr.Karthick….

  66. AKSHAT GUPTA says:


    i have just opened my acc with zerodha and im new to options. So i need a few clarifications from you.
    As mentioned here and adviced by you , its best to buy a slightly OTM . And that its best to Sell Deep OTM.
    Can u Plz clarify why selling ATM is bad. I have seen bank nifty premium go from 100 to 2 in 10 min on 18th Jan 2018 expiry.
    Also please advice what will be the possible implications on premium if we sell Slightly ITM call option or a deep ITM call option.
    ( trade taken ofcourse For their high premium value received)

    please do revert on this query. thx.

    • Karthik Rangappa says:

      It is a bad idea to sell ITM option, and ATM options has the highest risk of transitioning to ITM, hence avoid ATM.

  67. Matt says:

    Thorough explanation and in depth analysis. However I think for novices like me, it would take a while to digest the correlations and divergences between strike, IV, time decay, premium and Delta. Trying to build a conceptual paradigm in my mind but sometimses it is overwhelming because I am right-brained person

    Anyhow some of the concepts are becoming clearer to me and thanks for such awesome content

  68. Aishwarya says:

    Hello Sir,
    In the above chapter, related to your associate example, You have asked two questions.

    Why do you think our associate choose to buy OTM options and not really ATM or ITM options?
    As the OTM options are cheaper related to ATM/ITM options. So he could buy more lots with the mentioned amount.

    What would have happened if he had bought an ITM or ATM option instead?

    He has bought deep OTM (which has delta approx 0.1). He was able to lock in the profits of the rally (650*0.1). Had he bought the ATM/ITM options, he could have earned more as delta for ATM/ITM (0.5 to 1), which would have resulted in higher profits (650*0.5). But the no.of lots he could have bought is comparatively lesser as the ATM/ITM premiums are expensive compared to OTM options. Is my understanding correct sir??

    Thank you so much sir.

  69. dushyant bajaj says:

    Dear Karthik,
    I am new to options and really enjoying the varsity reading. Please clear me whether my understanding is right or wrong:
    Let’s say Nifty spot is 10400 and I have the bearish view on market and have enough time for expiry say about 20 days. I can do two things either call writing or put buy. Let’s avoid call writing for the moment as you said it is good to sell near the expiry. So now I have only put buy option left.
    So selecting the put strike if I choose 10300 strike for put buy which is say slight OTM and delta of 0.4. Now if market moves as per my view then this strike will eventually try to become ITM so in stage of take off and acceleration I will have chance to earn more. But if market moves otherways then will go into the deep OTM which itself will protect my money in some way as delta will be very small and to turn my trade market have to give a large move to see any effect on premium. Also as this strike is OTM cost will be less.
    Now for selecting the 10500 strike for put buy which is slight ITM. Now if market moves as per my view it will go into the deep ITM. So in stage of stabilization of delta i will effeminately earn but will be less then 10300 strike? Otherways if market moves opposite to my view then it will become OTM but loss can be more for more downside when comapre to 10300 strike because delta of OTM is higher then delta of deep OTM?

    So I think It will be always good to go for a strike which is less then then spot price for put buy option. It gives you more return when market moves as per your view. Although loss can be more but chances of recovery is bright if market reverse its direction. Also second one will be costly when compare to first one.

    Please correct me if I am wrong at some point and give a brief description for selecting the strike price for this trade. Thanks for you patience in reading such a long comment.

    • Karthik Rangappa says:

      Your view is more or less right, but I think you need to re read this chapter once again. Your selection of strike is really dependent on not just time but also on the speed at which you expect the market to move. The effect of the delta is higher during acceleration and take off state.

  70. Nemish Parekh says:

    Hi Kartik i m totally new ro options and let me mention u guys hv done a fantastic job with these modules.
    Now coming to my doubts, i hv many .. pardon my ignorance…
    1. Lets say i hv invested (CALL BUY) in the ATM option (your example of SPOT 8400)
    2. If the market moves downwards what woudl be the effecT on the premium
    3. Also since i hv gone for CALL BUY, I m bullish of the market. But if i hold the trade till expiry and market has gone down from 8400 TO 8300 then the value of delta has no meaning right? All i m using is my premium, correct?

    • Karthik Rangappa says:

      1 & 2) Nemish, if you buy a call option then the only favorable movement for you is for the market (or the underlying) to move higher than your spot. Everything else results in a loss
      3) Yes, the maximum loss when you buy an option (Call or Put) is to the extent of the premium paid.

      Good luck with options 🙂

  71. Nemish Parekh says:

    Hi Kartik
    Continuing on the same example, let me know what wf happen if i hv bought any one of option and the premium reduces before expiry from what i hv bought it at … what happens in such scenario? I hv to wait till expiry and my loss is my premium right?
    Secondly where are delta values published for all scrips under options? Or these r hypothetical assumptions to find value of premiums?

    • Karthik Rangappa says:

      You can always cut your loss and close your position. No need to wait till expiry. You can work with the Delta thumb rules – Options which are OTM to ATM will have a delta between 0.01 to 0.5. ATM option has a delta of ard 0.5 and options which are ATM to ITM have deltas between 0.5 to 1. You can also use this – https://zerodha.com/tools/black-scholes/

  72. raju says:

    I am completely new to options, little confusing
    kindly clarify my doubt, sir,
    suppose I bought nifty 8300 CE at a premium of 100, the spot price is at 8400, it moved 100 points
    My profit will (8500-8300) -100 = 100 according to the last before chapters
    In this chapter with delta, concept new premium is 100*1 +100 = 200
    Is my profit will be calculated according to premium which I bought or with new premium? i.e., (8500-8300)-200 = 0?
    Moreover, options trading seems to based on premiums only

    • Karthik Rangappa says:

      Raju, the simple way to remember this is – the profit or loss you make when you buy option is the difference between the buy and sell price of the premium, multiplied by your lot size minus all the applicable charges.

  73. Rabindra says:

    How did you arrive at the delta figures of .05 for deep OTM, .3 for OTM, .5 for ATM,.8 for ITM and 1 for deep ITM. Of course these are just assumptions to make us understand. But even you set delta as .1 for deep OTM the percentage figure for change in option price changes to 125% which is the same as that for slightly OTM option. So the premise that OTM option gives better returns than deep OTM is flimsy. The markets forces decide what the percentages are for various option and nobody can tell the exact figures for delta for different options based on their moneyness. Correct me if I am wrong.

    • Karthik Rangappa says:

      Although these are assumptions, they are not way off the mark. You can always use a B&S model to double check the figures.

      • rabindra says:

        Well, only if you believe in Black and Scholes theory. There are number of assumptions which are totally impractical(like normality of returns, constant volatilty , constant interest rates and continuous trading. You can never be sure of the B& S model to give you a correct figure.

        • Karthik Rangappa says:

          Agreed, in fact, there is a large trading fraternity which does not believe in this model. Most of these guys have developed their own model (mostly modified B&S) to justify option prices.

  74. Dhaneswar Pati says:

    This chapter is well written.
    My questions are:-
    1.Where to find the values of Daily Standard deviations , Mean and Daily Average Logreturn of Nifty?
    2.Does the NSE /BSE websites provide these details?
    3.Whether any trading software provides these values?
    4.From which source one can purchase these data?

    • Karthik Rangappa says:

      1) You can use the Bollinger Band to get the values of standard deviation. The rest you can calculate on excel
      2) Goto any stock’s derivate quote page and click on ‘Other information’ link, you will get daily and annual vol details
      3) Not sure
      4) Again, not sure. But its very easy to calculate this yourself.

  75. Shrey Bhandari says:


    I saw a case yesterday where Asian paints rose 19rs per share and its PUT’s also rose. why this happened? At what circumstances PUT can rise with the increase in Spot? Also I saw CALL’s not rose according to the delta change in spot. Why this happened, please explain.

    • Karthik Rangappa says:

      I guess you are referring to the Friday’s session, where the volatility was quite high. One of the circumstances under which this can happen is when the volatility increases. With the increase in volatility, the option premiums also increase.

      • Shrey Bhandari says:

        Hello Sir,

        Today I saw a case in HCL tech , the stock price rose 9rs from previous closing and closed at 1100, but its deep ITM Call option 1020 CE rose 13.5rs, 1040CE rose 12.05Rs. How is it possible that Deep ITM option delta is rising more the +1. As we have learned that deep ITM option delta range between 0.8 to +1. Please explain

        • Karthik Rangappa says:

          Can you tell me the premiums?

          • Shrey Bhandari says:

            Hello Sir,

            On 21/09/2017: – 1020CE premium closed at 67/- and 1040CE closed at 47.95 (Spot price closed at 1090)
            on 24/09/2017: – 1020CE premium closed at 80.35/- and 1040CE closed at 60/- (Spot price closed at 1099)

            Price of stock rose 9/- but its deep OTM calls premium delta increase by more than +1. Please check and explain.

          • Karthik Rangappa says:

            Remember, premiums is not just the function of price movement, but also a function of volatility and time. Also, Deep OTM options have a delta of 1.

          • Shrey Bhandari says:


            Thanks, so you mean to say, with the change in volatility and time, the premium of deeo OTM options can fluctuate more than delta of 1.

  76. Ram says:

    Hey Karthik,
    We would love to know about Zerodha was found. It would be a very inspirational story for us about how the our favourite brokerage firm was founded.
    Please share it.

