## 9.1 – Overview

Yesterday I watched the latest bollywood flick ‘Piku’. Quite nice I must say. After watching the movie I was casually pondering over what really made me like Piku – was it the overall storyline, or Amitabh Bachchan’s brilliant acting, or Deepika Padukone’s charming screen presence, or Shoojit Sircar’s brilliant direction? Well, I suppose it was a mix of all these factors that made the movie enjoyable.

This also made me realize, there is a remarkable similarity between a bollywood movie and an options trade. Similar to a bollywood movie, for an options trade to be successful in the market there are several forces which need to work in the option trader’s favor. These forces are collectively called ‘The Option Greeks’. These forces influence an option contract in real time, affecting the premium to either increase or decrease on a minute by minute basis. To make matters complicated, these forces not only influence the premiums directly but also influence each another.

To put this in perspective think about these two bollywood actors – Aamir Khan and Salman Khan. Movie buffs would recognize them as two independent acting forces (similar to option Greeks) of Bollywood. They can independently influence the outcome of the movie they act in (think of the movie as an options premium). However if you put both these guys in a single flick, chances are that they will try to pull one another down while at the same time push themselves up and at the same time try to make the movie a success. Do you see the juggling around here? This may not be a perfect analogy, but I hope it gives you a sense of what I’m trying to convey.

Options Premiums, options Greeks, and the natural demand supply situation of the markets influence each other. Though all these factors work as independent agents, yet they are all intervened with one another. The final outcome of this mixture can be assessed in the option’s premium. For an options trader, assessing the variation in premium is most important. He needs to develop a sense for how these factors play out before setting up an option trade.

So without much ado, let me introduce the Greeks to you –

**Delta**– Measures the rate of change of options premium based on the directional movement of the underlying**Gamma**– Rate of change of delta itself**Vega**– Rate of change of premium based on change in volatility**Theta**– Measures the impact on premium based on time left for expiry

We will discuss these Greeks over the next few chapters. The focus of this chapter is to understand the Delta.

## 9.2 – Delta of an Option

Notice the following two snapshots here – they belong to Nifty’s 8250 CE option. The first snapshot was taken at 09:18 AM when Nifty spot was at 8292.

Now notice the change in premium – at 09:18 AM **when Nifty was at 8292 **the call option was trading at 144, however at 10:00 AM **Nifty moved to 8315 **and the same call option was trading at 150.

In fact here is another snapshot at 10:55 AM – **Nifty declined to 8288** and so did the option premium (declined to 133).

From the above observations one thing stands out very clear – as and when the value of the spot changes, so does the option premium. More precisely as we already know – the call option premium increases with the increase in the spot value and vice versa.

Keeping this in perspective, imagine this – you have predicted that Nifty will reach 8355 by 3:00 PM today. From the snapshots above we know that the premium will certainly change – but by how much? What is the likely value of the 8250 CE premium if Nifty reaches 8355?

Well, this is exactly where the ‘Delta of an Option’ comes handy. The Delta measures how an options value changes with respect to the change in the underlying. In simpler terms, the Delta of an option helps us answer questions of this sort – “By how many points will the option premium change for every 1 point change in the underlying?”

Therefore the Option Greek’s ‘Delta’ captures the effect of the directional movement of the market on the Option’s premium.

The delta is a number which varies –

- Between 0 and 1 for a call option, some traders prefer to use the 0 to 100 scale. So the delta value of 0.55 on 0 to 1 scale is equivalent to 55 on the 0 to 100 scale.
- Between -1 and 0 (-100 to 0) for a put option. So the delta value of -0.4 on the -1 to 0 scale is equivalent to -40 on the -100 to 0 scale
- We will soon understand why the put option’s delta has a negative value associated with it

At this stage I want to give you an orientation of how this chapter will shape up, please do keep this at the back of your mind as I believe it will help you join the dots better –

- We will understand how we can use the Delta value for Call Options
- A quick note on how the Delta values are arrived at
- Understand how we can use the Delta value for Put Options
- Delta Characteristics – Delta vs. Spot, Delta Acceleration (continued in next chapter)
- Option positions in terms of Delta (continued in next chapter)

So let’s hit the road!

## 9.3 – Delta for a Call Option

We know the delta is a number that ranges between 0 and 1. Assume a call option has a delta of 0.3 or 30 – what does this mean?

Well, as we know the delta measures the rate of change of premium for every unit change in the underlying. So a delta of 0.3 indicates that for every 1 point change in the underlying, the premium is likely change by 0.3 units, or for every 100 point change in the underlying the premium is likely to change by 30 points.

The following example should help you understand this better –

Nifty @ 10:55 AM is at 8288

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = + 0.55

Nifty @ 3:15 PM is expected to reach 8310

What is the likely option premium value at 3:15 PM?

Well, this is fairly easy to calculate. We know the Delta of the option is 0.55, which means for every 1 point change in the underlying the premium is expected to change by 0.55 points.

We are expecting the underlying to change by 22 points (8310 – 8288), hence the premium is supposed to increase by

= 22*0.55

**= 12.1 **

Therefore the new option premium is expected to trade around **145.1** (133+12.1)

Which is the sum of old premium + expected change in premium

Let us pick another case – what if one anticipates a drop in Nifty? What will happen to the premium? Let us figure that out –

Nifty @ 10:55 AM is at 8288

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = 0.55

Nifty @ 3:15 PM is expected to reach 8200

What is the likely premium value at 3:15 PM?

We are expecting Nifty to decline by **– 88** points (8200 – 8288), hence the change in premium will be –

= – 88 * 0.55

= **– 48.4**

Therefore the premium is expected to trade around

= 133 – 48.4

= 84.6** **(new premium value)

As you can see from the above two examples, the delta helps us evaluate the premium value based on the directional move in the underlying. This is extremely useful information to have while trading options. For example assume you expect a massive 100 point up move on Nifty, and based on this expectation you decide to buy an option. There are two Call options and you need to decide which one to buy.

