Module 6 Option Strategies

Chapter 13

Max Pain & PCR Ratio


13.1 – My experience with Option Pain theory

In the never ending list of controversial market theories, the theory of ‘Option Pain’ certainly finds a spot. Option Pain, or sometimes referred to as ‘Max Pain’ has a significant fan following and probably an equal number of people who despise it. I’ll be honest; I’ve been in both camps! In the initial days of following Option Pain, I was never able to make money consistently. However, overtime I found methods to improvise on this theory to suit my own risk appetite, and that yielded a decent result. Later in the chapter I will discuss this as well.

Anyway, now this is my attempt to present you the Option Pain theory and talk to you about what I like and what I don’t about Max Pain. You can take cues from this chapter and decide for yourself which camp you want to be in.

Option Pain theory requires you to be familiar with the concept of ‘Open Interest’.

So, let’s get started.

13.2 – Max Pain Theory

The origins of Option Pain dates back to 2004. So, in a sense, this is still a very young theory. As far as I know there are no academic/scholastic papers on it, which makes one wonder why the academia has ignored this concept.

The theory of options pain stems as a corollary to the belief – “90% of the options expire worthless, hence option writers/sellers tend to make money more often, more consistently than the option buyers”.

Now if this statement is true, then we can make a bunch of logical deductions –

  1. At any point only one party can make money i.e either the option buyers or option sellers, but not both. From the above statement, it is clear that the sellers are the ones making money.
  2. If option sellers tend to make maximum money, then it also means that the price of the option on expiry day should be driven to a point where it would cause least amount of loss to option writers.
  3. If point 2 is true, then it further implies that option prices can be manipulated, at least on the day of expiry.
  4. If point 3 is true, then it further implies that there exists a group of traders who can manipulate the option prices, at least on the day of expiry.
  5. If such a group exists then it must be the option writers/sellers since it is believed that they are the ones who make maximum money/consistently make money trading options.

Now considering all the above points, there must exist a single price point at which, if the market expires, then it would cause least amount of pain to the option writers (or cause maximum amount of pain to option buyers).

If one can identify this price point, then it’s most likely that this is the point at which markets will expire. The ‘Option Pain’ theory does just this – identify the price at which the market is likely to expire considering least amount of pain is caused to option writers.


Here is how formally defines Option Pain – “In the options market, wealth transfer between option buyers and sellers is a zero sum game. On option expiration days, the underlying stock price often moves toward a point that brings maximum loss to option buyers. This specific price, calculated based on all outstanding options in the markets, is called Option Pain. Option Pain is a proxy for the stock price manipulation target by the option selling group”.

13.3 – Max Pain Calculation

Here is a step by step guide to calculate the Max Pain value. At this stage, you may find this a bit confusing, but I recommend you read through it all the same. Things ill get clearer once we take up an example –

Step 1 – List down the various strikes on the exchange and note down the open interest of both calls and puts for these strikes.

Step 2 – For each of the strike price that you have noted, assume that the market expires at that strike.

Step 3 – Calculate how much money is lost by option writers (both call option and put option writers) assuming the market expires as per the assumption in step 2.

Step 4 – Add up the money lost by call and put option writers.

Step 5 – Identify the strike at which the money lost by option writers is least.

This level, at which least amount of money is lost by option writers is the point at which maximum pain is caused to option buyers. Therefore this is the price at which the market is most likely to expire.

Let us take up a very simple example to understand this. For the sake of this example, I’ll assume there are only 3 Nifty strikes available in the market. I have made a note of the open interest for both call and put options for the respective strike.

Strike Call Option OI Put option OI
7700 1823400 5783025
7800 3448575 4864125
7900 5367450 2559375

Scenario 1 – Assume markets expires at 7700

Remember when you write a Call option, you will lose money only if the market moves above the strike. Likewise, when you write a Put option you will lose money only when the market moves below the strike price.

Therefore if the market expires at 7700, none of the call option writers will lose money. Which means call option writers of 7700, 7800, and 7900 strikes will retain the premiums received.

However, the put option writers will be in trouble. Let’s start with the 7900 PE writers –

At 7700 expiry, 7900 PE writers would lose 200 points. Since the OI is 2559375, the Rupee value of loss would be –

= 200 * 2559375 = Rs.5,11,875,000/-

7800 PE writers would lose 100 points, the Rupee value would be

= 100 * 4864125 = Rs.4,864,125,000/-

7700 PE writers will not lose any money.

So the combined money lost by option writers if the markets expire at 7700 would be –

Total money lost by Call Option writers + Total money lost by Put Option writers

= 0 + Rs.511875000 + 4,864125000 = Rs.9,98,287,500/-

Keep in mind that total money lost by Call Option writers = money lost by 7700 CE writer + money lost by 7800 CE + money lost by 7900 CE

Likewise the Total money lost by Put Option writers = money lost by 7700 PE writer + money lost by 7800 PE + money lost by 7900 PE

Scenario 2 – Assume markets expires at 7800

At 7800, the following call option writers would lose money –

7700 CE writers would lose 100 points, multiplying with its Open Interest we get the Rupee value of the loss.

100*1823400 = Rs.1,82,340,000/-

Both 7800 CE and 7900 CE seller would not lose money.

The 7700 and 7800 PE seller wouldn’t lose money

The 7900 PE would lose 100 points, multiplying with the Open Interest, we get the Rupee value of the loss.

100*2559375 = Rs.2,55,937,500/-

So the combined loss for Options writers when market expires at 7800 would be –

= 182340000 + 255937500

= Rs.4,38,277,500/-

Scenario 3 – Assume markets expires at 7900

At 7900, the following call option writers would lose money –

7700 CE writer would lose 200 points, the Rupee value of this loss would be –

200 *1823400 = Rs.3,646,800,000/-

7800 CE writer would lose 100 points, the Rupee value of this loss would be –

100*3448575 = Rs.3,44,857,500/-

7900 CE writers would retain the premiums received.

Since market expires at 7900, all the put option writers would retain the premiums received.

So therefore the combined loss of option writers would be –

= 3646800000 + 344857500 = Rs. 7,095,375,000/-

So at this stage, we have calculated the total Rupee value loss for option writers at every possible expiry level. Let me tabulated the same for you –

Strike Call Option OI Put option OI Loss value of calls Loss value of Puts Total loss
7700 1823400 5783025 0 998287500 998287500
7800 3448575 4864125 182340000 255937500 438277500
7900 5367450 2559375 7095375000 0 7095375000

Now that we have identified the combined loss the option writers would experience at various expiry level, we can easily identify the point at which the market is likely to expire.

As per the option pain theory, the market will expire at such a point where there is least amount of pain (read it as least amount of loss) to Option sellers.

Clearly, from the table above, this point happens to be 7800, where the combined loss is around 438277500 or about 43.82 Crores, which is much lesser compared to the combined loss at 7700 and 7900.

The calculation is as simple as that. However, I’ve used only 3 strikes in the example for simplicity. But in reality there are many strikes for a given underlying, especially Nifty. Calculations become a bit cumbersome and confusing, hence one would have to resort to a tool like excel.

I’ve calculated the option pain value as of today (10th May 2016) on excel, have a look at the image –

Image 1_comuputation

For all the available strikes, we assume market would expire at that point and then compute the Rupee value of the loss for CE and PE option writers. This value is shown in the last column titled “Total Value”.  Once you calculate the total value, we simply have to identify the point at which the least amount of money is lost by the option writer. You can identify this by plotting the ‘bar graph’ of the total value. The bar graph would look like this –

Image 2_max pain

As you can see, the 7800 strike is the point at which option writers would lose the least amount of money, so as per the option pain theory, 7800 is where the market is likely to expire for the May series.

Now that you have established the expiry level, how can you use this information? Well, there are multiple ways you can use this information.

Most traders use this max pain level to identity the strikes which they can write. In this case, since 7800 is the expected expiry level, one can choose to write call options above 7800 or put options below 7800 and collect all the premiums.

13.4 – A Few Modifications

In the initial days, I was very eager to learn about Option Pain. Everything about it made absolute sense. I remember crunching numbers, identifying the expiry level, and writing options to glory. But shockingly the market would expire at some other point leaving me booking a loss and I wondering if I was wrong with my calculations or if the entire theory is flawed!

So I eventually improvised on the classic option pain theory to suit my risk appetite. Here is what I did –

  1. The OI values change every day. This means the option pain could suggest 7800 as the expiry level on 10th of May and may very well suggest 8000 on 20th of May. I froze on a particular day of the month to run this computation. I preferred doing this when there were 15 days to expiry.
  2. I identified the expiry value as per the regular option pain method.
  3. I would add a 5% ‘safety buffer’. So at 15 days to expiry, the theory suggest 7800 as expiry, then I’d add a 5% safety buffer. This would make the expiry value as 7800 + 5% of 7800 = 8190 or 8200 strike.
  4. I would expect the market to expire at any point between 7800 to 8200.
  5. I would set up strategies keeping this expiry range in mind, my most favorite being to write call options beyond 8200.
  6. I would avoid writing Put option for this simple belief – panic spreads faster than greed. This means markets can fall faster than it can go up.
  7. I would hold the options sold up to expiry, and would usually avoid averaging during this period.