  77. Ram says:

    Sorry for posting this query in this chapter..
    Why is the Berkshire Hathaway stock so expensive?
    I searched it so one site stated that, it has not split since listed.
    BUT WHY has it not split?

  78. Rajesh Murthy says:

    Hi Zerodha Team and Karthick,

    Very nice article to learn about the Market strategies.

    The best 👍💯 is Layman can understand the article.

    Many of the doubts getting clarified by the questions already posted by someone and reply from Zerodha Team.

    Rajesh Murthy

  79. Guru says:

    Hi Karthik,

    Ok the questions you posted here –

    Why do you think our associate choose to buy OTM options and not really ATM or ITM options?

    What would have happened if he had bought an ITM or ATM option instead?

    My thoughts are below. Hope they are in the right direction.

    He seems to be firm and very confident on his directional view. With that he would gain profit if market moves his way. The good thing with OTM selection is, the percentage return would be way higher if his stock moves from OTM to ATM to ITM. The percentage return would have been lesser if he had chosen ATM or ITM due to the high premium cost and less lots he would have bought.

    As an analogy, buying at 1 rupee (OTM) and selling at 10 rupees is better strategy than buying at 5 rupees (ATM) and selling at 10 rupees ( provided the market moves strong in his directional view).

  80. Royer says:

    I’m all new to this and there’s one thing I don’t understand. If one wanted to play it safe while buying a call option, wouldn’t it make more sense to buy a deep OTM option ? This way if the price of the underlying was to go down, the price of the option would nearly not move and hence could be resold with almost no loss…
    It might seem like a stupid question but it bugs me.
    Anyway thanks for all the free content, it is really appreciated. I’m impressed by your dedication.

    • Karthik Rangappa says:

      Royer, for this, you’d need to buy a far OTM option trading at 10 or 15 paisa. The only issue is liquidity.

  81. Saurabh Neel says:

    I think i study the 8th class mathematics. Thank you very much for simple and world class study material.

  82. FM says:

    Hey Karthik,

    Really appreciated your patience of work, It is easy to understand your examples on ITM, ATM and OTM. However, when understanding with different example my own, getting stumped. My query from one of your examples is..

    Q 1) How are you determining 8400 CE when the spot is 8312, is OTM.? why not ITM.?

    My confusion all starts from when I am trying to visualize your previous chapter’s (moneyness-of-an-option-contract) chart’s (Image-1-_Call-Option). There, in the discussion, Nifty is at 8060, strike price 8050 become ITM, ( I understood like, if strike price is < Spot price then it is ITM for CE), where as in my query from above 8312 spot is < 8400 CE, which is it should be ITM, isn't it.?

    Q2) I want to rephrase my Q1 like, If Nifty spot is 8075, which one we need to consider as ATM.? 8050 or 8100.?

    Sorry, if it was already mentioned in earlier topics, I might have missed it.

    • Karthik Rangappa says:

      Q1) Think about it this way – All call options with strikes higher than the current market price are OTM option. All call options with strikes below the current market price are in the money option. Likewise, all put option strikes lesser than the current market price is out of the money option and all put option strike which is higher then the current market price is in the money option.

      Q2) Hopefully the above should help

  83. Madhu says:

    I have been an avid reader since my childhood liking all kinds of books,but this one stands out as a best book in terms of teaching.you are doing a great job,thank you very much

  84. Manish says:

    Hi Karthik,

    Thanks for such a nice article on Options. Its very clear. One thing I wanted to know , for working guys can share market become a way for passive income. Because some times its become very difficult for us to track market all the times.

    • Karthik Rangappa says:

      Strategies like covered calls are supposed to be a passive income source.

      • manish says:

        Hi Karthik,
        Thanks for reply . What is Covered Calls by the way?

        • Karthik Rangappa says:

          Covered Calls is a popular options strategy wherein you will sell an OTM call option against the underlying. For example, if you have 250 shares of HDFC Bank in your DEMAT account, then you can go ahead and sell 1 lot of HDFC Bank’s call option. If the stock price increases then your gains in the underlying spot will offset the losses in the options. If the price does not not increase, then you get to retain the profit.

  85. Manish says:

    Hi Karthik,

    When we are sure about the direction of the underlying , can we go with the ITM or ATM . One more question-How decide at particular time whether to select ITM or OTM or ATM.


    • Karthik Rangappa says:

      When you are sure about the direction, you probably should trade futures. Never the less, you can trade slightly OTM options as well.

  86. jasdeep singh says:

    why same strike prices having different expiry have different delta and different gamma?

  87. Prasad says:

    How can you figure out exact delta figure for every spot price ? or is it assumption ? 0.5 for ATM , anything between 0.5 to 1 for ITM , anything between 0 to 0.5 for OTM

    • Karthik Rangappa says:

      You can use any basic B&S option calculator to get this data. Also, that table is also a good approximation.

  88. CHIDAMBARAM V says:

    Hi Sir,
    During take off phase, the option is said to give a return of 100 % or more than that.
    In the above given example:
    Change in underlying = 100

    Delta for 8500 CE = 0.25

    Premium change = 100 * 0.25 = 25

    New premium = Rs.20 + 25 = Rs.45/-

    Percentage change = 125%

    my questions is that what if the move is on the opposite side.For same delta of 0.25 and 100 point move in nifty ,Same 25 points Change in premium will be in the opposite side and it will lead to -5 (20-25) premium value. But this is not possible as premium can not be negative. So what will happen in that scenario or how this is happening in real world scenario.Kindly explain in detail.

  89. FM says:

    What happens when I buy at OTM and sell ATM.? In other terms, you mentioned like, “do not attempt to sell an ATM option unless you are very sure about what you are doing.” Can you elaborate a little please.?

    • Karthik Rangappa says:

      ATM has the highest possibility of transitioning into an ITM option. Hence you need to be doubly sure of what you are doing when writing ATM option.

  90. Arun says:

    Dear Karthik,

    As i learnt that P&L is just the diff between old and new premium multiply by lot size. Then, when will the formulae that we learnt earlier i.e. (IV-Premium) x Lot size, be applicable?
    i guess P&L won’t be same in both the calculations.

  91. Amit says:

    In “Take off & Acceleration” The change is underlying i.e. Spot-strike will comes out to be zero. As the Spot & Strike is same.Then why you considered 100?

  92. ajit mohanty says:

    sir, i am a graduate preparing for competitive started having intrest in stock market. i had been studying various materials,zerodha varsity ,youtube videos to gain knowledge about.after all the theoretical facts whenever i come to market there’s always something new.still i maintain a trade journal tried to get know the methodologies and process where i am doing wrong.Now after 100s of trades (small trades),i am right now getting frustrated of not getting the required result wether thats in swing trade/intraday.what should i do now? do give an advise.

    • Karthik Rangappa says:

      Ajit, this is quite understandable. You need to keep experimenting until you find your true risk and reward temperament. Until then, please keep your outflow lower and keep your risk under check.

  93. Harinatha Rao says:

    For me at expiry the condition of profit/loss is getting confused. Is it possible to explain in tabular format as given below:
    Positition taken Moneyness (ITM/ATM/OTM) at expiry Profit/loss equation(Spot price and strike price diff or zero)
    Call Buy
    Call Sell
    Put Buy
    Put Sell
    The above information will be useful to decide either to close position before expiry or allow to expire to maximise profit /minimise loss.

    • Karthik Rangappa says:

      Its quite simple –

      1) Your long call option will be profitable upon expiry if the strike is lower than the spot. Reverse for call sell.
      2) Your long put option will be profitable upon expiry if the strike is higher than the spot. Reverse for put sell.

  94. Ela Selvaraj says:

    Hi Kartick,

    Excellent explanation. Just with one reading I can understand all the points you are trying to make.
    Give me a clarity on “Take off and Acceleration” section.

    You stated the Nifty spot increase from 8400 to 8500 but kept the delta of 8500CE same as OTM at 0.25 and explained the premium change = 100 * 0.25 = 25 Rs.

    Isn’t it the 8500 CE call now at ATM and delta around 0.5? Then premium change is = 100*0.5 = 50 Rs?


    • Karthik Rangappa says:

      Thanks, Ela.

      The change is considered in terms of ‘steps’, so when Nifty changed from 8400 to 8500, the premium changed by 25 and the new delta is 0.5.

  95. Nayan Agrawal says:

    What a way to explain most complicated terms in a simplest way..!!! Many times I tried to understand technicalities of options but here I got understanding for the same. Amazing.. Do you provide classroom training also on various topics ?

    • Karthik Rangappa says:

      I’m happy to note that, Nayan 🙂
      No, but although occasionally I do conduct workshops on various topics at academic institutes.

  96. Prince says:

    Hii Karthik,
    Thanks for sharing such an amazing information in simple way. I just have few doubts
    Like if I buy put option at rs 25 and sell it at rs 20 today itself before expiry then what will be my profit?
    (25-20)*lot size = 5*1000=5000 or
    (25-20)*lot size + the premium I had paid while buying.

    Actually I know that premium is not refundable even though I doubt regarding these .

    What if I earn rs 5000 but I had paid premium of rs 10000 does it simply means I made a loss of rs 5000

    • Karthik Rangappa says:

      Buy @ 25 and sell @ 20 results in a loss of Rs.5, which is multiplied by the lot size. Yes, you made a profit of Rs.5K.