Call Option 1 has a delta of 0.05

Call Option 2 has a delta of 0.2

Now the question is, which option will you buy?

Let us do some math to answer this –

Change in underlying = 100 points

Call option 1 Delta = 0.05

Change in premium for call option 1 = 100 * 0.05

= 5

Call option 2 Delta = 0.2

Change in premium for call option 2 = 100 * 0.2

= 20

As you can see the same 100 point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2. This should give you a hint – the delta helps you select the right option strike to trade. But of course there are more dimensions to this, which we will explore soon.

At this stage let me post a very important question – Why is the delta value for a call option bound by 0 and 1? Why can’t the call option’s delta go beyond 0 and 1?

To help understand this, let us look at 2 scenarios wherein I will purposely keep the delta value above 1 and below 0.

**Scenario 1: Delta greater than 1 for a call option**

Nifty @ 10:55 AM at 8268

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = 1.5 (purposely keeping it above 1)

Nifty @ 3:15 PM is expected to reach 8310

What is the likely premium value at 3:15 PM?

Change in Nifty = 42 points

Therefore the change in premium (considering the delta is 1.5)

= 1.5*42

**= 63**

Do you notice that? The answer suggests that for a 42 point change in the underlying, the value of premium is increasing by 63 points! In other words, the option is gaining more value than the underlying itself. Remember the option is a derivative contract, it derives its value from its respective underlying, hence it can never move faster than the underlying.

If the delta is 1 (which is the maximum delta value) it signifies that the option is moving in line with the underlying which is acceptable, but a value higher than 1 does not make sense. For this reason the delta of an option is fixed to a maximum value of 1 or 100.

Let us extend the same logic to figure out why the delta of a call option is lower bound to 0.

**Scenario 2: Delta lesser than 0 for a call option**

Nifty @ 10:55 AM at 8288

Option Strike = 8300 Call Option

Premium = 9

Delta of the option = – 0.2 (have purposely changed the value to below 0, hence negative delta)

Nifty @ 3:15 PM is expected to reach 8200

What is the likely premium value at 3:15 PM?

Change in Nifty = 88 points (8288 -8200)

Therefore the change in premium (considering the delta is -0.2)

= -0.2*88

= **-17.6**

For a moment we will assume this is true, therefore new premium will be

= -17.6 + 9

= **– 8.6**

As you can see in this case, when the delta of a call option goes below 0, there is a possibility for the premium to go below 0, which is impossible. At this point do recollect the premium irrespective of a call or put can never be negative. Hence for this reason, the delta of a call option is lower bound to zero.

## 9.4 – Who decides the value of the Delta?

The value of the delta is one of the many outputs from the Black & Scholes option pricing formula. As I have mentioned earlier in this module, the B&S formula takes in a bunch of inputs and gives out a few key outputs. The output includes the option’s delta value and other Greeks. After discussing all the Greeks, we will also go through the B&S formula to strengthen our understanding on options. However for now, you need to be aware that the delta and other Greeks are market driven values and are computed by the B&S formula.

However here is a table which will help you identify the approximate delta value for a given option –

Option Type | Approx Delta value (CE) | Approx Delta value (PE) |
---|---|---|

Deep ITM | Between + 0.8 to + 1 | Between – 0.8 to – 1 |

Slightly ITM | Between + 0.6 to + 1 | Between – 0.6 to – 1 |

ATM | Between + 0.45 to + 0.55 | Between – 0.45 to – 0.55 |

Slightly OTM | Between + 0.45 to + 0.3 | Between – 0.45 to -0.3 |

Deep OTM | Between + 0.3 to + 0 | Between – 0.3 to – 0 |

Of course you can always find out the exact delta of an option by using a B&S option pricing calculator.

## 9.5 – Delta for a Put Option

Do recollect the Delta of a Put Option ranges from -1 to 0. The negative sign is just to illustrate the fact that when the underlying gains in value, the value of premium goes down. Keeping this in mind, consider the following details –

Parameters | Values |
---|---|

Underlying | Nifty |

Strike | 8300 |

Spot value | 8268 |

Premium | 128 |

Delta | -0.55 |

Expected Nifty Value (Case 1) | 8310 |

Expected Nifty Value (Case 2) | 8230 |

The objective is to evaluate the new premium value considering the delta value to be **-0.55**. Do pay attention to the calculations made below.

**Case 1:** Nifty is expected to move to 8310

Expected change = 8310 – 8268

= 42

Delta = – 0.55

= -0.55*42

**= -23.1**

Current Premium = 128

New Premium = 128 -23.1

**= 104.9**

Here I’m subtracting the value of delta since I know that the value of a Put option declines when the underlying value increases.

**Case 2:** Nifty is expected to move to 8230

Expected change = 8268 – 8230

= 38

Delta = – 0.55

= -0.55*38

**= -20.9**

Current Premium = 128

New Premium = 128 + 20.9

**= 148.9**

Here I’m adding the value of delta since I know that the value of a Put option gains when the underlying value decreases.

I hope with the above two Illustrations you are now clear on how to use the Put Option’s delta value to evaluate the new premium value. Also, I will take the liberty to skip explaining why the Put Option’s delta is bound between -1 and 0.

In fact I would encourage the readers to apply the same logic we used while understanding why the call option’s delta is bound between 0 and 1, to understand why Put option’s delta is bound between -1 and 0.

In the next chapter we will dig deeper into Delta and understand some of its characteristics.

### Key takeaways from this chapter

- Option Greeks are forces that influence the premium of an option
- Delta is an Option Greek that captures the effect of the direction of the market
- Call option delta varies between 0 and 1, some traders prefer to use 0 to 100.
- Put option delta varies between -1 and 0 (-100 to 0)
- The negative delta value for a Put Option indicates that the option premium and underlying value moves in the opposite direction
- ATM options have a delta of 0.5
- ITM option have a delta of close to 1
- OTM options have a delta of close to 0.