The results were much better when I followed this method. Unfortunately, I never tabulated the results, hence I cannot quantify my gains. However if you come from a programming background, you can easily back test this logic and share the results with the rest of community here. Anyway, at a much later stage I realized the 5% buffer was essentially taking to strikes which were approximately 1.5 to 2% standard deviations away, which meant the probability of markets moving beyond the expected expiry level was about 34%.

If you are not sure what this means, I’d suggest you read this chapter on standard deviation and distribution of returns.

You can download the Option Pain computation excel.

13.5 – The Put Call Ratio

The Put Call Ratio is a fairly simple ratio to calculate. The ratio helps us identify extreme bullishness or bearishness in the market. PCR is usually considered a contrarian indicator. Meaning, if the PCR indicates extreme bearishness, then we expect the market to reverse, hence the trader turns bullish. Likewise if PCR indicates extreme bullishness, then traders expect markets to reverse and decline.

To calculate PCR, all one needs to do is divide the total open interest of Puts by the total open interest of the Calls. The resulting value usually varies in and around one. Have a look at the image below –

Image 3_PCR

As on 10th May, the total OI of both Calls and Puts has been calculated. Dividing the Put OI by Call OI gives us the PCR ratio –

37016925 / 42874200 = 0.863385

The interpretation is as follows –

  • If the PCR value is above 1, say 1.3 – then it suggests that there are more Puts being bought compared to Calls. This suggests that the markets have turned extremely bearish, and therefore sort of oversold. One can look for reversals and expect the markets to go up.
  • Low PCR values such as 0.5 and below indicates that there are more calls being bought compared to puts. This suggests that the markets have turned extremely bullish, and therefore sort of overbought. Once can look for reversals and expect the markets to go down.
  • All values between 0.5 and 1 can be attributed to regular trading activity and can be ignored.

Needless to say, this is a generic approach to PCR. What would really make sense is to historically plot the daily PCR values for say 1 or 2 years and identify these extreme values. For example for Nifty value such as 1.3 can indicate extreme bearishness, but for say Infy something like 1.2 could be extreme bearishness. So you need to be clear about this, hence back testing helps.

You may wonder why the PCR is used as a contrarian indicator. Well, the explanation to this is rather tricky, but the general opinion is this – if the traders are bearish/bullish, then most of them have already taken their respective position (hence a high/low PCR) and therefore there aren’t many other players who can come in and drive the positions in the desired direction. Hence the position will eventually be squared off which would drive the stock/index in the opposite direction.

So that’s PCR for you. You may come across many variants of this – some prefer to take the total traded value instead of OI, some even prefer to take the volumes. But I personally don’t think it is required to over-think PCR.

13.6 – Final thoughts

And with this, I’d like to end this module on Options, which has spread across 2 modules and 36 chapters!

We have discussed close to 15 different option strategies in this module, which I personally think is more than sufficient for retail traders to trade options professionally. Yes, going forward you will encounter many fancy option strategies, perhaps your friend will suggest a fancy option strategy and show off the technicalities of the strategy, but do remember – ‘fancy’ does not really translate to profit. Some of the best strategies are simple , elegant and easy to implement.

The content we have presented in both, Module 5 and Module 6, is written with an intention of giving you a clear picture on options trading – what is possible to be achieve with options trading and what is not possible. We have thought through and discussed what is required and what isn’t. Frankly these two modules are more than sufficient to answer most of your concerns/doubts related to options.

So please do take some time to read through the contents here, at your own pace, and I’m certain you will you will start trading options the way it is supposed to be done.

Finally, I hope you will enjoy reading this as much as I enjoyed writing this for you.

Good luck and stay profitable!

Key takeaways from this chapter

  1. Option Pain theory assumes that the option writers tend to make more money consistently compared to option buyers.
  2. Option pain assumes that option writers can influence the price of options on the day of expiry.
  3. One can use the theory of option pain to identify the price at which the stock/index is likely to expiry.
  4. The strike at which the option writers would experience least amount of loss is the strike at which the stock/index likely to expire.
  5. The PCR is calculated by dividing the total open interest of Puts by the total open interest of the Calls.
  6. The PCR is considered as a contrarian indicator.
  7. Generally a PCR value of over 1.3 is considered bearish and a PCR value of less than 0.5 is considered bullish.


  1. nishu says:

    respected sir, please update all module up to this and future also in GUJARATI language from module no. 1 to continue………. i m too pleaser i have no word how can i explain my happiness to see translation in GUJARATI so please update all your module in GUJARATI thanks a lot………….

    • Karthik Rangappa says:

      Thanks Nishu 🙂 We just started our work on translation. We are working toward the same, please stay stunned here for regular updates.

      • Guruprasad V says:

        Wonderful materials. Why there is no pdf version for option strategies. Would be great if you could put content in major Indian regional languages like Telugu, Tamil etc., Would have great audience for these materials.

      • kiran says:


        option writing is better tools to get return on investment..I think this should explain to people who can’t spend more time for observations and chart reading..Request you conduct any kind of finance programms, shows, investor progrmms frm zerodha

      • Pramod Kumar says:

        Hi Karthik, We will get very low premium if 5% beyond the max pain.
        May be even less than 10,Sometimes as less as 5.
        Though premium will be less , Success rate will be high.
        What was your experience?

  2. Amol says:

    Can you please upload PDF files of module no. 6 for download ? This would make it easy for everyone to access the module on the go. Thanks for wonderful work you all are doing.

  3. thulasi says:

    Namasthe Sir
    Plz update all modules in telugu language and coming modules also.
    Thank u for your great work.

  4. khyativerdhan says:

    hi kartik
    very very thanks for this module. is now this module finished??

  5. Suresh.ks says:

    In Nifty option chain the strikes start from 5450 to 9500, should we calculate all the strikes OI of both Call and Put to calculate option pain?
    and when should start to calculate from the starting of the contract or after 15 days?

    • Karthik Rangappa says:

      Technically you should calculate from the start (5450) to end (9500)…but then we know the liquidity is not much, hence we could ignore these strikes. You can calculate the Max Pain value on any day…but I just prefer when there are 15 days to expiry.

  6. Suresh.ks says:

    In Nifty option more OI built in 8000 CE and in 7800 PE and PCR is 0.94 in this case will Nifty expire below 8000 in this may series?

  7. R P HANS says:

    Sir, Thanks a lot for the simplified option course.
    I think few more things may be added to make it complete. Items like Call butterfly, strip strap, covered call etc as you promised may please be included. When we will get detail;ls on pair trading.
    Thanks again.
    R P HANS

  8. Bharath says:

    can u provide excel sheets regarding OI analysis, moving averages etc,,,or any link regarding the same

    • Karthik Rangappa says:

      Every chapter has an excel model attached which shows the working. Suggest you scroll down to download the link.

      • Suraj pradhan says:

        I hv opened a zerodha account recently. I want to know does zerodha hv any software of updating OI of banknifty option different strike price where live data of OI for calculating option maximum pain in the excel sheet .

  9. Khyati Verdhan says:

    When will zerodha bring order in kite???

  10. Khyati Verdhan says:

    I mean Bo order type

  11. Khyati Verdhan says:

    Hi kartik
    I use new 2.0 version of kite. It has Co order but not Bo. Where it is???

  12. Suresh.ks says:

    Based on option pain calculation if we write the Nifty call option keeping 5% safety buffer before 1 day expiry, What is the accuracy ratio from your trading experience? can we make consistent profit?

    • Karthik Rangappa says:

      Well, accuracy is quite high but the money you make is very very little. Someone once said…its like picking up a dime in front of a road roller!

  13. Hari says:

    Karthik bro can you start commodity,currency module and pause this option strategy module. Eagerly waiting for your modules on those chapters.

  14. Suresh.ks says:

    FII and DII activity data indicate anything if we watch everyday?

    • Karthik Rangappa says:

      It generally gives a sense of where the smart money sentiment lies, nothing beyond that honestly.

  15. Suresh.ks says:

    Nifty PCR is below 1 from last 4,5 days like 0.90,0.85,0.78. what it indicates? will trend reversal by expiry?

    • Karthik Rangappa says:

      PCR beyond 1.3 or below 0.5 is what I really consider worth noting, none of the other values signify anything much.