  97. akshay says:

    Sir the example that you have taken in the take off and acceleration stage, spot price is 8400 and strike price is 8500 which is slightly OTM.. When nifty moves by 100 points that slightly OTM will be ATM and since OTM transfer into ATM its delta also increase from 0.25 to 0.5 but you calculate it by taking 0.25..please explin!!!

    • Karthik Rangappa says:

      I’m not too sure about the question, but it is a 0.25 increase, so old delta is 0.25, change in delta is 0.25, so new delta is 0.5, which is a 100% increase in delta value.

  98. Abdul Maajid says:

    Q1) Did u mean to say it is better to buy futures rather than buying Deep ITM ?

    Q2) The last chart ( Bajaj Auto ) is for Put options, right ?

    Q3) Which is better for beginner ( Deep ITM , ITM, ATM, OTM, Deep OTM )?
    Thank You.

    • Karthik Rangappa says:

      1) Yes, between long Fut and long deep ITM, I’d prefer long FUT.
      2) I think its call :).
      3) For most long situations, stick to ATMs. Short positions, stick to OTM (couple of strikes away from ATM)

  99. Abdul Maajid says:

    Your associate buyed slightly OTM or Deep OTM ?
    Thank u.

  100. Ashok Dhale says:

    In the spot vs delta chart, put option curve is not making sense. As per chart when spot price rises put option goes from OTM to ATM to ITM, which is exactly reverse of what is true.
    Hence Put option chart needs to be modified and drawn separately.

  101. Aditya says:


  102. Sarvesh Mehtani says:

    Seems to be a mistake in Delta vs Spot price for a Put option.
    As the Spot Price increases, an option changes from ITM->ATM->OTM rather than what is mentioned in the graph.
    Please clarify/correct.

    • Karthik Rangappa says:

      Others have had the same doubt, can you run through the comments once, please? I have clarified the same.

  103. Akshay Malhotra says:


    Consider a scenario:

    1. Far OTM option for Rs 5 with delta = 0.1.
    For Rs 10 change in underlying, option price changes by Re 1. i.e. 1/5 = 20%

    2. Slight OTM option for Rs 50 with delta = 0.4. For Re 10 change in underlying, option changes by Rs 4. i.e. 4/50 = 8%

    Even if we factor in effect of higher gamma of slight OTM options, how can they give higher % returns as per the example in your text?

    I assume theta decay and volatility will equally impact both the options and do not impact their relative % returns.

    Also, for naked intraday directional trades,
    are we not better off buying far OTM option rather than slight OTM options considering they give better % returns (if my thesis above is right) and they decay far more slowly (due to lower delta) if the bet goes wrong?


    • Karthik Rangappa says:

      Are you talking about the absolute Rupee value of returns or the % change? I’m referring to the % change here, which obviously is higher for deep OTM.

      Theta decay and vol won’t have equal weightage on the premiums, it really depends on the market conditions.

      Far OTM is better, provided you are 100% sure about the direction and the extent of the move.

  104. Akshay Malhotra says:

    Thanks! This is really helpful. World class advice for free 🙂

    One more thing, closer to expiry, if I have a directional view on an underlying, as buying otm options must be avoided due to high theta decay and atm options must not be sold due to high gamma, does it make sense to buy deep itm options as they have minimal time value and hence no theta decay?

    • Karthik Rangappa says:

      Hmm, yes. If you think about it, deep ITM has a delta of near 1, so you are as well better off buying Futures. In fact, when you are 100% sure about your directional bet, always a good idea to switch to Futures (closer to expiry).

  105. Pruthvi says:

    Hi Karthik,

    A big thank you for Zerodha Varsity.

    I would like to point out a small mistake in Spot vs Delta graph for an option in the section 10.2 ‘Delta versus spot price’. For a call option, with increase in spot price, the option would move from OTM to ATM to ITM, and thus, the delta would move from 0 to 1. But for a put option, with increase in spot price, the option would move from ITM to ATM to OTM, and thus, the delta would move from -1 to 0.

    The Spot vs Delta graph provided in the section 10.2, has been shown to progress from OTM to ATM to ITM for a call option (which is correct) but, the same progress has been shown for a put option too (OTM to ATM to ITM moving from 0 to -1), where it should be in the reverse (ITM to ATM to OTM moving from -1 to 0).

    So, the outline of the graph for put option would be similar to that of the call option but with different start and end. For call option it’s 0 to 1 and for put option it’s -1 to 0 (instead of 0 to -1).

    Let me know if I’m interpreting it wrong.

    Thank you.

    • Karthik Rangappa says:

      I think the problem with this that I’ve called it ‘spot’ price. Actually look at it from just the transition of ATM to OTM or whatever perspective. So, when PUT transitions from OTM to ATM, the delta increases for a put, which is what is shown here.

      Hope I’m not confusing you 🙂

  106. Jaya says:

    Sir explain about delta hedging method sir

  107. Pradeep says:

    Hey Karthik,

    The Delta changes as and when the spot value changes
    So why do we use the delta value which is unchanged for the calculation of option premium
    Consider this – Nifty spot @ 8400, Strike is 8500 CE, option is slightly OTM, delta is 0.25, Premium is Rs.20/-.

    Spot moves from 8400 to 8500 (100 point), to figure out what happens on the premium side, let us do some math –

    Change in underlying = 100

    Delta for 8500 CE = 0.25

    Premium change = 100 * 0.25 = 25

    New premium = Rs.20 + 25 = Rs.45/-

    Percentage change = 125%

    In the above example the spot price moved from 8400 to 8500 and now the 8500CE is ATM making delta value 0.5 but we used the previous delta value which is 0.25,
    I am bit confused here
    Kindly can u clarify where I am wrong

    • Karthik Rangappa says:

      You are absolutely correct, in reality, the delta changes on a continuous basis (think of high school integration), but that will be hard to showcase here, hence I’ve consider a stepwise increase. The difference though is not much.

  108. Siddhant says:

    Hi Karthik

    Thanks for the very simple explanation. I think I

    I have a question on the last point
    “Buying Deep ITM Option is the same as buying the underlying.”
    Deep ITM 2150 1 Rs.75/- 30*1 = 30 75 + 30 =105 40%
    When buying a deep ITM option, the percentage increase is 40% for a 30 point move in the underlying.
    However, buying a future/underlying will only give a percentage increase of (2240/2150) -1 = 4.18%.

    I understand both of them are moving by 30 points but we earn return as a percentage of what our capital appreciates.

    Please help me understand if I am misunderstanding something.


    • Karthik Rangappa says:

      Yes, in terms of % change, ITM makes sense. However, in terms of absolute change, they are similar.

  109. manhar rao says:

    why do we calculate the premium.what is the use of it.we can only sell it on expiry so how can we earn through predicting the premium.

    • Karthik Rangappa says:

      The difference in premium is what you earn when you square off the trade before expiry.

  110. Piyush says:

    Let’s say :
    I buy call option of HDFCBANK with strike price of 960 and spot price is 900, I bought HDFCBANK 960 CE at premium of 17.00 with lot size of 500 shares. Lets take we have around 20 days left for expiry so time is not the factor in it.

    Now, my question is:
    1. When spot price of stock moves toward 960 premium of strike 960 CE moves up from 17 to let’s say 34.So if I sell @34 I made profit right ? irrespective of whether stock goes above 960 or not before expiry.

    2. Let’s say in above case I didn’t sell stock before expiry but 960 CE premium increases as spot price moves till 950 and premium which was 17 when I bought is at 34. But at the day of expiry it doesn’t crosses 960, so will I make profit here by selling at 34 or not ?

  111. Karna says:


    Let’s say I sell call at spot 420 CE spot price is 390, and premium is 15.00. Let’s assume price we have time to expiry.
    If market goes down and let’s say price goes to 360 then premium will also go down let’s say 10, then if I buy back at 10 then will I make profit of (15-10)*lot size or I make profit of 15*lot size which is premium amount ?

  112. Varun Gupta says:

    Hi Kartik. First of all, thanks a lot for excellent tutorials you have made on options.
    Pls refer to recent previous query .
    Let’s say :
    I buy call option of HDFCBANK with strike price of 960 and spot price is 900, I bought HDFCBANK 960 CE at premium of 17.00 with lot size of 500 shares. Lets take we have around 20 days left for expiry so time is not the factor in it.

    Now, my question is:

    “2. Let’s say in above case I didn’t sell stock before expiry but 960 CE premium increases as spot price moves till 950 and premium which was 17 when I bought is at 34. But at the day of expiry or even before expiry date, it doesn’t crosses 960, so will I make profit here by selling at 34 or not ?”

    A)why I can’t get the difference in premium price(34-17=17) as my profit ? (For case where stock is unable to cross my strike price but premium gets increased.
    B) Is it really necessary for spot price of a stock to cross the strike price to get / register profit in options trading, even if premium has increased? What if we sell it before it has crossed the strike price and book the difference of increased premium as profit ?
    Pls advice.

    • Karthik Rangappa says:

      Yes, if you manage to sell @34, then you get 34-17 as your profit. However, if you hold to expiry, then your profit depends on the settlement price on the expiry day. YOu can sell the option anytime before the expiry if you find the premium to be trading at a higher value.