Hi kartik,

Very very thanks for new chapter. Contents are very good and clear but incomplete knowledge create confusion. So, I am waiting with Patience for your completing this module.

Thanks for you patience, we are working on the new chapter…will put up up as soon as we can.

hey Nikhil ,i have learnt alot from zerodha varsity. While going through this chapter and solving examples a doubt arose.it would be great if you could look into it.

In the example of call option where you talk about the role delta plays when one expects nifty to drop and the example where you take delta below 0. in these two case there is certain differences in computation of premium. i believe as per the computation in first example ,in later example it should have been

change in nifty= 8200-8288= -88

expected change in premium =

-88*(-0.2) = 17.6

hence new premium shall be 9+17.6=26.6

please look into it.and let me know if i have misunderstood the concept

Glad to note that, Jyotsana. By the way, the way to determine the change in Delta is by calculating the change in Nifty points multiplied by the Delta….so in this case –

88*0.2 = 17.6.

If you are long Call, add the delta to the premium, if you are short call, deduct the delta from the premium. Do not consider the algebraic sign at the time of calculating the change in delta. Easier this way 🙂

Ok,thanks I had a similar question ,which I have posted below.Of course we have to consider the premium both from a writer and buyer perspective..doubt cleared.

Ah, glad you figured 🙂

BS has been known to be erroneous for NIFTY (Asian Journal for Management) , how does one trust the Greeks then ? Is there a modification in BS Formula to consider the NIFTY.

Well, in that case, no model is perfect 🙂 I’m not sure if there is a variant which fits Nifty well. I need to check this.

Sir

Thank you very much for explaining the difficult subject in easy way. It’s really appreciable & thank you once again for taking so much pain to explain rather complicated things.

Keep it up. Awaiting eagerly for next chapters.

waiting for next chapter …..

hey first of all thanks for explaining the delta in such a simple way.

when will be the chapter on option strategies will come?

The module on Option stratergies will take some time…we will start work on that once the ongoing module on Options Theory is through.

If i sell first a stock at 25 and then buy at 20 before expiry , then my profit is 5 plus premium received. Am i right?

Let me rephrase this – If you sell an option (not stock) at a premium of 25 and buy the option back at 20, then the profit you make is Rs.5/- times the lot size”.

why not premium received?

Can you please elaborate your query, I’m unable to understand the context. Thanks.

You may have already realized answer to your question. If not, you received Rs25/- premium for selling the call option, which is already considered in the calculation, right ?

profit=(25-20)*lot size —- assuming you bought same number of contracts (lots), which you should be doing.

Hi Karthik

Your contents are very lucid that a layman in the Dalal Street can know more about the options trading.

This chapter particularly

//the option is gaining more value than the underlying itself. Remember the option is a derivative contract, it derives its value from its respective underlying, hence it can never move faster than the underlying. If the delta is 1 (which is the maximum delta value) it signifies that the option is moving in line with the underlying which is acceptable, but a value higher than 1 does not make sense. For this reason the delta of an option is fixed to a maximum value of 1 or 100.//

its a fantastic explanation about the delta value. Thanks for the contents. Need More classes like this.

Thanks for the kind words and encouragement 🙂

We are working towards putting up the chapters soon. Should be out soon.

sir,(personnel)with all my experience&sufferings i strongly beleive technicals,charts,indicators,etc wont work in options trading,it purely depends on greeks&mass psycycology&what u advised in t.analysis ie best suited for equities&fut moreover i didnt got any justification correct me if iam wrong&i wantededucational moves in TRADING

You are absolutely right – when it comes to option trading you should be using Option Greeks and other parameters to trade and not really Technical Analysis.

sir,thanks again(pnl) iam running a small business(mall) problem is iam unable to adjust money for trading,whatever comes by sales,borrowings will not be sufficieent for retail busin,iam unable to trade frely&give time to loss&repair in that pressure i end up loosing even i know many thiings which i learnt at somecost&3yrs now i dont want to waste my experience&knowledge&loose my passion which may turn to fortune in future if iam right so whats way,advise.

Take it easy is the advice 🙂 Here is what I would suggest –

1) Concentrate on your core business and try to improvise on the same

2) Do not trade the markets if you feel you are getting too stressed and therefore making losses

3) Slowly unlearn everything about the markets you know so far and then try to relearn in a structured way

4) Start with small amounts of investments (no trading)

5) Invest small amounts and watch it grow

6) Once you are comfortable with that, try investing significant amounts with an intention of creating wealth

7) And if you have gained enough confidence by then maybe you can dabble with small amounts of restricted trading

If you follow this, I have a feeling you will be in a much better position in the future.

sir,thanks,i dont think investing works in these econimic conditions as middleclass i cant about my core business my wife will always looks iam only a supporter with all this network i want something on my own,thatswhy iam passioate for this business for timebeing iam planning to trde 8 lots nifty options&1 fut stock as ur t.analysis teached sorry iam working smartly to overcome&win

Good luck Narsimha. I hope you have all the success in the market.

sir ,thanks will aiways follow,keep on learning&eventually turn to earning am i right

That’s the spirited attitude 🙂

sir,when can we expect TRADING STATEGIES ,LIKE BACKTESTING,WRITING OWN STATEGU&OTHER COMPLICATED SGIES,OFCOURSE THERE IS LOT INFORMATION IN NET ABOUT THESE BUT NOBODY WRITES LIKE U,WAITING

We will come up with a module called “Trading Strategies” which will include all this – meanwhile check this https://zerodha.com/expert-advisors/

Hi, just a question though it’s out of context but haven’t got this answer from anybody. When one sells a call option that means he has created a short position so can he close his position whenever he feels like or it will only close when the buyer of the call closes it. Have you in any of your chapters explained this. Not able to understand when analysts say that the price is above strike price nd now we can see shortcovering

You can close the short position anytime you want, not need to wait for either expiry or for the counterparty to close the position. This is true with long options as well.

sir,in morning trade first 2 min,why cant we trade (open=low)for long (open=high)for short,ithink it is marubuzo can we trade for v short time within 10min

Sure you can.