  16. HARI says:

    lol what a coincidence 🙂

  17. Sastry says:

    Dear Sir, Any chance of Trading Strategies with Hedging with Nifty Futures in this module will be expected in the near future because this is continuation of options strategies or if it takes much more time kindly give your most valuable reply advice for my personal guidance. Kind Regards, Sastry

    • Karthik Rangappa says:

      We plan to have a module dedicated to Delta hedging and Pair trading, probably sometime by this year end.

  18. DA7586 says:

    Very Good ready made data for the learners & professionals
    keep it up Sir,

    i really thanks to Zerodha Team…

    Good Luck

  19. Suresh.ks says:

    We are confusion about Nifty trend now, from which level is good for go long or short and reason please suggest me?
    I always prefer to trade Nifty only.

    • Karthik Rangappa says:

      PCR above 1.3, look for shorting opportunities…PCR below 0.3 look for buying opportunities.

      • Ravi says:

        Hi karthik
        i’m a bit confused about PCR
        The article says it’s a contrarian indicator.
        so a PCR value above 1.3 is be a buying opportunity i.e the underlying will rise.
        am i reading it right?

        • Karthik Rangappa says:

          Yes, in fact in the article, I have discussed the rational as well as to why its considered a contrarian indicator.

          • ShreyaDR says:

            Karthik, You said <<<>>>>

            Mr.Ravi asked <<<<<<<>>>>>>

            your reply to him <<<<<<<<>>>>>

            isn’t it contradictory? PCR above 1.3 is buying opportunity or shorting opportunity after all?

            Secondly, I checked today’s PCR which is 51,042,500/40,376,700 = 1.26.
            According to your first statement it should be shorting opportunity, right? hence either buying Put or writing Call. but surprisingly how come Nifty is making high day by day?

            Thirdly, i have calculated option pain at today’s close of 15th June,2016 and Strike price 7800 comes as a strike price for max pain.

            This all sounds confusing.

          • Karthik Rangappa says:

            Shreya – posting this extract from the chapter, hopefully this should clarify –

            You may wonder why the PCR is used as a contrarian indicator. Well, the explanation to this is rather tricky, but the general opinion is this – if the traders are bearish/bullish, then most of them have already taken their respective position (hence a high/low PCR) and therefore there aren’t many other players who can come in and drive the positions in the desired direction. Hence the position will eventually be squared off which would drive the stock/index in the opposite direction.”

  20. suresh.ks says:

    Should we always check PCR if it is below 0.5 or above 1.3 while taking entry in Nifty?

  21. B S Sriharsha says:

    Any plans to start a module on Elliott Wave, Neo Wave , Time Cycles and Gann Theory

  22. Sastry says:

    Dear Sir, Is short strangle at an equidistance of 400 points from ITM Nifty options strike With delta neutral nifty options strategy in the current month series and next month seriesbetter for a full time trader who can monitor the total deltas to zero as per direction of the market for conservative returns on the investment capital after 15 days of series start. Please advise me as I have waited till now for delta hedging trading strategies. Thanking you, Regards, Sastry

    • Karthik Rangappa says:

      As long as you can manage the positions to ensure delta neutrality, it should be alright. I’d suggest you stick to current month series as liquidity is better.

  23. shivamrao37 says:

    @Karthik Bro.. can you give any idea that how much time you take for updating commodity module.. can i expect it updated in middle of june month..

    actually i am trading in equity from last 2 years.. but i tried in commodity markets 3 months ago.. and Burnt my Fingers so badly…
    so, i want to gain knowledge about commodity markets.. so, that i can re-enter and cover up my losses..

  24. B S Sriharsha says:

    Please mention the path for downloading the data for STRIKE CALL OI PUT OI for the available strikes which you have shown in the module

  25. Sastry says:

    Dear Sir out of 15 strategies which you have explained to us, out of your good experience , which you consider more less risk for constant monthly even for conservative returns or whether hedging get strategies are more less risk for conservative constant returns to play nifty index options with help of Greeks. Thanks

    • Karthik Rangappa says:

      Each strategy is different and should be used under different circumstances. I personally prefer the short strategies – short strangles and straddles, short ratio spreads etc.

  26. ASHISH SODHI says:

    Hello Sir, from where can we get the PCR on a daily basis for stock options and NIFTY ?

  27. sastry says:

    Is it safe and conservative to play short strangle Delta Neutral Strategy in Bank Nifty options recent modified weekly series wef 27-05-2016 in your view. If so at what Delta and at what equidistance, just like nifty 400 points, from ITM strike price of Bank Nifty option strike, I can play Bank Nifty Short Strangle Delta Neutral strategy and also please advise the disadvantages if any. Thanks

    • Karthik Rangappa says:

      The weekly options are not very liquid. If there is enough liquidity then a short strangle 1000 points either ways would probably make sense. But you should wait and watch how this plays out.

  28. sastry says:

    Dear Sir,
    Also please advise me what could be the reasonable range from ITM strike in bank nifty monthly options contracts just like 400 points in nifty current month. Thanks

  29. Sastry says:

    Dear Sir, To play short strangle in bank nifty monthly options current month contracts, at what equidistance from ATM strike of call and put of bank nifty, we can trade with DELTA NEUTRAL strategy. Please advise me. With best regards, Sastry

  30. Khyati Verdhan says:

    Hi kartik
    How can I know the expiry date of future contracts of mcx i.e. commodity markets

  31. says:

    Dear Karthik,

    It’s great pleasure reading all these articles and gives deep insight on option trading. I would love to see more complex strategies like iron condor or mouse ear condors which one can use for monthly income generation.
    Are you planning to write on any such strategies ? Or can you let me know source of knowledge where I can understand such strategies for monthly income generation ?


    • Karthik Rangappa says:

      Thanks you. I will be discussing this at a later stage I guess…as supplementary notes. For now we shifted focus on Currencies 🙂

  32. toushif nadaf says:

    Please Add Download PDF link

  33. subrata dasgupta says:

    hi karthik,
    can u give us excel sheet for pcr calculation? otherwise any site regarding d same.

  34. Sourabh Sisodiya says:

    When will other modules on trading systems and currency be updated.
    Waiting for them eagerly.

  35. sastry says:

    Dear Sir,
    I guess that Delta Hedging with Future strategy means buying Nifty future assuming total DELTA as ONE and buying ATM strike of call or put options with total Deltas of ONE this side vice versa. Please advise me whether my understanding is correct or wrong. Thanks & Regards, Sastry

  36. Sastry says:

    Dear Sir, Thank you very much for your replly to my query on Delta Hedging with Future. But I could not understand your reply telling that ” You are kind of right here.” Can you tell me in detail please. I feel so sorry for repeating same query. Kind Regards, Sastry

    • Karthik Rangappa says:

      I just meant to say you are thinking in the right direction 🙂 However, the exact steps of Delta Hedging will involve a bit of daily adjustments, we will be discussing this step by step when we take up this topic.

  37. suresh.ks says:

    Hi, sir
    when can we get this option strategy module in PDF ?

  38. santosh jangam says:

    sir make video s fo this subject.or webinar session.last 6th option strategies not download

  39. Prasheel says:

    Please could you suggest a strategy or two that is based on margins ( premiums ) instead of one in which we have to wait till expiry??

    • Karthik Rangappa says:

      In fact all the strategies can be implemented for intra day or for overnight positions. You need not even have to hold them to expiry.

  40. Parth shah says:

    what is the use of the helper column in Option Pain computation excel table ?

    • Karthik Rangappa says:

      That was to hold all the calculations, if you double click on the formula cells, you will know the exact steps.

  41. Amit D says:

    Nice learning, thanks Karthik & others for their Qs…

  42. Amit D says:

    MaxPain theory can we also apply to stocks ?
    Do we need to see liquidity in that particular stocks too ?

  43. Nitin Desale says:

    If I bought nifty call option eg Nifty30June8400CE @ 100 rs one lot (25) . If I hold till expiry. At the expiry nifty at 8700 then can I exercise the option at the expiry.? is there any switch for exercise like square off..? how it works?
    And from above example how much profit I made..?

  44. Naresh says:

    Hi Karthik, Tried Max pain on July 16 option nifty data and max. loss is being indicated for 7500 strike of about minus 917 million. Considering Nifty today is approx. 8200 and the nearest strike price points with losses ( much smaller losses ) are wide apart, I AM UNABLE to interpret this result in today’s situation. Can you assist . Thanks

  45. Naresh says:

    Sorry, withdrawing my comment. I inverted my logic and computed max pain rather than min pain. Ignore my comment. Thanks

  46. Raja Kishore says:

    Hi Karthik,

    Do we need to update all values manually in the excel to calculate pcr ratio ? cant we automate it ??
    please advise

  47. uday says:

    Hi karthik, your modules are awesome, actually can pay for the quality,
    I have a doubt regarding futures trading types,
    Do we have trailing stoploss feature for NRML type product,
    Or they just limit to only BO or anything only intraday,
    In module 4, page 78 in table regarding trailing stop loss, you have shown the days column, by which it meant NRML product, or if it limits to only intraday, how come the days column?
    Hope you get my point,
    Wish clarify my doubt

    • Karthik Rangappa says:

      Thanks Uday 🙂

      No there is trailing SL for NRML, its available only for BO. For your second query, can you please help me with the chapter number?