  113. Bharat Agarwal says:

    Sir i had a doubt.
    Suppose the index right now is 5000 and i expect it to go to 5500, why would i buy a call option for Deep OTM, say strike price of 5800?

    • Karthik Rangappa says:

      You will buy deep OTM not just based on the directional move, but also on the time to expiry.

  114. Mohan says:

    Hi sir, here is my understanding, kindly correct me if I’m wrong.
    Similar to the example that you have explained above, here is what I speculate.

    I expect the nifty to crash in a month and so if I bought the deeply OTM put option with delta value of nearly 0, there are three possible outcome.

    Case 1: nifty crashes, then my OTM option would become ITM and I would have made some fortune 🙂

    Case 2: If nifty rallies, then since the delta value off my option is 0, premium wouldn’t change and option becomes even deeper OTM option, so I wouldn’t incur any loss

    Case 3: If nifty stays at the same level, then the premium wouldn’t change since the delta value is 0, and so no loss.

    It seems win-win situation, but where is the catch, am I missing anything 🤔

    • Karthik Rangappa says:

      Case 2 – Your loss is restricted to the extent of the premium paid.
      Case 3 – Same as above.

      As you can see, in case 2 & 3, you do have a loss. Only in case 1 you make money.

  115. Mohan says:

    -Continuation from above question

    But sir, in case 2&3, since the premium doesn’t hardly move and so if I square off my position before expiry, Don’t I regain the premium that I’d paid. 🤔

  116. Varun Agrawal says:

    Hello Karthik,

    I finally did my first options trading this week. It was Reliance and profitable too 😀

    I also noticed something today. https://i.imgur.com/2BBuy7S.png

    It seems like farther you go from ATM towards OTM, the more gains increase. While Reliance only gained 2.95%, 2080 CE option gained 176% compared to the ATM option 1880 which only gained 76%.

    You said ATM options are most profitable for small changes. Then why 2080 CE was most profitable in this example?

    • Karthik Rangappa says:

      Congrats, Varun. Hope you continue to stay profitable!
      Yes, that is right. But for the OTM to react that way, the move in the underlying has to be share and quick. If the same move had happened across say 10 or 12 days, you’d not have seen the same behaviour in OTM options.

  117. Varun Agrawal says:

    Hello Karthik,

    Thank you so much. As everyone says, stocks are probably hardest place to make money. I am trying my best and learning every day. I developed a custom stock screener for myself earlier, recently also programmed advanced features like trailing stop loss for delivery orders using Kite API. Even with all this, stocks are just hard. But what I learned from here has definitely helped me a lot.

    I will keep working on myself. Hopefully, it will pay off someday. Thank you again.

    • Karthik Rangappa says:

      I’m sure it will. Programing skills is a great value add, I’m sure you’ll hit gold one day 🙂

  118. Parth says:

    Hey karthik
    Generally I was lazy to ready article bcz of lengthy and hard to understand but really this article is point to point and very understandable. Even I am very excited to read whole article. Really good job…. Keep doing good work… Cheer 🙂

    Que – I am pure intraday trader so what is better for me to buying or selling. And what value I need to check. With the help of delta I can make my decision what should i do be buyer or seller for particular day?

    Thanks for wonderful Work again.:)

    • Karthik Rangappa says:

      If its just intraday that you are interested in, then you should maybe look at just the volatility. Based on which you can decide to buy or sell.
      Thanks for the kind words on the content 🙂

  119. Premakumar Kootagal Sanjeevaiah says:

    Respected Sir,


    I took some observations yesterday (17-07-2020) when the nifty spot moved up almost by 160 points. When nifty was trading at 10800 ( 10800 ATM), started observing 10600 PE ad 11000 CE who were 200 points away from ATM. At the EOD when nifty closed at 10900, 10600 PE lost Rs. 24 while 11000 CE gained Rs. 43. Is it because the acceleration of Delta on the Call side its much faster than the deceleration of Delta on the Put side? Theta for both strikes was almost same. My understanding is that the Theta decay had the same effect on both the call and put option prices (equal strikes away from ATM). Sudden raise in the spot too had the similar effect on the option prices and India VIX fell by 4.5%. So, only factor which was affecting the option prices is Delta.

    In effect, buying a call yield better profit instead of selling a put if view goes right. We will not be benefited much if the spot moves up substantially in a short duration (Intra day) by selling a put. Please correct me sir if I am wrong. This may be for the reason that the Call OTMs will move towards ATM (Deltas would be increasing) and Put OTMs will move towards Deep OTMs (Deltas would be decreasing).

    I request your insight into another important thing sir. I have also observed during current expiry week that for Nifty Options, Put option prices would be more than the call option prices when the spot is increasing & Call option prices would be more than the Put option prices when the spot is decreasing for the equal strikes away from the ATM. Also the Deltas of the Call and Put options strikes which are equidistant from the ATM are not symmetrical (They differ almost by 0.06 to 0.08. What could be the possible reason Sir?

    Requesting you to kindly post a writeup/guidance on the weekly expiry of Nifty and Bank nifty too Sir.

    Thanks in Advance & Regards

    Premakumar K S

    • Karthik Rangappa says:

      Your observation is perfect, there is no questions on that. Delta and volatility matters on a intrday basis. However, the 2nd part of CE increasing while markets are down and then the PE increasing when the market is up is something you cannot generalize. This is possible when we have extreme volatility in the market.

  120. Jatin says:

    Hi Karthik – A basic doubt on Delta – Ideally speaking, shouldn’t the delta really be same for all expiries for the same strike price? My understanding is Delta is only governed by how far the option is from Spot, irrespective of the Time to Expiry. Reason is when I see the delta for the different options contracts of the same strike price, the delta values are different.

    • Karthik Rangappa says:

      Jatin, this is true for ATM strikes. Other strikes do not obey this since the expected volatility changes for each strike with respect to time, and this has an effect on other greeks including delta.

  121. Anand says:

    I have been observing Reliance and its options for few days. I observed contradicting (at least in my understanding) today. I see that Reliance has fallen around 40 Rs but 2000PE AUG Expiry not increased, infact it fell 4 rs. How and Why is that?
    Reliance fell from 2112 to 2067.
    2000PE AUG is not at all a deep OTM

  122. Anand says:

    I wonder if such a drastic decrease of Volatality happens in intra day given that the underlying has so volatile that.
    Let’s say even if that is the case iy cannot simply ignore the other Greeks specially Delta. I wonder if something else is at play.

  123. Vaishakh says:

    Hi Karthik sir,
    Before going to next concept I would like to share my experience with this lesson.
    This chapter was completely a new fairy tale for me with extreme emotions at play i.e. the Idea of huge Gains & the deep thinking on huge losses,
    Firstly, I never thought of Nifty 50 breaching the circuits( I thought it’s impossible), but your example of 2009 showed me even markets hit the circuits (though a very rare event).
    Secondly, at the back of my mind I thought following a very good news, There would be a big gap up opening and I would have been more cautious to take position but markets opened flat and went up like a rocket !
    3) After the day’s end, my thought process was to BUY put option at OTM as the market was in overbought state and at a profit booking stage. But the correction was way less than expected !

    All these things again reminds me that , ‘Market is the king, no one can actually time it’

    Lastly, Thank you so much for this amazing work you are doing. Your teachings puts my mind under work.

  124. Murthy says:

    Hi Karthik, Your explanation is really wonderful. It is creating interest in learning and making it simple to understand.
    However I have one doubt, when moving from OTM to ITM, the strike price should move in ascending order, right?
    But in the table at the end, the strike prices are in descending order. Is my point correct? Could you please clarify?
    Thank you in advance,

  125. Prithvi says:

    If premium comes down from say Rs 10 to Rs 0. Is there a chance that it will again recover from Rs 0 or it will be lost completely

  126. PRATIK says:

    In this chapter, I think there is some error in the last table (Bajaj auto example) of the chapter, instead of OTM its written ATM and vice-versa.

  127. Rajesh Lad says:

    10.2 Delta verses spot price
    in example strike price is 8400
    Point No. 04.1 Spot crashes from 8500 to 8300. how it turned out to become OTM from ITM?
    I mean spot price is 8300 and strike price is 8400 then it should be ITM contract no? as spot price is below than the CE strike price.
    Please advice

  128. Mr Rajesh Lad says:

    Ohh…sorry…I got confused a bit ..now clarified…
    Sir, I really appreciate the efforts you put in to make this modules. I never found anything simpler than this on the internet. People can access the simplest study material on stock market for free. Any layman can understand and clear the stock market concepts after reading this…

  129. ronjan Usham says:

    Ref. 10.2.3
    It says ATM option has delta 0.5. That means the spot price = Strike price.
    Does this mean for every 1 point change in spot price, premium changes by half?

    • Karthik Rangappa says:

      No, it means the probability of the strike to either become ITM or OTM is 50%. You are right about the premium change.

  130. Atish Gandhi says:

    Good explanation..!! I have a doubt.
    How did you come to conclusion to buy strike price of 0.2 or 0.3. Is it good to buy immediate OTM option or the next 3-4 OTM options, in general what is preferable range of delta for a strike price which can give max returns whole lot of times? Specifically asking for BankNifty.