Sir, as you mentioned in this conversation:

“We will come up with a module called “Trading Strategies” which will include all this – meanwhile check this https://zerodha.com/expert-advisors/”

When that module will be published?

Sometime soon, Arijit. Hard to put a timeline to this.

Hi kartik,

I am an intra day trader. So, I never wait expiry to collect premium. So my question is — suppose nifty CE with strike price of 8200 and premium of 120 and delta or 5.5. If I were execute an long or short order and price moves some favour in my direction then my profit is equal on long or short position and risk should also be same on long and short orders depending upon the points I trail on stop loss on either side. The only difference is that I have to deposit margin money on short orders. Am I correct??? Please clarify.

When you say delta is 5.5 I hope you are talking about the 0 to 100 scale.

P&L on options is non linear. So when you buy a call option the profit you enjoy is very different from the profits you would enjoy when you are short. Likewise for risk.

Yes, when you short the margins are blocked from you trading account.

Where can we know the Greeks value for Nifty options?

Option Calculator helps – check this for now http://zerodha.com/z-connect/queries/stock-and-fo-queries/option-greeks/how-to-use-the-option-calculator

How does the value of Delta change with time decay?

Where we can get the delta values?

You can get the delta value from the Options calculator. Will discuss Delta against time shortly.

Hi Karthik,

One thing I am not able to understand since long is, how derivative follows underlying stock/index price and that too in very much sync? As per my understanding option price is decided by last trade price transaction(LTP) of that option. Then following somehting should not be practically possible. Lets say for example, If nifty is going down and suddenly some people try to buy options in extremely large quantity then that option price should increase but it does not happen. I have observed there is no relation of volume in price of options. if option price is calculated based on delta, theta, vega, time decay etc then who decides it? is someone punches that into system or exchange computers calculate based on these greeks formula and display as LTP? or is it just simple last trade price?

Thanks.

A derivative by definition is a contract that derives its value based on an underlying. Hence technically speaking derivatives cannot influence the spot. Option price is not decided by LTP, in fact LTP is decided by Option Pricing which in turn is depended on the Option Greeks. Volume is a function of pure demand and supply…so that is a different perspective all together.

Hi Karthick,

I had the same question. Just to clarify myself, I have two more questions.

1. So, can we say that volumes in the options does not influence option prices?.

2. It should be the exchange that enforces the prices and not the participants in the options market right?

Thank you for your time.

1) No, not really. There are more influencing factors than Volume.

2) No, options is tradable, hence the market decides the rate. The Exchange does not have a role to play in option pricing.

HI Karthik

Can you please elaborate on why no, since your answer is open ended.

1. Say if “Call” Option x currently trading at 100 and underlying assest trading at 1000.

we have 10 lots of sell order at 105, 10 at 110, 20 at 120. Total 40 sell orders at different prices. No buy orders as of now.

Later some point one buyer ordered 40 buy order at market price, same time underlying asset price droping to 980. But no new sellers of option.

In this case, after executing all 40 orders, LTP is 120 right….

Yes, 120 would be the last traded price.

Nifty @ 10:55 AM is at 8268

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = 0.55

In above example how you take or calculate premium value 133 and delta option value 0.55

This was just an illustration – also do notice I have mentioned spot @ 8268 and strike @ 8250, hence this is an ITM option … therefore the Delta should be more than 0.5 – hence the assumption that the delta is 0.55.

And sir what about premium

How you take or calculate it

i.e 133

Option premium is market driven (although based on the B&S formula).

Where can one get delta value of nifty options on a real time basis ?

Check this post – http://zerodha.com/z-connect/queries/stock-and-fo-queries/option-greeks/how-to-use-the-option-calculator

Awesome…. Thank you so much for your untiring effort sir…

Pleasure is ours 🙂

When will you post the next part. We are waiting…

Part 2 is posted – working on Part 3 (chapter 11).

sir,for eod trades there is good website called TOP STOCK RESEACH IF U R FREE CHECK&ADVISE

Avoid all such things my friend 🙂

sir,how many moniters we need for intraday,bcoz we cant see many charts atatime& capitalise on fast movings

1 monitor is more than sufficient for trading!

Hi Karthik,

It’s a really nice write up.I have some queries.

Say NIFTY is trading at 8300 and there are still 10 days to expiry.Assume NIFTY 8400CE is trading at 30. Suddenly NIFTY spikes by 50 points and 8400CE suddenly becomes 50 +. Why the demand-supply equation doesn’t govern the option price ?Is it like sellers drop suddenly or buyers increase instantly ?Even if the option greeks control premium pricing,shouldn’t buy/sell numbers decide the price ? Sometimes the nifty spot price moves by 10 points (+ve), nearest CE moves by 2 rs sometimes and sometimes 5 rs. So what should be the definitive way to calculate ?

Thanks,

Debasish.

You answered it yourself – this about it bit by bit –

1) What is demand supply situation in the market?

Ans – It is the pressure to buy or sell a particular asset

2) What happens when the pressure builds?

Ans – Depending on the strength of the pressure (either there is more selling pressure of more buying pressure) the market moves in a certain direction.

3) What happens to options when the market moves?

Ans – The premium changes

4) By how much does the premium change?

Ans – That depends on the delta!

So as you see – Delta is captures the effect of directional movement, which by itself is a function of demand and supply of the market.

Thanks a lot for the reply Karthik. So, can we directly bet on the delta then via some instrument which is like “derivative of a derivative” ?

Yes of course, you can trade the Delta. We will be discussing much more about these topics soon.

Dear kartik,

I have understood call & put options,but i m confused regarding trading with put on the trading terminal.