  48. NG says:

    Today when PCR is calculated, it shows 1.4 which indicates market is oversold and will be bullish soon. When I calculate the Max Pain, 8100 is the value where the market is likely to end. Is it wise to exercise 8500/8600 call option?

  49. D says:

    Dear sir, when we calculate pcr and derive an expiry value and we keep cusion of +5% of that derived value, what r u the chances that the market may expire in a range of -5% of that derived expiry value. (i am asking this questions in regards of your personal experience).

    thank you in advance.

  50. DR1840 says:

    Hi Karthik,
    Can you please also explain cross calendar options strategies.

  51. D says:

    hello sir,

    there are so many contracts being traded on the exchange. is there any way so that we can fetch data from NSE india or any other website directly into excel sheet to automatically calculate the total loss value?

    thank you

  52. rohan says:

    what is the logic behind option pain theory?
    why there is high probability of market expiring at that strike where there is minimum pain to option writers?


  53. Amar says:

    Hi Karthik,
    Great work on Option strategies!! But I didn’t find any PDF download option in Option Strategies Module as I usually read the modules in travelling!! Please provide as it is a useful feature !!

  54. Amit D says:

    Hi Karthik,
    One more question. In the above calculation for Max Pain the value comes to 7800.
    5% buffer is approx 400 points. You have take 5% in upper range.
    Shouldn’t we take range as 7600 to 8000 (+-200 points)

  55. Sudheer says:

    Hello Sir,
    Thank you very much for the tutorial and yes, I have thoroughly enjoyed reading the same. I am not clear on this point… .You have mentioned “I would set up strategies keeping this expiry range in mind, my most favorite being to write call options beyond 8200”. Does this mean you, wait until nifty goes beyond 8200 and then write calls? What should be the scenario if nifty doesn’t even touch 8200? Please shed some more light. Sorry if my question sounds naive.


    Sir this is very very imp for trading

  57. Samir Palit says:

    I am a newbie to trading. Varsity has provided me with necessary primer knowledge – thanks for that. I have the following query:
    I have started following stars in OpenTrade. I do not see any of the stars trading options. Also the most successful stars that I have followed seem to do intra day trading only. On top of the theoretical knowledge from Varsity, the practical application I see appears to be the strategy of trying to gauge the price movement in very short term – exit with profit, if correct or exit with loss, if incorrect.
    Could you please elaborate if my perception is wrong. Could you please also comment on the need of including a chapter on intra day trading in Varsity. Also is there any guideline as to how to become a full time trader?
    Thanks and regards,

    • Karthik Rangappa says:

      Samir – I cannot comment on what the stars are doing in Opentrade!

      There are no set guidelines on how to become a full time trader simply because there are so many styles and strategies the the trader can adopt. But yes, we do plan to write about few strategies going forward.

  58. hardik upadhyay says:

    Hii Karthik,
    You have written wonderful modules in easy language. I am currently trading a mean reversion strategy on Banknifty futures. Although, I have been successful at it, I want to know which option strategy is best for trading short term mean reversion strategies. Also , one of my rules is I scale in to positions if the signal still suggest oversold scenario. My strategy stats are: winners 85%, holding period on average is about 5-7 days, Monthly about avg 2 trades. Please let me know of options strategies where I can use the leverage at the same time reducing my max risk. Thanks

    • Karthik Rangappa says:

      Hardik – this really depends on when your signals occur. For example if an overbought signal (therefore expecting a decline) occurs closer to expiry, then you should be shorting strangles to exploit time decay. However if you get an oversold signal (therefore expecting a rally) half way through expiry then you should be looking at buying slightly OTM options. Of course you can calibrate based on many such parameters.

  59. sastry says:

    Dear Sir,
    What is a mean reversion strategy? Can you please explain in brief please. thanks & Kind Regards. R V N Sastry

    • Karthik Rangappa says:

      Assume the average price of a stock is 100, and it now shot up to 110, then you expect the stock to revert to its mean which is 100. In other words you expect 10 points correction. Alternatively if the stock is down to 90, then you expect the stock to go up 10 points to 100.

  60. SAILAJA K V says:

    Hello Karthik,

    This Options Strategies module is explained well with easy to understand (especially to those who are new to trading options strategies) examples. Appreciate your efforts on this. I have enjoyed reading Options Theory chapters as it has a lot of excellent content for intermediate or even expert options traders (as a refresher). My suggestion to you is to cover at least 4 more important strategies (Covered Call/Put, Collar, Condors and Butterflies) to make Options Strategies module complete. I believe it will be very useful for retail options traders to know about these strategies. Once again great effort from you and Zerodha team in coming with such a great education offering.

  61. Amit Pal says:

    Hello Karthik Bro,
    At first, many many thanks to you and zerodha to initiate to varsity module. You are my mentor. I appreciate your effort. I learn many new concepts of trading from these chapters . Is these module complete or new chapter introduced (for option strategies) in near future? To calculate option stock or nifty, any tools or software available like MAXPAIN & PCR RATIO? Please suggest me some suitable tools to calculate and implement option strategy? Is option oracle help in this regard?

    • Karthik Rangappa says:

      Amit, thanks for the kind words 🙂

      For now we consider this module done, maybe at a later stage we will add some supplementary notes.

      I’m not really sure of good reliable tools to do this, will certainly keep you posted as soon as I get to know myself 🙂

  62. Hari Prasad says:

    Can you add pdf version to it for better reading of this module


  63. Amit says:

    Can you please mak the module in pdf version so that it can be downloaded to read offline.

  64. arun kamath says:

    over here , nithin has mentioned that if PCR is above 1 means put has been written and hence, it would be bullish and vice versa.

  65. narsimha says:

    sir,iam from INDIA a big follower of u ,with all u people inspirations&10yrs of hardwork,knowledge&littlebit dicipliene&due to my health&wealth conditions.i have opened a trading off where in iam asking clients to deposit a small amount of 22000rs in THEIR ACC&i will trade on behalf&promise them to pay 1100(5%)per month by trading their acc%i will charge 2200(10%)this strictly i trade only 1lot of NIFTY OPTIONS&wait having lot size of 75 my premium in buying will never increase 100rs/lot(this is begining as i get good results iwill say clients to increase)now the question is iam not consistent sometime i make money&give it back how can i be professional&trustworthy ple guide me with quick reply

    • Karthik Rangappa says:

      Narsimha – please get yourself one of the following licences SEBI-

      1) Investment Advisor
      2) Research Analyst
      3) PMS manager

      Without any of these you cannot trade/advice on behalf of clients. Also, this is a very risky business (trading and assuring returns to clients), I’d suggest you think about this thoroughly before acting.

      • narsimha says:

        sir,actually i dont want to go in that big way,people around me want to invest in mkts but they dont know athing 7&i want to make livelyhood(anyway trading is my life&passion)and mover iam promising only 5%&iam operating from home no labour no etc only 5 computers&cbill iam little bit handicapped&i dont want to open off,shop at any point of time,my logic is if i do anything rathen trading(which idont believe even thogh i own a saree shop bcozover heads rent,keb,labour exceeds 15%&we will never take home athing in this competative&uncertain economic world)so what i want to say is when RISK IS PART OF LIFE why i cant i go with small risk&create my world of 40 clieents&trade proffessionally&win their trust ofcourse i know the uncertnitys of trading so iam stritly operating as hedge fund means some win some loose my querry to u is iam able to make wins but not huge enough to support loosers GUIDE

        • Karthik Rangappa says:

          Well, the choice is entirely yours!

          To begin with stick to stoploss, where the SL is based on logic. Here is a chapter which explains how to place logic based SL –

          • Sudipta says:

            This I think is the Best conversation in varsity…. Enjoyed it a lot !

            I have an advice for Narasimha. What you are planning to do, in simple words, is to take a LOAN from fellow clients and give them a monthly interest of 5% (i.e. annualized interest of 80%)… and you are planning to use that LOAN to trade in stocks. So you have to earn 100% to make this business profitable. If you understand this math, I think you should be very very cautious. I can only see a collapse as no business in the whole world has achieved such high level of returns ever. Besides, every great person has always advised us not to borrow any money for investment in market.

          • Karthik Rangappa says:

            Very true Sudipta! Sustaining such high rate of returns is not only difficult, but almost impossible to achieve in the first place (year after year that is). Besides, borrowing to trade can be disastrous!

  66. narsimha says:

    sir,whenever we check fair values of options call option premiums will be below current mkt prices&it will be trading cheaper then put options even though many people will be trading call options why? ELABORATE DETAILY

  67. pravin says:

    you said you will add supplementary note for reaming strategy such as calendar spread …when you will add ….???