    • Karthik Rangappa says:

      Atish, these strikes are selected based on how the B&S formula behaves given different situation of volatility etc. As a thumb rule its always good to stick to strikes which are 2-3 strikes away from ATM.

  131. Ishant Gupta says:

    Will it be accurate to say that the graph in 10.2(Delta vs Spot) is actually a graph of delta vs option strikes?

    • Karthik Rangappa says:

      Yes, and another way to look at it to understand that as the underlying moves, so would the moneyness of the option, which is what the graph is all about.

  132. Hetang Gohel says:

    Hey kartik, what’s the reason behind being advised not to sell ATM options?

  133. Sanjay Pandey says:

    Dear sir
    Yes you are the best teacher I have ever met ! I would like to know whether the PDF book is launched or not as said by you. Im new to versity but enjoying a lot.
    Best regards
    Sanjay Pandey

  134. Shoshaama says:

    Dear Shri. Karthik,

    Thanks a ton for this wonderful article. Your explanations and examples are simple and very easy to understand. Before reading this Zerodha Varsity, all these terms where like cryptic codes for me. God Bless you and Zerodha for helping people like us to understand these concepts.

    Thank You.

  135. Harry says:

    Hey Karthick!

    1. My understanding is that the Delta vs Spot graph is in the perspective of the buyer of options. How would the graph change/interpret if it had to be plotted in the perspective of the writer? How should an option writer look at delta of call and put?
    2. Bang for the buck for an option buyer lies in buying slight OTM i.e. delta of 0.2 to 0.3, taking take off and acceleration into consideration. What would be the same for an options writer, keeping only delta in perspective?
    3. For the 1300% return you friend made, he would have been more profitable if he had bought slight OTM rather than deep OTM, of course at the expense of more risk, right? Since he wanted to allow a margin of safety for being wrong, he went for deep OTM?


    • Karthik Rangappa says:

      1) The option seller experiences a P&L which is a mirror image of the buyer. So in that sense, the same graph suffices, just the sense of direction changes
      2) Bang for the buck for the seller is OTM, I’d say ATM for buyer 🙂
      3) That’s right

  136. Harry says:

    Hey Karthick!

    Crux of my previous question being:

    Analogous to buying call option with delta of 0.2 to 0.3 (Slight OTM) or buying put option with delta of 0.8 to 1 (Deep ITM) for maximum bang for the buck. Would writing a put option with delta of -0.2 to -0.3 ( Slight OTM) or writing a call option with delta of 0.8 to 0.1 (Deep ITM) give maximum % returns relative to writing options of other deltas? Correct me if I’m wrong.


    • Karthik Rangappa says:

      Irrespective of call or put options, it makes sense to buy ATM or two strikes within and sell OTM options.

  137. Harry says:

    After reading chapter on Gamma, as an option writer,
    1. I think if one is moderately bullish, we should look at shorting put option with delta of -0.2 to -0.3 (Slight OTM) [or buying call option with delta of 0.2 to 0.3 (Slight OTM) as an option buyer] for maximum % returns.

    2. If one is strongly bullish, we should look at shorting put option with delta of -0.8 to -1 (Deep ITM) [or buying call option with delta of 0.8 to 1 (Deep ITM) as an option buyer] for maximum % returns.

    3. The reason for not going with Deep ITM for moderately bullish/bearish is that when option becomes ATM Gamma could hit you. Is that right?

    4. If there are many days left for expiry, and you are (not sure moderately or strongly) bullish, as an option writer, would you choose to go with 1 or 2?

    • Karthik Rangappa says:

      1) As far as possible, avoid shorting puts. If you are moderately bullish, buy ATM CE or sell deep OTM CE
      2) Strongly bullish = buy otm calls
      3) Yes, plus they are usually expensive options
      4) I’ve stated in 1 & 2 🙂

  138. Rajiv says:

    Thanx Karthik for your extensive article.. I have a question to u, suppose NIFTY spot price is 13750 and there are 4 days to expiry of options. Market is overall bullish. Then which CE option is right to buy deep ITM or ATM?

    • Karthik Rangappa says:

      Theoretically yes, but this will be a losing proposition as the OTM options tend to lose the premium rapidly due to theta decay.

  139. Rajiv says:

    Thanx for ur reply.. I am new in option trading. You said about OTM but I want to know which type of options is right to buy in this condition Deep ITM or ATM?

    • Karthik Rangappa says:

      Well, the answer to that really depends on multiple things, Rajiv. When in confusion, it is always best to stick to the ATM.

  140. manu says:

    What happens if we have sold an option. But around expiry liquidity runs out and we are unable to square off

  141. Ritesh Raj says:

    This content is pure gold. Do we have the pdf’s available now?

  142. Eashan says:

    Why should’nt we choose deep OTM as a buyer. If we choose deep OTM our premium payment value will be as good as nothing so why should’nt we choose to trade it??

    • Karthik Rangappa says:

      The chance of deep OTM turning ATM or ITM is low, hence there is a high probability that you may lose the entire capital invested on the option.

  143. Shankar Mohan says:

    because… just like your premium, you gains will also be ‘good as nothing’ [if any thing at-all] and theta’s effect will be more pronounced

    here’s and example:

    Last Friday (trading session before budget 2021) I went YOLO and bought Nifty 16000 4th Feb CE for 2.85
    Last Monday (day of budget) Nifty shot up 646 points in a single day – 4.74% [3rd highest single day gain in history], contract was valued at 1.10

    so as you can see, even that big a move couldn’t keep up with the loss in theta and drop in voltility…

  144. Litesh says:

    Dear Sir,
    I hope you are doing well.

    Lets say I think Nifty/Stock is going to make a move but it will slowly make that move and target will be achieved by the end of the month.

    In the module where you talk about which strike price to purchase, you mention that it is best to buy Deep ITM options to counteract theta.

    Would it be better to purchase 1 lot of a future or to purchase Deep ITM options that have a delta of 0.8-1? The future will not undergo changes in theta compared to the option?
    Most Deep ITM is not really liquid so what should one do?

  145. Chandu says:

    Sir to answer the question why your friend choose OTM and not ITM or ATM because premium will be low and risk is underlying should move more so that trade goes in his direction

  146. Manvith K J says:

    Sir, I would like to thank you from the bottom of my heart.

  147. Aditya Saini says:

    Varsity is doing a great job !! Hats off to you guys

  148. Avi says:

    If Nifty is at 15000 ATM delta would be 0.5 and expect to reach 15100 which is OTM
    Consider premium now is 60
    Now new premium would be 0.5×100=50
    New Premium 110
    After 100 point move now 15000 becomes ITM considering spot is now at 15250
    Does the delta value transition to slightly ITM that is 0.6
    Now the option premium changes with respect previous delta of 0.5
    Or new delta of 0.6?
    Am I going right?

  149. Avi says:

    Sir my question is assume I bought CE option at 0TM delta will be 0.05
    Trade goes in my favour and now it becomes ATM
    Now delta will be 0.5 or 0.55
    In option premium
    Hope you got my question
    Finding difficult to put my thoughts/question

  150. Vipul says:

    One does not need to wait for the contract to expire and then exercise the option as he/she can make money from the difference in the premiums when buying and selling is what is being taught in this chapter, right??

  151. Abhijeet says:

    Hi sir I am very thankful to you for this wonderful tutorials. Just general question how should we select the best stock for option is there any material you have uploaded on website please let me know if available. Thank you so much

  152. K N NAIDU says:

    Dear Mr Karthik,
    I like to know the answer to the question you had asked in this chapter regarding the great achievement in the story. As I am new to options , I am not able to analse and arrive at the result.

    • Karthik Rangappa says:

      No problem. Please do check the comments, you will find the answers posted by others with explanations.

  153. Vibhor says:

    Hi Karthik,
    quick question – if Deep OTM moves slowly, is it not the safest? Because if there is a reversal (opposite of what you expected), premium will not change much and you can exit trade without much loss.
    Also, if that would have been an ITM, there would be a 100% impact on premiums and huge loss on reversal. ITM could be unsafe?

    • Karthik Rangappa says:

      Sort of, but what you also need to remember is that the permanent loss to capital in these options is also quite high.

  154. Vibhor says:

    Thanks Karthik for your reply. Sorry I have just reached till this chapter. Can you please elaborate what you mean by “permanent loss to capital”?

  155. Alka Agarwal says:

    Hi karthik…… Can u plz clalify why ur friend chose deep otm option on 17 th may….. M still not able to solve this?

  156. Sankar C says:

    Lovely Explaination with simplicity……! Thank you..!

  157. Satyajit Datta says:

    How we can get all the deltas associated with different strike price of any stock/Index

    • Karthik Rangappa says:

      Check Sensibull site, Satyajit. They give out the deltas and other greeks of all option strikes.

  158. Durga says:

    Dear Sir, as one goes to buy OTM strike and if there is a large move in the market like the situation as you said, we will make a huge money. Even if you spend the same amount of money for ATM strike, if there is a large move, still the premium goes into ITM and there will be a relatively good change in premium for the same change in Spot price due to Option Delta will be nearly 1. What makes him to chose the OTM strike instead of ATM strike

    • Karthik Rangappa says:

      Durga, the decision to buy OTM or ATM really depends on factors like time remaining to expiry, volatility, and the premium as such. For example, when there is a lot of time to expiry, you may want to trade OTMs, but closer to expiry, you’d want to stick to ATMs.