Lets say i buy nifty put 8150 @ 100.After 3 days the nifty spot is at 8000 and premium @ 110…so how do i profit from above trade…if i sell put 8150..i would make a loss of 110-100=10*25=250…am i right sir?

Let me just rephrase what you’ve said –

Option Type – Nifty Put

Strike – 8150

Premium Paid – 100

Trade type – Long Put (buy put option)

3 days later…

Nifty Spot – 8000

Premium – 110

Profit = 110 -100 = Rs.10/=

Total Profit = 10 * 25 = Rs.250/-

So you make a profit on this trade and not a loss 🙂

Premium – 110

Sir, my question is related to the above example only. When we bought a put at 8150 and now the spot price is 8000 then isn’t the profit 8150-8000= 150

& 150-100(premium paid)= 50*25=1250

Because in previous examples, u calculated profit with the difference in the value of underlying asset instead of the value of premium.

Saurabh – yes, the profit will be at least to the extent of the intrinsic value..which in this case happens to be 8150 minus 8000 = 150. However I dint want to say this as I was worried about creating confusion. Hence used the same numbers Pankit quoted 🙂

Hi Karthik bro,

Now I am confused..shouldn’t SAURABH GARG calculation only be used when exercising the option and not when “trading” premium i.e. not waiting for expiry?

Thanks bro 🙂

Yes, the Option P&L before the expiry will be lot different when compared to the P&L on expiry. The calculation here is for expiry.

Dear Karthik Rangappa,

You deserve praise and thanks for taking all the troubles to

write it all quite clearly and making it all easily

understandable.

You do not have to publish the rest of this post: I just

thought I will bring 2 minor items (nit-picking, really!) to

your attention.

Section 9.2 : “Delta of an Option” : 2nd sentence:

“The first snapshot was taken at 09:18 AM when Nifty spot

was trading at 8278 (not captured in the snapshot). ”

1. The parenthetical remark “not captured in the snapshot” is

not quite correct:

In fact, Nifty is right there: see the line immediately below

“VWAP” on the “Fundamentals” tab:

Underlying Value : 8292.65

2. Nifty is an Index: it is not a traded asset.

So, the second part of the the sentence

“when Nifty spot was trading at 8278 ….”

can be stated more simply as :

“when Nifty was at 8278…”

(if one wants to be very pedantic and precise!)

If you agree on this change, you will have to make similar

changes at quite a few other places as well.

A good teacher sometimes deliberately makes mistakes in the class to

find out if the audience is alert or sleeping! Perhaps you too

inserted such mistakes to test if your audience is alert!

With best regards,

J. Viswanathan.

Wow! Thank you so much for pointing out these errors. I have made the necessary changes. The errors are not intentional and attributable to oversight. I would be very grateful if you can help in pointing out these errors. Please feel free to email these errors to me at karthik.r at zerodha dot com.

We are expecting the underlying to change by 42 points (8310 – 8288), hence the premium is supposed to increase by

= 22*0.55

Sir above 42 should be 22

Thanks for pointing that, have made the changes.

Delta of the option = 1.55 (purposely keeping it above 1)

Sir this should be 1.5 (Please see 1.5*42=63)

Will look into this. Thanks.

Change in Nifty = 68 points (8288 -8200)

Instead of 68 points it should be 88

Changes done. Thanks.

I know that if i am making loss as a buyer of an option i can simply allow my option to expire. and if i am making loss i will have to forgo the margin. But what if

A. As buyer of a call or put option i am making profit on the expiry but i don’t exercise the option. will i get the profit or not.

B. If i sold a call or put option and i am making profit on the expiry day but do not square off my position on the expiry.

Thanks and regards

When you buy an option you pay the full premium required and not really margins. You pay margins when you short option.

1) When you buy options and hold it till expiry then on the expiry day whatever profits you are entitled will be credited to your trading account.

2) When you short options and hold it till expiry then on the expiry day whatever profits you are entitled will be credited to your trading account. However STT on short option positions is quite high, so its advisable to close the trade yourself and not hold till expiry.

1 sir isn’t the stt same for buying and selling 0.05% on premium value and 0.125% on excersized contract value.

2.And if we are short on options we will be paying the stt at selling side only and why we need to worry about stt on buying side.

3.stt is high only on long positions itm options right.

1) Yes, the ‘value’ and how it is calculated varies based on the moneyness of the option, and hence such a big impact

2) Look at it in terms of moneyness

3) Yes

Many articles including wikipedia

(https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model) describe five Greeks,the last being RHO which is not described here. Why is it so ?

Rho is mainly with respect to Rate of change of underlying with changes in the interest rate. For all practical purpose the change in interest rate is minimal, and that makes Rho not a very active Greek…so I’m still contemplating to include this or not 🙂

is there is any option to calculate current delta of an option ?

Check this – http://zerodha.com/z-connect/queries/stock-and-fo-queries/option-greeks/how-to-use-the-option-calculator

right now pi providing these type calculation?

Not as of now Sarath.

is it come in soon right?

As mentioned in the above comments, while trading options it is advised to use Greeks and other parameters not really TA. My doubt is that after TA only we can predict the direction and position according to the view. Option Greek will increase the success probability but TA will be the base.. Correct me if am wrong.

Perfect. Use TA to get a directional view…use that along with greeks to calibrate your trade.

Can you highlight the other parameters to be considered apart from Greeks while trading options?

Knowing Greeks really well takes you a long way when it comes to options trading.

Please give me link on NSE for these greeks.regards

Not sure if NSE has a Greek calculator.

where to get values of Option Greeks before trading in options

We will soon have a greeks calculator.

Do you have a strategy for getting monthly income through Nifty options,keeping in mind the market tank on 24Aug2015, are there any option strategy that will protect ones capital

No strategy related to markets can guarantee capital.

You can try the strategy discussed in chapter 18.

Sir,

I have a doubt. For example, if i sell a lot at X premium price and waited till the expire day. I think the value of premium will approaches 0 (or say some lesser value) at the time if i bought a lot. Then i may get profit of X/lot. Is it possible??