  68. Ankur Agrawal says:

    Hi Karthik!

    When are you adding pdf version. Please do so, It will be highly convenient for me.

    • Karthik Rangappa says:

      AS I’ve mentioned, we are trying to get this done. If its urgent, please use the convert to PDF option from your Chrome browser.

  69. sagar says:

    Is it like max pain is lowest for ATM strikes and it gets higher as we go far from ATM strike??

  70. Ankit says:

    pls……upload PDF
    Guru ji…..

  71. Bharath says:

    I want to share a excel sheet here. but I can’t. please provide to upload files

  72. bharath says:

    Wonderful material. Looking for a pdf version for option strategies. Thanking you sir.

  73. SantoshShetti says:

    Hi Everyone, I am new to trading. I have a question, may be very basic one: where do we get news related to corporate qtly/yrly results announcement s or RBI policy announcements at the earliest? I mean is there any particular site(s)? Bcoz by the time it comes to google news it’s bit late from trading perspective, I think. Please reply.

    Dear Mr.Karthik you are doing a fabulous job. Study Materials on varsity are simply great, especially for people like me who are in elementary school. Very insightful and lucid writing. Keep it up.

  74. SantoshShetti says:

    Dear Karthik, thanks for the info, i will definitely check it out 🙂
    My account opening with Zerodha is in process (submitted signed form with all documents to Zerodha), hopefully it will be done in a day or two (working days). When is the “Trading Strategies & System” Module is expected?
    Are there any demo videos of Pi, Quant & Kite on Zerodha Site or YouTube?

  75. SantoshShetti says:

    Thanks a lot. 😃

  76. Raj says:

    Can you please upload PDF files of module no. 6 for download ?

  77. Sunil Tyagi says:

    The PCR for Sep16 is 1.02 whereas PCR for DEc 16 is 0.88. Looking at these numbers, Is there any possibility to enter in some kind of Calendar spread ?

  78. DJ9425 says:

    Hi Karthik,
    Can you give some theoretical knowledge about diagonal spread? also want to know that is diagonal spread and calendar spread are same or are different.


  79. shashank says:

    Hi Karthik, Put and call options OI includes long and short positions. Then, how can we say whether it is bullish or bearish just based on the OI while calculating PCR.

    • Karthik Rangappa says:

      PCR does not read much into positions…but just the number of contracts open in the market.

      • shashank says:

        Exactly… That is what i’m asking, open contracts may have buy and sell both…So how can interpret bullishness or bearishness using PCR

        • Karthik Rangappa says:

          Yes, open contracts include both buy and sell. Think about it this way – for example if the number of Put contracts are increasing, it means that there are more people willing to buy Put options, implying that people are bearish. The same way for Call options.

          • James says:

            Very sorry Sir,
            But, concept is still blur for me.
            1. Even bulls can choose (write) Put options to benefit & bears can choose (write) call options to make profit. We can’t clearly say that more Put option OI indicates people are buying put options,hence they are bearish.
            2. Put option OI of 200 would indicate that 200 new contracts have been introduced today. Means, 200 people opened long put positions (they are bearish) & 200 people opened short put positions (they are bullish), hence making put market contracts (someone buy+someone sell=market). So, even if PCR is 1.3 that only means that more people (both bulls & bears) are involved in Put instead of Call. It does not show bears activity because contracts would also have been shorted by bulls at the same time.
            Please clarify the flaws in (both of) my understandings as PCR might be a supplementary confirmation input in my trading system.
            Thanks in advance

          • James says:

            Ohh !! sorry, I was in little hurry to post my query regarding OI PCR. I got all clear answers by Honorable Nithin Sir at
            Please ignore my query now. Sorry again!! 🙁
            Thanks Z-Team for such a kinetic ocean of dynamic thoughts on markets.

          • Karthik Rangappa says:

            Awesome 🙂

  80. Ankit says:

    upload the PDF sir………….. its already lots of week passed away

  81. Praveen says:

    is there a site where we can get last 1 year pcr value for stock options

  82. amol says:

    hi karthik, please tell me some strategy so that i can earn money daily from intraday trading.

  83. uday says:

    Hi Karthik,
    You have mentioned somewhere that for intraday, nacked options are better. Could you please explain bit about it. And please suggest some strategies or technics for intraday

    • Karthik Rangappa says:

      Although you can still go ahead and use multi legged option strategies, naked options are a lot more simpler and easier to handle for intraday trades. The reason is that their payoffs are simpler compared to the complex pay off structure of multi legged options. Intraday is best done with the use of technical analysis.

  84. avinah says:

    when we do pcr calculation, starring of the month , middle , expire day?

  85. Ramya says:

    Hi Sir,
    I calculated maxpain today(21-9-16) for Banknifty and the max pain is coming to 20000. Adding 5% is 1000 points. Hence 20000-21000 is a huge range. How much % can be added for Bank Nifty.
    The module is a real eye opener. Thanx for the wonderful explanation.

    • Karthik Rangappa says:

      Glad you liked the explanation Ramya.

      Agreed it is a huge range, but if the premiums are good, why not write them ? Chances of retaining the premium is certainly high.

  86. Bibhu says:

    Hi Karthik, First up all many thanks for this nice material. I was trying to compute the max pain for a few stock indices over the last few days as we are very close to this month’s expiry. However, in all the cases the least pain is coming out to be somewhere around ATM. Is it by chance that I am getting this or is it expected?

  87. Prabakaran says:

    Sir, nice lecture in all modules,, thanks for teaching us, as per max pain strategy nifty October series expiry @ 8650-8700,, suppose if I writes 9100 CE and 8300PE, I get premium of rs 1645,, is that profit worth of my work on investment 41000 rs

    • Karthik Rangappa says:

      Well, that depends on how you view it. If you find a 4% return over 12 days sounds attractive to you, then maybe you should consider !

  88. bbhalaji says:

    Hi Karthik,
    this concept of Max pain looks so simple and very powerful. Thanks for making such a understandable material. I have a doubt in the calculation. While doing the calculations, what is our assumptions in the premium paid and received by the respective parties. Are we ignoring them ? Thanks.

    • Karthik Rangappa says:

      Premium is factored in by multiplying it with the strikes, so it is kind of factored in.

      • bbhalaji says:

        Ok thanks. One more question on the assumption that, it is always the option writers win. Is it because of the fact that you established during the introduction of options, in the options trade they(writers) have a probability of 2/3 when compared to the buyer who has the probability of 1/3 ?

        • Karthik Rangappa says:

          Yes, the odds of making a profit is more favorable for an options writer. For reasons stated earlier in the options module.

  89. Vishal Javakhedkar says:

    Hi Karthik,
    Have u tried max pain theory on weekly banknifty option. If yes then when one should calculate max pain.

  90. Santosh says:

    Low PCR means bullish market sentiment, but today i.e. 23rd Nov’16 the PCR is 0.5 and market has gone down beyond 500 points in last one week. Is it not bearish? The PCR is showing it otherwise.

    • Karthik Rangappa says:

      PCR of 0.5 is not really number you can consider…below 0.5 is considered bullish.

      • Santosh says:

        Dear Karthik
        There is some confusion here. Let’s go by pain theory you have explained. Basis pain theory call and put writers are wiser people and they win the game most of the time. Going by this if they have written more calls compared to puts (PCR < 1) means they have less fear of market coming up and hence the sentiment is bearish. If the PCR is below 0.5 means sentiment is too bearish ( I am discussing these number from NIFTY prospective otherwise it could be different for other derivatives). Since most of the people have bought the put and now since very few buyers left and value wise stocks now look cheap, this trend may reverse. Probably one can look for buying calls or future at this point because the reversal is anticipated. That is how I understand it….. Please amend the article if you are convinced.

        • Karthik Rangappa says:

          Santosh – PCR and Max pain are two independent theories. Max Pain does not really get into the details of number of call or puts written in isolation. It just identifies the point at which there are least number of options written. Further, this is purely derivative data and should not be mixed up to draw inference on spot prices.

  91. sumit says:

    Thankyou for the wonderful module. Everything is beautifully explain. I wanted to know where and how to back test these strategies .

  92. Sachin Mahajan says:

    Respected sir as per our calculation of max pain nov-16 series expires at some where around 8200 or 8300 but this time nov-16 series expire below 8000 so how this can happen please explain me.

    • Karthik Rangappa says:

      Sachin – Max pain is a theory…and like any theories it has its own set of pros and cons…its upto you on how to interpret it and improvise it to suit your needs. I guess I have even shared how I used to improvise it for my own trading.

  93. chouhan says:

    sir,any article on nifty option chain ,how to read open interest and change in open interest along with volume to get direction of market.