  159. Ashu bhatnagar says:


    The first two are buy option for put mentioned in your table

    I.e 2400 pe premium rs 3
    And 2275 pe premium rs 7

  160. Aashay Pawar says:

    Awesome lesson! I wish i learned that before Covid and i would have been millionaire by now!

  161. pavan kumar ms says:

    lets think the stock is trading at support level i want to buy i.e., call option but which is better to choose ATM Strike or Slightly OTM Strike?

    • Karthik Rangappa says:

      This depends on how much time to expiry is there. If its more time to expiry, selecting slightly OTM is fine, else ATM.

  162. Gosai ram says:

    Best explanation sir thanks

  163. Prinal Kapadia says:

    I bought Banknifty at 37500 strik for 36365 spot with primium of Rs. 296. At the end of the dat spot at 36471 and premium at 229. Will i still be able to coverup my losses with 3 days still to go or will my premium keep coming down even the spot stays below 36500

  164. kiran kulkarni says:

    sir, you are melting away all the fog i had in my head regarding option trading.

  165. Sekhar says:

    Hello Karthik!! First of all, thanks a lot for these articles. 🙂

    I am not convinced with the statement.. “when is delta is 1, buying the option is as good as buying the underlying itself. ”

    Though the increase in premium and the increase in spot of underlying will be same(when delta is 1), the percentage increase may be different, right? I’m assuming value of premium would be quite smaller than the value of underlying(please let me know if this is not necessarily true.) So, for example, when spot of the underlying moves from 1000 to 1100, the premium would also move by the same 100 points.. but, say, from 200 to 300. The percentage changes are not the same.

    So, this makes me state that.. buying the option and the underlying is not the same even when the delta is 1.

    Please let me know if I’m wrong or my understanding is incomplete.. as I just started to learn about options. 🙂

    Thank you!

  166. Tarun says:

    Current ATM option Delta is showing as 25 & -25 (can interpret as 0.25 & -0.25) on the sensibull option chain, accessed from kite. Whereas this article suggest ATM Delta as 0.5 or -0.5

  167. Darshan says:

    sir for a call option if spot price is above ATM then it is ITM if spot price is below ATM is OTM, but in delta acceleration concept why higher spot price is OTM and smaller spot price is ITM sir please clarify my doubt sir

    • Karthik Rangappa says:

      Darsha, the graph shows how the Delta value changes, delta is higher for ITM and lower for OTM options.

  168. lingam says:

    Hi Karthik,
    Assume i have bought an option at slight OTM and on the expiry day it becomes an ITM option, in case if i don’t square off (not exercising my option)the position on the last day, what will happen ? ( btw,I have an account with zerodtha).


  169. lingam says:

    Hi Karthik,
    Continuation to the previous message, in case if i don’t square off (not exercising my option)the position on the last day even if i loose my premium case (i.e. after buying call option the market did not move in upward), what will happen?

    In both cases, manual square off is needed or zerodha will square off at the end of market closing hours (i.e on Thursday) and settle the money to my account if anything ?


    • Karthik Rangappa says:

      If the option is OTM, then nothing to worry about. However, if the option is ITM, then it needs to be settled physically.

  170. Kumar says:

    Hi Karthik, excellent guide on options. I’m really enjoying. Here I calculated how the delta impact the returns.

    | Moneyness | Strike | Delta | Premium | Change in Underlying X Delta = Profit | Returns (%) |
    | ITM | 17500 | .98 | 328 | 50*.98 = 49 | 14.9 |
    | ITM | 17600 | .89 | 243 | 50*.89 = 44.5 | 18.3 |
    | ITM | 17700 | .62 | 176 | 50*.65 = 32.5 | 18.4 |
    | ATM | 17800 | .50 | 119 | 50*.50 = 25 | 21 |
    | OTM | 17900 | .43 | 75 | 50*.43 = 21.5 | 28.6 |
    | OTM | 18000 | .25 | 32 | 50*.25 = 12.5 | 39 |
    | OTM | 18100 | .15 | 17 | 50*.09 = 7.5 | 44.1 |
    | | | | | | |

  171. Kumar says:

    Hi Karthik, excellent guide on options. I’m really enjoying. Here I calculated how the delta impact the returns in terms of percentage.

    Moneyness Strike Delta Premium Change in Underlying X Delta = Profit Returns (%)
    ITM 17500 .50 328 50*.98 = 49 14.9
    ITM 17600 .73 243 50*.89 = 44.5 18.3
    ITM 17700 .62 176 50*.65 = 32.5 18.4
    ATM 17800 .50 119 50*.50 = 25 21
    OTM 17900 .43 75 50*.43 = 21.5 28.6
    OTM 18000 .25 45 50*.25 = 12.5 39
    OTM 18100 .16 26 50*.09 = 7.5 44.1

    Correct me if anything is wrong. Thanks

  172. umesh kumar says:

    apart from greeks does the buying and selling ( demand and supply) of the option also affect the premium?

  173. bhavesh says:

    Hi Karthik Rangappa….a big thanks to you for simplifying Option Greeks. I was SO intimidated to even attempt to start reading it….but once I started, just devoured it greedily 🙂 Its an interesting topic put together so well. My sincere thanks once again.

  174. Rishi Verma says:

    Absolutely amazing explanations in the most easiest and practical way…
    I read some books for understanding Greeks, but the concept is clear after going through varsity..
    Great Sir….

  175. Gourav says:

    Hi Kartik,
    Why delta differs by the moneyness of the options? What is the logic behind it?

  176. Sandeep says:

    In section 10.3, you have mentioned “If you choose Deep ITM Option (over futures) you need to constantly
    make sure that the Deep ITM option continues to remain Deep ITM (in other words make sure the delta
    is always 1), plus do keep an eye on the liquidity of the contract”
    Here what do you mean by ‘liquidity of the contract’ and whose liquidity are you talking about?

  177. Sandeep says:

    Thanks very much Rangappa sir, please tell me how can we know liquidity of a options contract?
    Is there any way to know it?

  178. Soumya says:

    Dear Mr. Karthik,
    In the first graph of this chapter (Delta vs Spot Price), shouldn’t it be called “Delta vs Moneyness” instead? since for CE, moneyness increases with increasing spot price for a certain strike, and so does delta; but for PE, moneyness increases with decreasing spot, and so does the delta. Kindly correct me if my understanding is wrong.


    • Karthik Rangappa says:

      Moneyness is an attribute dependent on the spot price, so in my opinion, its better as Delta vs Spot.

  179. Soumya says:

    So, as per the graph:
    –> for a CE, as Spot price increases (from left to right), the Delta moves from 0 to +1
    –> for a PE, as Spot price increases (from left to right), the Delta moves from 0 to -1

    Is that so?

  180. Sarvesh Pandey says:

    Hi Kartik,

    As you said Slighty OTM is where acceleration takes place, but as per the example of Bajaj Auto at the end of the chapter, where the strike is 2275 and the spot is 2240, though premium change is 129%, the trader is still not profitable as for him to be profitable, the spot should move above strike + premium amount which is 2275+7=2282

    please correct if my understanding is wrong

  181. Sarvesh Pandey says:

    Hi Kartik
    U mentioned below statement in this chapter
    “Buy the ITM options when you want to play very safe.”

    Can you explain what you want to convey by above sentence

    • Karthik Rangappa says:

      When you want to restrict your risk emerging from all other greeks, then one of the safest strategies is to buy ITM options.

  182. Sarvesh Pandey says:

    hi Kartik,

    as u have explained in an earlier chapter the seller of call option and seller of a put option have limited profit which is to the extent of the premium received and unlimited loss if their directional view goes wrong,but how does change in premium affects them ,even if there directional view is correct because they have profit to the extent of premium received

    • Karthik Rangappa says:

      If the premium increases beyond what they have received, then that will be a loss Sarvesh. For example, I have sold an option at 20 (which I plan to buy back at 10), but if the premium increases to 30 instead of 10, then my buy price is 10 higher than the price at which I’ve sold, therefore my loss is 10. Another way to think about it is the price at which I buy and the price at which I sell. In this case, it, is 30 (buy price) and sell price is 20, so loss is 10.

  183. Sarvesh Pandey says:

    Hi Kartik

    U have mentioned that “Buying Deep ITM option is as good as buying the underlying”, but Buying deep ITM option has same change in terms of premium and underlying value,but % return and risk is very different

  184. Dhananjay says:

    Karthik sir I am glad that you are putting your knowledge for people like us to learn new things. Your way of explanation is just at another level 🔥

  185. Rohit hajare says:

    when we read a article ,understand in dept rather than watching video on youtube
    Thank you so much

  186. Md Miquail says:

    If I sell either call option or put option so can I square off my position any time or I have to wait till the expiry date to exercise my contact?
    As per my knowledge I can square off my position any time if I buy call option or put option…
    What about selling an option???

  187. Sandeep says:

    Dear Rangarappa sir,
    Is there any means to know the liquidity of an options contract? Is there any indicator or parameter to know?
    Kindly let me know.

  188. Sandeep says:

    Dear Karthik Sir,

    Could you kindly explain how to use bid-ask spread to get a view of volatility.
    Please help me.

    • Karthik Rangappa says:

      Sandeep, the smaller the spread between the bid and ask, the more liquid is the contract. Not so liquid otherwise.