Yes, but to make sure X goes to 0, the security has to be below the strike in case of Call options and above the strike in case of PUT options.

Hi Karthik bro,

In Buy side, If premium on particular day(lets say before 10 days or near to expire) is more than settlement i.e exercise amount then is it better to take the premium or is there any incentives if I let my ITM to expire and then exercise .

Thanks bro

There is no guarantee that the option will remain ITM upon expiry. If you are a short term trader, better to book profits when you see it on the table!

dear mr. karthik ,

after a very very very long-time , something / someone has sparked the learning charge in me.

i entered the learning modules out of necessity with a mindset of boredom , but now i am simply hooked and continuing for fun .

options clearly are “magical” and many things can be done using them .

i have developed a belief that options can be used for a secure no-risk,low-risk trading/investing .

IS IT POSSIBLE TO USE OPTIONS TO HEDGE OUR FUTURES TRADE ?

for example i am long on USD OCT 15 AT 66 .0000 . if price goes down i make a loss .

but what if i also go LONGPUT same script at 66.0000 ?

as per my thinking . the loss i make in futures ,is covered by profits in options and vice-versa .

i would like to know your comments .

case-2:-

long on USD OCT 15 FUT at 66.0000

and LONG PUT same script at 67.0000

what happens on expiry ,in between ?

I’m glad to know that Varsity has ignited your learning enthusiasm. Yes you are right about Options, lots of possibilities with these instruments.

Yes you can hedge your future positions with Options. Both the examples you quoted are classic long future + long put hedging strategy….and both of them are very similar. Buying 66 PE or 67 PE does not make much difference.

Thank you so much for the lessons and really so easy to learn .

I have one doubt .

9.3 Delta for call option.

spot price = 8288

strike price = 8250

premium = 133

delta = 0.55

expected to reach 8200

decline (8200-8288) = -88

-88*0.55 = -48.4

133 – 48.4 = 84.6

spot price = 8288

strike price = 8300

premium = 9

delta = -0.2

expected to reach 8200

decline (8288 – 8200) = 88

In first case decline is in negative value(8200 – 8288) and in second case decline is in positive value(8288 – 8200) , but both have same scenario . please explain why there is no negative delta value in call option with some other example. Thanks.

Thats because the delta is lower bound to 0…it cannot go lesser than 0. If it was lesser than 0, it means the option is moving faster than the underlying, which is counter intuitive.

Dear Karthik,

I have some doubt , call trading in different value where as put trading in same value , why there is variation in call premium , can you explain this and how to calculate the value ?

Raju – The B&S calculator gives the theoretical value. Could be different from market values.

Thanks for your reply.

nse option

Answered earlier.

hello mr kartik … i want to do option trading ,please guide me with how much (minimum) amount ,i can start with? 2) does option price (example yesterday dr ready 4300 put price was around 53+ and today was around 600+ …) does it move like stock price goes up n down? i mean want to know from a.b.c of live option trading..pls guide..thanks

Deepak this whole module is dedicated towards helping people understand options trading. Suggest you go through this chapter by chapter.

To trade options minimum amount would be something like 5000/- I suppose (nifty options).

hi karthik.

is there zany formula to calculate delta values?? or its consistent?

for EX

Nifty @ 10:55 AM is at 8288

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = + 0.55

do this delta holds good in below case

Option Strike = 7900 Call Option

option spot = 7954

Premium = 36

whats delta value in above case and how do we derive it?

once again thanx for your patience for replying all quires

Delta of the option is dependent of the moneyness of the option – the thumb rule is

Option is ATM , Delta is ~ 0.5

Option is ITM , Delta is ~ between 0.5 to 1

Option is OTM , Delta is ~ between 0.1 to 0.5

Fantastic easy to understand and involving explanation. I have many times tried to study and understand Option Geeks from many sites but the explanation is so boring that I leave it mid way and close the site.

The difference between other site topics and your is that to understand the other sites the reader has to be an expert but by reading your site explanation the reader becomes an expert.

i love it.

Avinash – I’m so glad to know this.

Please do stay tunned for more content here 🙂

Hi Karthick,

Just not clear why we should buy option2 and not option 1? In option2 I will have to pay a higher premium and hence breakeven will be farther than in option 1 case?

Higher the delta, higher the probability of the option expiring in the money!

HI KARTHIK,

IV = SPOT -STRICK( FOR CALL OPTION) , SPOT MEANS SPOT PRICE OR FUTURE PRICE ?

Spot refers to spot values, not futures.

so in option underlying is spot right?

Yes.

Karthik bro.. plzz.. update commodity and currency module.. i want to learn how to trade in currency market..and also want to improve my knowledge on commodity market..i think many here many traders who are trading in commodity markets.. want to improve there skills..

Will do, two more chapters in this module and will move one to Commodities and Currency.

Hi, Karthik

understanding option with time principle is making me more tuff to solve the ENIGMA ,, i have an ready excel file with correct quote executed on the Trading Terminal , would lead to give a big junk of open interest to access .. i know there is a big potential behind the fortune gate …… i would strongly request you to give your few minutes of time on skype ,, i feel the place you and me stand here is we are just from skin of a teath .. i would like to share my knowledge with you on TIME ANALYSIS by W D Gann … ( square of 9 method) is generally understood as …

would be eagerly waiting for your reply ,,,,

Abhilash

Interesting, hopefully someday!

How to get the delta of an option ? Is it provided somewhere ?

You can use the calculator here – https://zerodha.com/tools/black-scholes

Hello Karthik Sir,

This module is absolutely perfect for anyone who wants to trade options. But one thing I’m confused about Delta risk is, how it (delta) will behave when price moves other way around.