  94. Shyren says:

    Hi Sir,
    Today, for sunpharma, the PCR is 0.4 and min pain comes out to be 640 strike for expiry. future price is 629 and its underlying in at 628. It has climbed up by 14 points today. PCR suggests that it is over-bought and it will come down from 630. and max pain suggest expiry near 640.
    So my question is what should be approximate view by PCR and max pain theory(both are giving kind of opposite view), whether it will go up more or come down. 29-Dec-16 is expiry..
    Thanks in advance

    • Karthik Rangappa says:

      Between the PCR and Max Pain, I would rely (if at I have too) on Max Pain. I would add few % points to the max pain point and consider it those values.

  95. Yash Agrawal says:

    Dear Karthik Sir,

    kiya aap sab modules ke sabhi chapter ko hindi me translate kar diye.. jaise option theroy hai Modules 5.

    Thank you

  96. Aniruddh says:

    Hi Karthik, would it be possible for you to share a check list for options trading the way in which you shared for technical analysis? I do know that it would be complicated but please see it if you can do it. Thanks.

    • Karthik Rangappa says:

      Preparing a checklist for options can be very tricky as there are many permutation and combinations possible. Its not as straight forward as technicals…so it may actually get misleading.

      • Aniruddh says:

        Thanks. I guessed as much!! But please see if you can give some broad bullet points. That will really help newbies like me. I find it very daunting and confusing to trade options.

        • Karthik Rangappa says:

          Sure, will try and do that.

          • AK014 says:

            Hi Karthik, just trying to prepare flow of events/steps for options trading. Would the following be the right steps/thought process (have covered only one leg as i can’t paste the flowchart here.)
            1. Technical analysis >> 2. outcome bullish >> 3. Say Moderately bullish >>4.check no. of days to expiry 5/10/15/25 >>5. Check Volatility >>6. Calculate Option Greeks >>7. based on it decide the strategy say bull call spread
            Is the above OK? Should some of the steps need to be interchanged? Like step 6 first and then 4 or 5? Or anything else that you can think of which is missing here. Please revert.

          • Karthik Rangappa says:

            I like your systematic approach. The flow seems right. Nothing needs to be interchanged.

  97. Ronak says:

    Sir, will you please make a list of all the formulas & syntax used in ms-excel for calculating various stuffs mentioned in these 6 modules?? 🙂

  98. Sudipta says:

    Hi Karthik,
    I have gone through the entire modules in varsity in last few weeks – at a stretch. I am doing trading for nearly 8 years now. I have always been a fancy trader, and never tried to be serious about it. But now I have started taking it seriously for a regular decent income and hence I thought of taking some education. I started reading these modules with that intention. Man, you are great ! The level of details you went into, still the simplicity you maintained, the way personal experiences you have shared – every bit of it is marvelous. If I ever make a remarkable success in trading, a good portion of that will be indebted to you. Really, you are an awesome teacher. You have created a master piece.

    I have come across many questions and now I will be shooting them, hope you dont mind. I will start with one question as below:

    In this Max Pain calculation, I can see that you have summed up only the Loss part of the option writers for various strike prices. For a particular expiry value, if an option writer is in profit, you did not include that. Only the Loss parts are summed up.

    For example, let us say that the Max Pain calculation gives us Price Point A. So, if the underlying expires at this price, the total loss incurred by the option writers will be at a minimum. But, we did not talk about the profit part. Not all option writers will incur a loss for Price Point A. If we adjust the total profit of the option writers and total loss of the option writers for Price Point A, we will get the Total Impact (may be net profit or net loss). Now, there can exist another Price Point, say B, for which this Total Impact will be greater than Price Point A. That means, if the underlying expires at Price Point B, the option writers as a whole will have the highest profit. For Price Point A, the loss part may be minimum but the profit part is also not great. Hence an expiry at Price Point B is more probable.

    I came to this conclusion because I started asking myself, why are we calculating the “Loss” part of the option writers, while we believe they are the one who make profit. I did not understand why the profit part is ignored and only the loss part is calculated here. Can you please explain to me ?

    Thanks !

    • Karthik Rangappa says:

      Thanks for the very kind words Sudipta. I’m really happy you liked the content here.

      Max Pain theory starts with the idea of identifying a point which creates least amount of loss to option writers. The simple reason for this is that, for option writers loss can be unlimited and profits are restricted to the extent of premium received.

      • Sudipta says:

        Thanks Karthik for your reply.
        I am not sure I understood the rationale behind ignoring the profit part. Of course I acknowledge that the losses can be infinite, so they are more imp. What is was thinking is not to take profit alone or loss alone, but the sum of them. Anyway, I will take it just as a thumb rule and wont bother much on this. Let me go to the second question.

        I have calculated the Max Pain following this formula for several Nifty scripts (Infosys, TCS, SBI, Asian Paints, Nifty itself and Bank Nifty). What I see, the Max Pain value is always close to the current market price for each of them. I have done this for 3 consecutive days. When SBI is at 245, the Max Pain is coming at 250. When it is 242, Max Pain is 245. When Infosys is at 1008, Max Pain is coming at 1000. When Bank Nifty is at 18050, Max Pain is coming at 18000. When Asian Paints is at 905, Max Pain is coming at 900. Without any exception, it is showing this behavior invariably.

        The first thing that comes to my mind is, my calculation may be wrong. So I searched for some online sources to calculate Max Pain and I found few sites which give the Max Pain value & chart. To my surprise, the value shown in those sites is also matching close to my observation (i.e. nearest strike price w.r.t. the current market price of a script). So the calculation seems to be correct.

        My question is, does Max Pain behave always like this ? If Max Pain is always following the current market price, there is hardly any use of it. When I thought more on this, I feel this should be true. I remember the first rule of the market which you stated in the very beginning – Market discounts everything. So, Max Pain – since it is easy to calculate or look at from any site – should be known to all traders and should be discounted already in the market price. It is hard to believe that there is a formula to predict what range a script will expire at, and still the script is at present far off from that range. At least Max Pain must be well known to everyone and if it does give a different result, the market will adjust itself to the projected point making Max Pain value again irrelevant.

        With this background, I would request your analysis & comment on this behavior. Please help me to understand what is happening.

        Thanks a lot in advance.

        • Karthik Rangappa says:

          Sudipta – I’d like to thank you for sharing the results of your analysis, I’m sure many will benefit from this. What you’ve seen is very true. In fact this is the reason why, back in the days, I myself modified the Max Pain theory and adopted to a new trading strategy. I’ve discussed this in section 13.4. Remember, markets discount everything.

          If you know or discover something, chances are 1000’s of people in the market already know it. You develop an edge when you add that extra (but meaningful) ingredient to your trade process. You take on general theories like Max Pain and play around with tweaks until you get good results. That’s how traders develop their systems.

          • Sudipta says:

            Thanks Karthik for your comment. Yes, we seem to be aligned, same thought process. To be frank with you, I started for only 2 weeks and I have a positive closure everyday in the live market. The amount may be ridiculously small, but it is a positive figure even after deducting the brokerage & tax. I am happy and my first motto is to not make a big loss. I know profit will come automatically, we just need to stop the losses.

            Everyday I am just making 4-5 trades at max. May be 2-3 are losses and 1-2 trades are only profitable. But overall it is a profit. And with this 2 weeks experience I can say 1 thing for sure, although I am trying to apply all the rules, the candle sticks, the theta, vega, MACD, support, resistance…. there is not a single thing which is sure shot. That is probably the beauty. More than often, it is the fundamental strength of a script and little bit of tactics that results the fruit. And Risk Management is a big big thing.

            Let me ask my 3rd question, sorry if this is a lengthy one. Well, I was trading in Tech Mahindra Options today. I saw the script has gone up 8-10 points in last session and hovering around 500. I know this company’s business well so I have a rough idea what it can or cannot do. I sold 460PE and 540CE together (that is probably called a Short Strangle, anyway). My expectation was that the script wont run away so soon, and it is not going to go down too much (just yesterday they made a joint venture in Europe and in talk with another MNC for a big deal). So the script will remain range-bound and I will profit from the time decay ! I wanted to squareoff the positions by end of the day where I could gain few paisa. The 460PE was trading at 1.6 and 540CE at 2.6 when I bought. I know that we should ensure zero delta. But I deviated from that. Delta for 460PE was -0.09 and that for 540CE was +1.42 so it was positively biased. I shorted this positively biased combo because I am a hardcore believer of your sentence – “Fear spreads faster than Greed”. It is so true and I have burnt my finger earlier. So I thought, let 540CE short run little faster, I am not worried, it will come down eventually, but I cannot take much risk with the 460PE short. After this transaction was over, what happened was completely unexpected. The script started downward journey and within 40-45 minutes it came down from 502 to 492. Now imagine the options prices. 460PE quickly went up from 1.6 to 2.85 (1.25 points move) and 540CE came down to 1.8 from 2.6 (0.8 points move). As per their delta, 540CE was supposed to come down faster than 460PE going up. But the opposite happened in reality. Fortunately I had stoploss applied everywhere and hence just a marginal loss was incurred. But I could not understand why it happened so.