  189. Sandeep says:

    Thanks Karthik sir, please let me know by bid ask spread you mean to say the bid and ask price difference
    or the bid and ask quantity difference.

  190. Sandeep says:

    Thanks Karthik sir, i went through the bid and ask price. I only wanted to know
    when we say “bid ask spread” we mean the difference between bid price and ask price or
    the difference between bid quantity and ask quantity? Kindly let me know this much.

    • Karthik Rangappa says:

      Sandeep, bid-ask spread or just the spread refers to just the difference between the bid and ask price. Not the bid-ask quantity.

  191. Sandeep says:

    Grateful to you, Karthik sir, for helping me understand the concept.

  192. Rajendran says:

    Dear Sir,
    In the illustration given under the heading “Take off & Acceleration, should not the new delta be 0.5 instead of 0.25 as the call option is now an ATM option?

  193. Himanshu Mishra says:

    Karthik Sir!
    Thank you so much for what you have done through these modules.
    I am learning from very first module till here and I’m confident enough to move mountains now!!

    Whoever asks me who taught you all that!!
    I , without taking a sec, reply, Karthik Sir!!!

    You are my “Guru Dronacharya” sir!!

    Accept my pranamas !!

    • Karthik Rangappa says:

      Himanshu, thanks so much for the kind words. It means a lot. Hope you continue to learn and progress on Varsity. Good luck.

  194. Ganesh Jadhav says:

    Hi Karthik Sir, One doubt, Let’s say Nifty is trading at 15850, Nifty 15900 CE (OTM) is at 100 & Nifty 15900 PE (ITM) is at 150. Now, the question is if I am of a view that Nifty won’t expire ITM and looking at this scenario, I would want to short sell 15900 CE then the delta for Buy as well as Sell will be same which would be 0.3, right?

  195. YASH says:

    as you have given the example for the 3rd point of 10.2 delta versus spot price.
    i didnt understand the example that how 8400ce is an OTM option.
    sir please explain.

  196. Aman says:

    Hi Karthik,
    please help me understand this:
    Though we get considerable returns in Slightly OTM and ATM (Returns close to 100 to 130% in the above examples), but we also need to cross the breakeven point to get ourselves to be profitable.
    Case 1 : Premium is 10, so we need at least 100% return to touch breakeven and 100%+ to become profitable.
    Case 2: Premium is 10, (we consider Deep OTM, Slightly ITM, and Deep ITM) in all these cases the return was less than 100%, meaning we are in loss, even though the premium change was 95%(In case of ATM).
    Am I right, or I’m missing something?
    Looking forward to hearing from you.
    thank you

    • Karthik Rangappa says:

      Aman, its always a tradeoff between risk, breakeven, and reward. But I’m not sure if I fully understand your query – why would your strategy not cross breakeven even if you were to generate 100%? Not sure if I’m missing something.

  197. Aman says:

    Also, this chapter is in consideration with respect to the buyer perspective, Right?

  198. Aman says:

    Can you please help me understand the transaction psychology from the seller’s point of view?
    A seller won’t have the right to void a contract, it’s the buyer who has the right to void the contract because he has paid the premium.
    So, how can a seller book his Profit/Loss before the expiry? I’m not able to imagine how the Seller can square off his position before the expiry and book his P/L. Does it mean that after squaring off this contract(From the seller’s perspective) will be forwarded to some other seller?

  199. Manjunath says:

    Dear Karthik,

    i have started My trading Journey 3 years back with Zerodha Account, as Long term investor.

    recently planned to work on day trading .
    i got some queries.

    if we trading only on Wednesday and Thursday , in which strike price we can make good profit.

    ATM or near ITM .

    also can you clarify , out of candlesticks or Heikein Ashi , which one is better.


    • Karthik Rangappa says:

      It is hard to generalize Manjunath as it is on the basis of the situation in the market. I’ve tried to explain this in subsequent chpater/modules.

  200. Pallavi says:

    This is the 1st option i bought just for the sake of trial so i will explain exactly what happened.yesterday i e wednesday i bought nifty 17100 ce at the premium of 1.40, nrml type ,then the spot price was 16540.Today ie thursday the spot price increased to 16914,but why my premium is still decreasing, instead of increasing?
    Thankyou sir

    • Karthik Rangappa says:

      That is because y;day was expiry and the option has no value left in it. Hence it will goto 0.

  201. Megha Runthala says:

    when you said ‘as and when the delta moves beyond ITM to say deep ITM the delta value does not change. It stays at its maximum value of 1. ‘
    does that means after a point of time .. change in nifty will be equal to change in premium..
    I mean like if nifty is up by 100 points then in deep ITM .. premium will also be up by 100 points?
    thank you!

  202. AbhishekTiwari says:

    Sir please tell if nifty is at 17530 & I choose strike price of 17400 CE and nifty closes at 17450 how do I calculate my loss as per delta,let me clear if I am wrong that delta will be around .5

    • Karthik Rangappa says:

      Upon expiry the value of the option will be the difference between strike and spot, which is 50 in this case. So this is your profit.

  203. Preetish HS says:

    Hello Sir,
    When your friend made 28lakh, that means the option seller lost almost equal to that (ignoring premiums). The exchange doesn’t block that high of a margin. What if the seller doesn’t even have that much money in the trading account? What happens then?

  204. Rahul Soni says:

    1. How ATM option is safer then OTM?
    2. Is ATM option is safer for seller also?
    3. What about put option which option is safer?
    Please reply sir

    • Karthik Rangappa says:

      1) Depends on your position in the market. If you want to write, then OTMs are better
      2) OTMs are better
      3) Same as above.

  205. Siddharth Shetty says:

    Hi ,
    After the ‘Delta Vs Spot Price’ graph , In the point number 3, you say “Notice at OTM the delta is flattish near 0 – this also means irrespective of how much the spot price falls ( going from OTM to deep OTM) the option’s delta will remain at 0”

    But do you mean- “spot price rises ” in the above statement ?


  206. Utsav Panchal says:

    Was that one associate who made whopping 1300% profits Nikhil Kamath? Just kidding😀!!
    Thank you, Karthik for sharing knowledge and teaching us things in a simpler manner.

  207. REnuka says:

    Change in premium for Option 2 = 100 * 1 = 100, Isn’t it should be 200 points (8400-8200)?

  208. Sandeep says:

    Dear Karthik sir,

    Good evening. This is regarding Delta acceleration where we find that in terms of %change in premium, ATM > Slight ITM > ITM.
    But today I found this puzzling situation. Please go though this and let me know where is my mistake.
    Change in underlying is same 100 points in all the 3 cases.
    Now.. Case 1 (ATM) : Let Delta be 0.5 Premium = Rs. 60.
    Premium change = 100*0.5 = 50.
    %change in premium = 50/60 * 100 = 83%
    Case 2 (Slight ITM) : Let Delta be 0.8 Premium = 90
    Premium change = 100*0.8 = 80
    %change in premium = 80/90 *100 = 88%
    Case 3 (Deep ITM) : Let Delta be 1.0 Premium = 110
    Premium change = 100*1 = 100
    %change in premium = 100/110 *100 = 90%
    I find here just the opposite that in terms of %change in premium, Deep ITM > Slight ITM > ATM.
    Please let me know where is my mistake.

    • Karthik Rangappa says:

      Sandeep, sometimes the strike-specific movement, demand, and supply influence the premiums. This could be one off such instances. In general, ATM > Slight ITM > ITM this holds true.

  209. Sandeep says:

    Ok sir got it. Thanks

  210. Sandeep says:

    Dear Karthik sir,

    I have one doubt.. Why does strike specific movement increase. Why does demand & supply of a particular strike increase?

    • Karthik Rangappa says:

      That is driven by the market participants perception on prices. Its kind of like a circle, one thing leads to another with no definite end points 🙂

  211. Sandeep says:

    Dear Karthik sir,

    When you say “market participants perception on prices” I could not understand. Please give a real-life situation where
    demand & supply of a particular strike increases.

    • Karthik Rangappa says:

      You can be extremely bullish on an underlying and, therefore, willing to buy an OTM strike, but at the same time, I could have a flatish opinion on the same stock, hence the seller of the OTM strike. So the collective opinion of all participants on this particular strike leads to a demand and supply situation for this strike, which further translates to movement in the premium. This is what I mean by market participant’s perspective.

  212. Sandeep says:

    Thank you so much sir for your reply.

  213. Sandeep says:

    Dear Karthik sir,

    The chapter says.. “In order for the OTM option to work in our favor the underlying has to move massively”
    Generally speaking, how many points a stock has to move for each of these options to work in our favor ?
    1. Buying a OTM option
    2. Buying a ATM option
    3. Buying a ITM option
    Can we quantify the movement in terms of % (like suppose i say that the stock should move 4% for the OTM to work.. likewise) ?

    • Karthik Rangappa says:

      Its tough to quantify as there are several moving parts involved in determining the premium of an option.

  214. J Ramesh Babu says:

    Thanks for the simplified and wonderful teaching. ATM value is clear which reflects the strike place close to the SPOT price. How can you estimate OTM and ITM values?

    • Karthik Rangappa says:

      For a call option, all strikes above ATM are OTM and strikes below ATM are ITM. For puts, all strikes below ATM are OTM and above ATM are ITM.