For Example, in above screen shots

At 9:18 AM, NIFTY 8250 Call price was 144, when NIFTY spot was at 8292

At 10:00 AM, NIFTY 8250 Call price moves up to 149, when NIFTY spot was at 8315 (an increase of 4 points in call premium, I think at that moment delta would be around 0.15 to 0.20)

My confusion lies in the other side of the trade i.e. what if I have shorted the put option, how much Put Option premium has been reduced between 9:18 to 10:00 ? or what will happen to Delta of put option (will it increase or decrease) i.e.

If at 9:18 AM, Put 8250 delta would be around -0.45, when NIFTY spot was at 8292 (this put would be slightly OTM)

At 10:00 AM, Put 8250 delta would be what -0.4, -0.3, -0.2 ?, when NIFTY spot moves to 8315 (now PUT will moves slightly more OTM). My confusion lies in how much value Put option will loose ? In short I’m asking the rate of change in delta when prices moves other way around. I hope I’m not confusion you

I’m asking this question because when I look at the spread between Bid-Ask prices of options it gives me a sense that option are illiquid and it is better sell first and buy it later, and I don’t have to bother about STT when exchange auto-settle the ITM contracts.

Well, the Put option delta works the same way as the delta of a call, but in the reverse way. So if spot moves up, the call option delta increases and the put option delta decreases. Of course the delta for each strike varies based on the moneyness of the option. I’d suggest you read up further to know more on moneyness. By the way, 80%+ of all the F&O trading happens on options (Nifty especially), so there is ample liquidity in this particular market.

Ok NIFTY it is, I built my misconception on option by looking at RCOM current month option chain.

As to the question I asked, my confusion lies in the Writing Calls / Puts.

So going by the example you have mention in this chapter. How much is the change in delta when NIFTY spot moves down from 8315 to 8288. I’m simply asking how much change in delta a call option writer should expect when he/she short the call, since profit is directly related to fall in spot price.

Well, change in Delta is captured by Gamma, which is explained in the next chapter with an example 🙂

Hi Karthik,

The content is very crisp and clear with very good examples and thank you for this work.I have one question over the Delta example you gave in the chapter.For the underlying movement of 100 delta of 0.05 and 0.2 will have increased premiums of 5 and 20.So I as as a Option call buyer will need to pay less premium in case of choosing the 0.05 delta right,but you have mentioned the 0.2 delta is better.Am I missing something.Please clarify..

The selection of Option should not really be dependent on the delta. Hence, I would not choose an option with 0.2 over 0.05 just because i perceive 0.2 as a better delta.

Sir

Ur. Modules are too good. I think. The so called trainers should go through this module first before charging money Hats off to u sir

Thanks for the kind words, I’m glad you liked the content here 🙂

Karthik,

Great lessons. I’ve question though, I’m not clear on delta of CE cannot be negative. Does that mean, the option premium will never decrease, even if the underlying decreases?.

Yes, in fact this is exactly how a CE functions. When markets increase, the premium of CE decreases.

Hi Karthik,

Not able to understand why the CE option Premium will decrease, when the market increases. Shouldn’t it be other was round.

Regards,

Dheeraj

Yup. Thats’s what I would imagine. Call option delta is always positive because there is positive correlation between the price of the underlying and price of the option. In other words as the underlying goes up, the price of the option will go up too. Conversely, as the price of the underlying falls, the option price will fall too (again a case of positive correlation).

When it comes to put options, there is negative correlation between price of the underlying and option price. Hence the negative sign.

Absolutely, the call premium moves in line with the underlying and the put premium move the other way round.

where can i find real time option greek on zerodha kite,pi

Not as of now, Ankit.

Please correct the slightly ITM value from 0.6 to 1 to 0.6 to 0.8 in the delta table. At topic 9.4

Thanks, will fix that soon.

how we hedge with f&o with delta

Will be covering this topic soon 🙂

FUTURE AND OPTION CAN BE EXERCISED ONLY ON EXPIRY DATE ?? OR WE CAN EXERCISED THEM AT ANY TIME WITHIN EXPIRY.

Exercise is only on expiry day, however, you can square off the contract anytime you wish.

Hi karthik.

Amazing stuff written by youand big help in understanding options.

1 thing I was not sure about, In the table above where delta value is given for ATM, ITM and OTM.

In The value of ITM, should it be between 0.6 and 0.8 or 0.6 and 1 because for otm it is written the other way around.

Thanks

Thanks for the kind words, Sarthak.

Well, if the option is anywhere between ITM to deep ITM, then it can range anywhere between 0.6 to 1. The acceleration of delta slows down when the option traverses from deep ITM to further deep ITM. This is why you will notice a flattish curve towards the tail. The same is applicable to deep OTM to further deep OTM.

Hello sir

I want to know about changes in premium

For example yesterday’s banknifty close was 21640

Premium for call for strike price 21600 was 100

and for put it was 60

Now today banknifty has moved by

45 points either downward or upward now what

Would be changes in premium

I mean will be increment in premium equal to decrement

in another premium

You need to read up the chapter on Delta and Gamma to get a clear understanding of this. We have it covered in this and the subsequent chapters.

Sir I have read all modules 2-3times

Today whatever I have knowledge about stock market, just because of you

I am so grateful to you and to your team

If we talk about banknifty what I have observed that if tomorrow’s opening is less than 50-60 points in either direction then premium of today’s ATM changes in one way and if opens by more than 50-60 points then in different way

Why this happens

Thanks for the kind words, Rohit.

That is because the premiums are dependent on the spot prices.

sir .. today i buy nifty 9300 PE at 87.30 rs at the time of buying Put option spot was trading at 9305 ,,after 1 hr spot was trading at 9294 and put option is trading at 87.35 ….why this happen…. ideally it should be (9305-9244)*.50+87.30 =92.80 rs …am i right or wrong …or these option greeks are not work in case of intraday ….plz ans …

Remember, the volatility is also dropping here. Volatility has an impact on option premiums.

I am slowly taking into option trading even though I have burnt my fingers before. (Experience wasthe best teacher for me into business)

Now I am trying a strategy though with smaller lots. So far my results are mixed.