            There was no other big issues in the market. Overall market was quite bullish today till the end. There was no specific bad news in Tech Mahindra or any IT company. The script ran up faster in last few days, so it was a natural retreat I believe.

            Can you please help me to understand why the 540CE came down slower (with a higher delta) and 460PE ran faster (with a lower theta) ? The Gamma or Vega I believe does not have much to play here since the range is very short, and time frame was also just 45 minutes. Kindly help me to understand it from the theoretical perspective.

            Thanks in advance.

          • Karthik Rangappa says:

            I’m happy for you Sudipta. Hope this is a start of a glorious trading career for you :). Yes, Risk management is big ingredient when trading, and we will be discussing this in the next module.

            I went through your entire Tech M options trade, I’d like to point out few things that you’ve mentioned, –

            1) ‘I know what the company can and cannot do’ – this is a fundamental call. Effects of this roll out over a long time period. You cannot make a fundamental call and initiate an intraday trade. Timelines (and therefore the conviction) for the trade does not match

            2) You are talking about benefiting from time decay withing the day – this does not happen unless and until you are close to expiry. Best to do these trade (with an expectation of benefiting from time decay) close to expiry

            3) There was a fundamental event (JV, talks with MNC) – on days like this its best to avoid trades on TA. Reason is simple, FA has a greater influence on the stock compared to TA

            4) Yes, fear spreads faster than greed. So when the price came down, the put gained faster than the loss in calls. I dont see any issue with this. Further, there is also the angle of volatility here which needs to be factored in.

            5) Options is a completely different beasts. It has multiple forces acting upon it. The only way to learn options is to keep questioning yourself…it many not be possible to justify every move in options…but so long as you get the overall idea of whats happening (justification based on numbers and greeks) you should be good.

          • Sudipta says:

            Correction of typo:
            Delta for 460PE was -0.09 and Delta for 540CE was +0.42 (I wrongly mentioned +1.42 above). Overall a positive delta.

  99. Sudipta says:

    Thanks a lot Karthik for your reply. I am unable to see any “Reply” button in your last reply above, strange. Anyway.

    Thanks once again for your detailed analysis. Yes, I understood the mistakes & I completely agree. I will keep these valuable points in mind next time. Everyday is a new learning 🙂 The only thing which is still puzzling me is the delta. I will closely observe their values and correlation with the price movement to better understand it over due course of time. One thing is for sure, I will be henceforth very very cautious about PE. It is safer to play with CE.

    You may be happy to know that the loss making trade of yesterday came out profitable for me today. I had to square off the PE when stoploss triggered. But I did not square off the CE (which was making a small profit yesterday). Took a chance and last night Trump helped me with his Visa news – today I gained good profit in that CE option and still trailing.

    • Karthik Rangappa says:

      Sudipta – You need to be indifferent to PE and CE. They are two sides of the same coin. You need to learn how to use it to your advantage.

      Good luck and happy learning 🙂

  100. sastry says:

    Dear Sir,
    I would like request you to kindly include in F&O segment live nifty options greeks scanner and portfolio greeks watch to enable to study option chain and to enter into options strategies according to greeks.
    Thanks & Regards,
    R V N Sastry

  101. Jay Arya says:

    Hi Karthik

    We don’t seem to have discussed the following strategies which were a part of our agenda as per the first chapter.

    Call Butterfly
    Long & Short Iron Condor
    Long & Short Butterfly

    Are we going to discuss these?


  102. VANKUMAR says:

    Dear Mr Karthik Your lessons are excellent. I regularly read them. I request you to kindly clarify the following doubts.

    2. I got a doubt on options chain analysis. We observe minus (-) symbol in open interest but the price of options calls or puts increasing. How to analyse it? Pl guide me by your advise.

    3. Nextly we frequently see minus in price on both sides. Can we conclude that the market is sideways and rangebound. Am I right?

    4. On some occasions we see minus in price say on put side and increase in call price. Can we conclude that that the stock price goes up and we can a buy a call if IV s more or sell a put if IV is less.

    5. I request you to kindly clarify on my doubts.

    VAN Kumar, Vijayavada, AP
    0866-2589106; 9490347419

    • Karthik Rangappa says:

      Happy to know that you like the contents here 🙂

      1) The +ve and -ve sign of IO only indicates how many new contracts have been added or reduced. Does not really impact prices
      2) This happens when the volatility increases and then reduces
      3) Again, this is due to volatility. I ‘d suggest you read through the chapters on volatility to get a better understanding of this.

    • VANKUMAR says:

      Dear Karthik thanks for your prompt reply.
      1. I have the following doubts on ATM Call and Put Charts.
      2.For example if Hindustan Unilever spot price today is 865 and I want to buy a 900 March call. The charts available show only live and historical data for 860 ATM Call and Put. How to view the IV,Vega etc.,live and historical charts.for 900 call. In which site I can get option charts in a comprehensive manner, i.e., delta, gamma, theta, vega plotted in one chart for all calls and puts. Pl advise.

      Regards, VAN Kumar

      • Karthik Rangappa says:

        I personally think there is no point in looking at the chart of Options. Getting historical data of IVs etc are quite difficult, however you can look at the latest values by punching in values in a B&S calculator. Here is one that we have put up –

        Suggest you give it a try.

  103. AK014 says:

    Hi Karthik,
    My query remains unanswered. Matter pasted below in quotes:


    February 27, 2017 at 12:39 pm
    Hi Karthik, just trying to prepare flow of events/steps for options trading. Would the following be the right steps/thought process (have covered only one leg as i can’t paste the flowchart here.)
    1. Technical analysis >> 2. outcome bullish >> 3. Say Moderately bullish >>4.check no. of days to expiry 5/10/15/25 >>5. Check Volatility >>6. Calculate Option Greeks >>7. based on it decide the strategy say bull call spread
    Is the above OK? Should some of the steps need to be interchanged? Like step 6 first and then 4 or 5? Or anything else that you can think of which is missing here. Please revert.”

    • Karthik Rangappa says:


      • AK014 says:

        Karthik, Thanks. I must say that with this initiative (Varsity), you, Nithin and team are doing a commendable job. Without this people like me have been shooting in the dark and doing trading/investment but mostly losing money in trading. I keep on reading about F&O in various fora but nobody has done it the way you have done. In many cases, if you act based on their “advice” you are bound to lose money consistently. Hope that you will keep on improving various aspects of this initiative. Wish that i had come across this much earlier in my life. Better late than never. Anirudh

  104. 9SR says:

    Hi dear karthik,
    Can you please suggest further reading on Max Pain, Leveraging Greeks and anything relevant to Option Strategies that will take us to next step of options trading.

  105. VANKUMAR says:

    Mr Karthik I request you to kindly guide me as to In which site I can see IV having different strikes loaded in one chart for vertical smile and skew analysis.

  106. rajesh goel says:

    15 days are calendar days or trading days to calculate maximum pain? pls clarify

  107. hanumm says:

    This is an honest job by author. it is nice to have the people like this. ok. max pain theory is definitely good clue for option trading . but this is certainly the contrarian game and one should egile enough to become contrarian to contraian and vice versa. in a nut shull,, it is a no holds bar game. march 17 sbi max pain is at 280 and it is there for all two prev. weeks amd also on 30/3/17 but sbi ended at 290…good luck guys.

  108. Mehul says:

    Dear karthik,
    Greetings for the day.
    I need your help.
    Since one month I am tracking the nifty option chain for various strikes and different time frames on daily basis. ( both calls and puts) . And I wish to gather information for 6 months.
    My question is, which would be wise to track OI or change in OI ? As I have limited space on paper.
    Also I wish to discontinue tracking volumes bcos whether market is up or down, volumes only tends to increase for the particular day.
    Also kindly let me know what does it mean when IV column for particular strike is empty.
    Your guidance will be very helpful.
    Thanks & Regards.

    • Karthik Rangappa says:

      I guess change in OI gives you a better picture on the market sentiment. Volumes help especially when you are looking at Eq spot/Fut. IV is for Implied volatility of that particular strike.

  109. VANKUMAR says:

    Mr.Karthik Will you pl guide on the difference between PRICE ACTION TRADING AND TECHNICAL ANALYSIS. In this context I bring to your kind notice an excellent FREE site in my opinion HINDUSTAN BULLS.COM which gives BUY AND SELL SIGNALS, both INTRADAY AND EOD CANDLE STICK ANALYSIS which I feel is PRICE ACTION TRADING. Am I right? VAN KUMAR

    • Karthik Rangappa says:

      I personally do not believe in any entities giving out stocktips. You need to be doing your own research.

      TA is based on price action.