  215. Sandeep says:

    Dear Karthik sir,
    I know that other greeks too affect the price of the premium. But here let’s assume only underlying movement is working.
    Now my question is..
    The chapter says.. “In order for the OTM option to work in our favor the underlying has to move massively”
    Generally speaking, how many points a stock has to move for each of these options to work in our favor ?
    1. Buying a OTM option
    2. Buying a ATM option
    3. Buying a ITM option
    Can we quantify the movement in terms of % (like suppose i say that the stock should move 4% for the OTM to work.. likewise) ?

  216. Sandeep says:

    1. So you mean to say that for a OTM option to work in our favor, the stock should move 5-8%?
    2. How much percentage the stock should move for the ATM option to work in our favor?
    3. How much percentage the stock should move for the ITM option to work in our favor?

    • Karthik Rangappa says:

      1) Yes, that’s a rough %, and assuming other things are constant.
      2) 2-3%
      3) Same as above

      Frankly, these are numbers I’m suggesting just because you are forcing me to 🙂 But options don’t work this way 🙂

  217. Siddharth Sheth says:

    Why should one buy call option at strike price lesser than spot price?
    Call option is to expect underlaying market price would increase

    For below example, one would expect market price to drop to attain ATM
    Wouldnt this be contradicting to purpose of a Call Option

    TCS CE 3300 at premium 350, spot price 3400

    • Karthik Rangappa says:

      So there are multiple factors at play. Most importantly, how much do you expect the market to move? Basis this, you choose a strike.

  218. Vishal says:

    Hi Karthik, Thanks for the amazing tutorials
    I would like to understand the meaning of below sentence that was regarding the Deep ITM
    “plus do keep an eye on the liquidity of the contract.”

    • Karthik Rangappa says:

      So some of the contracts do not trade that often, which means you cannot easily buy or sell them, so the chances of you getting stuck in a position are high. So do watch out for that.

  219. Richie Richardson says:

    In the “predevelopment” example, when the spot price moved from 8400 to 8500, the delta should also change from 0.05 to something else (say 0.10). Then the new option premium should be 12 + (100*0.10) = 22 instead of 17. Am I going correct on the logic that since the moneyness of the option changes with change in the value of the underlying, the upmove then should be multiplied with the new delta figure.

    • Karthik Rangappa says:

      By considering 0.1, you are almost doubling the delta value and intend that the premium should double for 8700CE. This wont happen. In reality, the change in the delta will be very small.

  220. Sai says:

    Hi Karthik,
    Good Day!
    Hope you are doing good.

    I am slowly but steadily going through the options chapter and I am confident that will complete it with proper understanding in a months time.
    As usual, Thank you for all the efforts you have put in to bring this wonderful knowledge to us. God Bless You.

    I have a question in this module regarding Delta:
    Delta of a strike price changes with the change in spot price and we know approximately delta of premiums based on their moneyness.
    When looking into Delta before considering an option strike, Can we chose the strike price directly based on the moneyness of the option (ATM/ITM) as the Delta would be more than 0.5 or should we have to go and check the delta of the option in any website/sensibul before placing an order?
    because wanted to know if there can be cases where the Delta of ATM/ITM options be less than 0.5 due to other Market factors?

    • Karthik Rangappa says:

      Glad you like the content, Sai. You can directly pick up strikes, over time as you gain more experience, you will intuitively know what delta is doing.

  221. Pri says:

    This is brilliant stuff.. thank you so much

  222. Chandra Shekhar Singh says:

    How to find trend In Nifty Using Delta and Premium Price of Option ? If it is possible please Comment

  223. Sandeep says:

    Dear Karthik sir

    Suppose we want to select a strike based on the delta. How can we do that knowing that option geeks change every minute?
    Kindly help.

    • Karthik Rangappa says:

      Hmm, OTMs and ITMs, especially the deep ones will stay the same unless there is a massive move in the market. The only thing that keeps changing is the ATM.

  224. Sandeep says:

    Sorry for the earlier query. I could not write what i thought.

  225. Sandeep says:

    Dear Karthik sir,
    How to know Delta of 2 similar options, e.g. 2 CE OTM options knowing that delta changes every minute.

    • Karthik Rangappa says:

      Deltas will be below 0.5 if these are OTM. You can use a B&S calculator to figure the exact values.

  226. Sandeep says:

    Thank you sir. Suppose there are 2 deep OTM options of Nifty 18700 and 18750. Can we say that
    18700 will have more delta because in the option chain it is lesser than the 18750 (more deep)
    Kindly help.

  227. Sandeep says:

    Dear Karthik sir,
    Above you said the Delta for Deep ITMs and Deep OTMs remains same until a huge movement.
    And ATM delta keeps changing. What about the slight OTM ones? Does the delta remains same or changes
    just like the ATM.

    • Karthik Rangappa says:

      Delta for Deep ITMs/OTMs do change, but not as much as the ATM option. But yes, the Delta change for slightly ITM, ATM, and slightly OTM is quite rapid and is also dependent on how the markets are moving.

  228. Sandeep says:

    Dear Karthik sir
    Above in one of your comments you said –
    “For indices if you place a BO/CO order while buying options you get margin benefit”
    Kindly tell what is the meaning of margin benefit?

  229. Viraj says:

    Karthik Sir,
    “Do not attempt to sell an ATM option”, please explain.

  230. Karamjit Singh says:

    Hello Sir
    First of all, I would like to say that I am a big fan!
    Your course have helped me immensely to understand finance and investing in general.
    I’m following your complete series for a very long time.
    I would just like to ask if you can suggest some book on F&O for further study.


    • Karthik Rangappa says:

      Thanks for the kind words, Karamjit 🙂

      Regarding the books, I’d suggest you pick John C Hull’s book on Derivatives. Its not in Indian context, but gives you a perspective.

  231. Ayush says:

    These theory pdfs are such a great source till date , i have learned about option greeks already but damm the explanation provided here is such extensive , totallly loved it ..
    thank u karthik .

  232. Vishal says:

    Sir can you explain this sentence in recommendation section :
    “When I say safe, I’m contrasting the deep ITM option with deep OTM option.”

  233. Kevalsing says:

    Superb writing !!! Superb explanation !!

  234. harry says:

    when Market Moves 20 points OTM CE with 0.20 delta moved 4 points but from that 20 points market came same level but 8 points difference showing y like this which factor made more loss in reverse direction in just 30 mints move i want to know

  235. suresh says:

    When the spot moves from OTM to ATM the delta also starts to pick up (remember the option’s moneyness also increases)

    Notice how the delta of option lies within 0 to 0.5 range for options that are less than ATM

    i know this , please explain

    less than 0.5 delta = ITM

    • Karthik Rangappa says:

      In and around 0.5, it could be 0.5 for ATMs but not more than 0.5. For the delta to pick up more than 0.5, underlying has to move, meaning, the option has to transition from ATM to ITM.

  236. suresh says:

    less than 0.5 delta OTM
    less than ATM money will be ITM

  237. askin raj says:

    Let us take this forward and see how the ATM option would react for the same 100 point move.

    Spot = 8400

    Strike = 8400 (ATM)

    Premium = Rs.60/-

    Change in underlying = 100

    Delta for 8400 CE = 0.5

    Premium change = 100 * 0.5 = 50

    New premium = Rs.60 + 50 = Rs.110/-

    Percentage change = 83%
    in this example you said change in underlying as 100,what it means?
    because if spot price moves 100 points from 8400 to 8500 then will it not considered as from ATM to ITM

    • Karthik Rangappa says:

      It means that the underlying stock/index has moved by 100 points. Yes, as the underlying moves, so would the moneyness.

  238. Hariprasath says:

    Hi Karthick sir,

    this chapter really useful to understand how the system working behind the screen and also importance on select the strike price.

  239. Aditya says:

    Very helpful. I was having a hard time understanding this. Still have not understood this well enough to start trading with options. Will give it some more time, as Karthik has mentioned.
    Will try to look for DEEP OTM opportunities like your client did during 2024 elections.

  240. Akshay says:

    hii Kartik sir,

    i have doubt. Suppose spot price is 8400 and i buy a 8500 CE which is OTM with delta of 0.3 and premium of 85. Now as spot price move from otm to atm and then itm the premium increases as delta increase but as mentioned in earlier chapters that i will only start earning when spot price will be more than strike price(in case of call) as IV = )spot price – strike price) – premium * no of shares.

  241. manikandan says:

    in the example for takeoff for ATM

    Spot and strike have the same value then how the difference in the underlying is 100? is it not 0?

  242. sahil mansuri says:

    dear kartik sir,
    you are doing your work very good

  243. Aditya says:

    Thanks for the explanation. As a beginner I have one doubt what is the significance of the strike price if the premium depends on the spot price? Suppose the spot price is 8000 and I bought a slight OTM 8200 with delta of .4.

    Now if the spot is moved by 100 points which becomes 8100 then the premium will increase by 40 points(.4 * 100) so I am gaining right no matter whatever is the strike price. As the new spot is still less than the strike price. or I can sell Call option only if it crosses the strike price???

    • Karthik Rangappa says:

      Strike price is your reference price basis which the premium of the option you are dealing with gets its value. All your option trading is dependent on how the spot behaves with respect to the strike.

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