  110. Arpan says:

    Generally it is seen that higher PUT writing indicates up move and high CALL writing indicates down move. But right now at a position where there are chances of war between US and North Korea. Of course, it may happen or may not but right now traders may not want to keep their positions open. So what they would do, they’ll buy PUTs to hedge their positions. And due to this higher PUT writing is seen.

    Now what I want to ask is “How to interpret such data?” Does it still indicate upmove as per max pain theory?

    • Karthik Rangappa says:

      You really need to plot the Max pain chart to know what it is suggesting. Difficult to take a call without the data points.

  111. Mehul says:

    Hi karthik,
    1) what difference does it make whether i open zerodha account directly or from the different sponsors ?
    2) when implied volatility in an option chain is empty – what to conclude ?
    Thanks & Regards

    • Karthik Rangappa says:

      1) By sponsor you mean partner….you can do that no problem.
      2) It means that there are no trades in that particular strike.

  112. Mehul says:

    Hi karthik,
    Thanks for the reply.
    As i have been tracking the nifty LTP for varoius strikes at diff times, i got these results :
    On 26/04/2017 strikes from 9000 to 9300 IV was empty but LTP kept on increasing throughout the day. As you have said there are no trades, kindly clarify.
    Thanks & Regards.

  113. VANKUMAR says:

    Hi Karthik Can you pl guide me on the difference between Open Interest and Vol and Contracts in Option Chain analysis. And how to analyse them?

  114. katthi G says:

    hi karthik anna,
    thank you very much….!!! your words are my knowledge.Really you did an awesome thing in your life.cheers.
    Thalaiva you are great,enna aasirvatham pannunga…!!! 🙂

  115. vinay kumar reddy says:

    hai ,whoever it is related to – i want to learn about derivative – ‘SWAPS’.so please kindly do it .

  116. anil bhasein says:

    sir ,
    please can you give me the link from where i can get the daily volatility of nifty .i tried to search it on nseindia .com but could not find it

  117. VANKUMAR says:

    Hi Karthik In preopen the Indicative Equilbrium Price is shown as the probable opening price. I have read your lesson on how the price is set in Z-Connect. But at 9.15 a.m., when the market is open, high and low prices are also shown. Can you pl guide how these high and low prices are set as I could not find in any of the websites.

    • Karthik Rangappa says:

      The prices are set by the exchanges on an logarithm which takes into consideration ‘Price and Time’. This is an exchange proprietary algorithm, and nobody has access to it 🙂

  118. VANKUMAR says:

    Hi Karthik I request you to kindly guide on VOLATILITY SMILE AND SKEW and how to use them. Regards, VAN KUMAR

  119. Akash says:

    Sir, although the Option pain theory has strong logical piints. But the behaviour of the index and index driving stocks on the expiry day is too cumbersome to understand. There’s alwats pinning in the last 30 minutes and if we take today’s session the market openky defied the Max Pain Theory and moved above beyond everyone’s expectation. Sir, such unprecedental moves during expiry week with soo many whipsaws and volatility is not random and too many big players play an active role in it. So I guess just plain logical based thinking don’t work for derivarives. There’s more to it and there has always been more to it as on the Expiry day there is always a rush from big players to take control of the Market. I request a chapter to cover such obscured topics regarding derivatives trading.


    Dear Sir,
    You have explained the concept of Max pain with very good manner. thanks for that.
    I have one question that 5% safety buffer is added in calculated Max pain option strike. Always we have to add 5% safety buffer or depending on situation we have to subtract also? Please clarify

    Thanks & Regards
    Yogesh Surkutwar

  121. KUMAR MAYANK says:

    Hello sir

    As on 23 June (strike, OI, change in OI)
    Put Option
    9500 58 L +2.8 L
    9600 49 L -5.2 L
    Call Option
    9600 51.8 L +17 L
    9700 82.4 L +12.9 L
    The strike 9600 is crucial. As -ve change in Put and large +ve change in Call suggest that traders viewing the spot to remain below 9600.
    The spot below 9600 also confirms Max Pain theory. I didn’t calculate but just by seeing the strike having noted crowd.
    How is my analysis?
    Thank you
    Varsity student

    • KUMAR MAYANK says:

      Based on this analysis i would like to write 9650 CE @ Rs 20.80 with a margin required 46k.

    • Karthik Rangappa says:

      Ah! Remember, if calls OI has shot up, then there is an equal number of traders who believe that the markets may not go up further, hence they have written the Calls. So its just too difficult to make any sort of assessment based on plain vanilla OI information.

      • KUMAR MAYANK says:

        Yes, i am saying the same. The large increase in OI @9600 CE and decrease in OI @9600 PE confirms that there is a large section of people expecting the market to stay below 9600.
        Also, there is 17 L increment @ 9600 CE means there are big players involved in writing Call as it requires margin.
        I want to know your view.
        Thank you 🙂
        Varsity student

        • KUMAR MAYANK says:

          Well i have a strategy
          Leg 1: Sell 9600 CE @39.80
          Leg 2: Sell 9500 PE @16.50
          Lower BEP= 9443.7 & Higher BEP= 9656.30
          Reward= 56.30, Risk= uncapped
          1. (TA) 2 times Nifty touched 9700 and miserably fell to 9560.
          2. Last two weeks it is range bound b/w 9560 and 9650
          3. For last 4 sessions it is closing on -ve note. Ans on June, 23 it closed at 21 sessions low.
          4. Max pain confirms that it should close below 9600 to hurt minimum to option writers.
          5. I guess to break 9700 resistance level it needs a big domestics cue and it is not going to happen before 29 June and for that matter may be after July,1.
          How is it?
          Please comment
          Thank you

        • Karthik Rangappa says:

          Hmmm…17L is not really a big increase 🙂 But yes, the fact that the strike is attracting so much activity indicates that it could be a vital trigger point for market.

          • KUMAR MAYANK says:

            Thank you, sir.
            Plotting a graph of P&L of a strategy on excel is very important tool of planned trading, I think.
            By your teaching and always arguing to look upon the loss before entering into a trade, one thing i can say for sure, you were never been a scalper in your trading career.

          • Karthik Rangappa says:

            Good guess 🙂 I’ve had far better success in well planned trades as opposed to scalping.

  122. salim qureshi says:

    Max pain theory can be used for Stock option also or it is just for nifty option?

  123. KEDAR says:

    Hi Karthik I am trying very hard to find what will be margin requirement for bull spread where I will buy one OTM call and sell higher strike price one , practically I should only need to pay the difference but span calculator asks me to pay 43k for nifty spread for 10500ce buy and 10600 ce sell.Could you please help me understand​,thank you -Kedar

  124. Aditya Sharma says:

    Hello Kartik,

    Thank you for the awesome explanation.
    On a practival note, I was going through Yahoo Finance article “” where I saw that:
    1) As per the article, VIX of S&P is at the lowest level
    2) Due to this low VIX, analysts are expecting a shock in the market soon. Why? Low volatility means stability. Is it that they feel markets are at lifetime high and still VIX is low thus there will be a correction?
    3) One of the traders went heavily for “Bull Call Spread” strategy and another bought “Put Options” heavily. Aren’t the expectations completely different? Former strategy is for moderate market and the latter for Bearish.

    I am reading Options since few days and just saw this article and hence the questions popped in my mind. I hope questions make sense….

    Aditya Sharma

    • Karthik Rangappa says:

      1 & 2 ) If VIX is low, then there is greed in markets and traders are happily buying. A natural counter reaction to this is a correction in markets.
      3) Bull Call spread does not really involve a put option. A BCS is actually indifferent to market direction

  125. Ashok says:

    As for intraday option buying. Lets say if the bank nifty premium for 1 lot of Rs.7000. As soon as i buy 1 lot of bank nifty option, do Rs.7000 deducted from my account?

    Or how it works?

  126. promit banerjee says:

    hey zerodha,

    earlier there used to be the pdf versions..
    cant locate them know.. please guide

  127. vinay bansal says:

    hello sir
    we are unable to find pdf plz provide the link….

  128. Kotesh says:


    In PCR analysis, u wrote that if PCR is 0.5, that means call buyers r more, extreme bullish hence reverse trend (bearish) may happen.

    But I think it’s reverse n we have to consider the option writers not buyers.

    Pls check n confirm.


  129. Arumugam says:

    Dear Karthick,

    You’ve done a excellent Job, I still wondered how come a professional in Capital market field shared everything what he knew. Because I’ve seen only nepotists here and I learned lot from you and I am going to apply all these techniques in my trading life. I don’t know how to express my gratitude personally l’d like to have one sitting with you to discuss about your trading life with some chilled Beers.

    God bless you my friend.

    • Karthik Rangappa says:

      Chilled beers should nice 🙂

      Anyway, thanks for the kind words. Someone said, your own knowledge grows when you share what you already know…and as a firm, we take this advice very sincerely 🙂

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