My post here is:

Nifty Jun 9800 CE on 11th May 2017 was 18.80 (Nifty spot value was around 9450at that time). Of course Nifty was on unexpected upswing for the previous day due to IMD monsoon data tricking in)

Nifty Jun 9800 CE on 15 May 2017 was 15.45 even though Nifty spot levels are around the same.

India Nifty VIX value was -0.11 and 0.44 respectively on 11th and 15th May respectively. (This means volatility has increased)

Then why the option price divergence between 11th and 15th May 2017? Unable to fathom. Is anything I am missing? Your help is appreciated.

Thanks.

Attributable to time decay to some extent, but the bigger reason could be the trader’s lack of confidence that Nifty will go beyond 9800.

Thanks for your reply.

Not only option greeks option buyers/sellers should also take overall expectation of the market it seems. Indicators are not absolute, I understand.

Is it so? In this case, gamma (time variance) could not have depleted so strongly as the contract is of far month. delta is good, vega is OK.

Yes, along with the greeks you also need to consider the overall market sentiment. This makes a difference.

Thanks.

May I know what factors vega depend?

Vega depends on Volatility. Please check this chapter – http://zerodha.com/varsity/chapter/vega/

With respect to your explanation of impact of Delta on premium. in the example where the Delta of first option is 0.05 and Delta of second option is 0.2. Didn’t understand the reason why would a trader be benefited by paying higher premium of 20. Please help explain.

Remember, the delta also showcases the probability of an option closing ITM. For example, if the delta is 0.7, it also means there is a 70% chance of the option closing ITM. So when a trader pays for a higher premium strike, he is looking for a brighter chances of closing ITM.

Hi Karthik,

I ‘ve a doubt about “Initial value of delta”.

I’m nowhere nearing to understand B&S model. What I’ve assumed is when spot price meets strike price the delta of that particular strike is 0.5 and say in call option the far most traded OTM stike price’s delta can be considered as zero. Similarly the far most traded ITM strike price’s delta can be considered as 1 and then on basis of relativity like percentile calculation all other strike price’s delta are calculated.

Is my assumption is correct? Pl shed some light over it.

Thanks in advance,

Koushik T

Your understanding of delta values seems to be correct. However, the deltas itself change due to market forces which is captured by the B&S model. You can keep it simple by assuming that the deltas of each strike is more or less an outcome of what the B&S model throws up.

Hi Karthik,

If I buy a call option, at first I thought that I will have to wait till the expiry of the contract to actually gain profits or book ‘losses=premium’

Now with the new information of dealing with the premiums itself to gain profits I have a confusion.

Lets say I am dealing with NIFTY options for Strike Price 9700 and Spot price 9500 with 30 days to expire. The premium was 160 when I bought the shares and the lot size was 75. After 2 days the premiums rose to 180 with the spot price at 9600 and I sell the contract. Will I gain (180-160)*75 \? or will I book losses of 160*75 as I did not want the contract and sold it before expiry?

You will make a profit of (180-160)*75 = 1500.

That means I am selling my contract to someone else for the current premium price, if I sell the the contract before expiry. But if I chose not to sell it and wait till the expiry then my profits/losses will be based on the theory which you said in the first few chapters of the options module.

Yes, if you wait for expiry, then you will get the settlement price on expiry.

Thank you. Love your work!!

Thanks for the kind words 🙂

Happy reading!

i) ITM- ATM => 1 To .50

ii) ATM=> .50

iii) ATM-OTM => .50 To 0

Am i right?

Will this be opposite for put option?

Yes, just the algebraic sign changes.

Yes, you are.

Hi kartik,

i have a account with zerodha in the name of my momm. You people are really doing good job of giving guidance and deep & explanation with simply way and good example. i really like zerodha varsity. God bless u people

Thank you so much for the kind words, Niraj. Happy learning!

Hi

Where can i find the delta value on kite or nse website

You can approximate the delta values yourself – check the delta table given the chapter. For the exact values, check this – https://zerodha.com/tools/black-scholes/

Why is CALL option premium directly proportional to spot price and PUT option premium inversely proportional to spot price?

Thats the way its structured 🙂

sir,

i have two question about maruti.

1.spot price-9647(down from 9705)

but CE of 9500 was increased by 8000 percent.

as the stock price came down than why call option of 9500 increased by these much amount.

2.if i bought call option of M&M with 770 at 11 rs and stock is trading at 757rs.

as i am bullish on stock and stock goes up and near to 765 the premium is also increase according to delta.but as per our calculation i made profit after 770+11 premium.but as stock goes up and as premium than if i sell my call option on higher premium than it would be profitable deal or not?

thank you.

1) This can be attributed to the increase in volatility

2) Remember, an option contract is also influenced by gamma, vega, and theta besides Delta. Hence you need to have a holistic view.

Hi Karthik,

Could you kindly suggest on the 2nd query:

If the option contract is sold before expiry (Call Option profitable trade), would the profit will be as follows:

(Spot – Strike) – Premium Paid * Lot Size

or

Difference in Premium * Lot Size

If sold before expiry, then you will always make the difference in premium. Hence, P&L = (Buy price of the premium – sale price of the premium ) * Lot Size.

We bow you for your efforts . Very beautifully explained . I am following this from chapter 1 . Thank you

Its all worth the efforts if people take the efforts to learn 🙂

Happy learning and stay profitable, Arun 🙂

Hi Karthik,

Great work as usual but would like to share one genuine concern – zerodha clients who want to sell fat OTM weekly BNF options are restricted due to some LTP percentage regulation. So today i wasnt able to short 26000 pe/29000 ce. Customer care says there is a certain percentage decided early morning which decides how far one can participate in these OTM options. I wonder how/why zerodha doesnt have clients who want to indulge in far OTM strikes.

i) There is significant activity in these strikes – which indicates other brokerages allow

ii) As per today’s % informed from zerodha customer care i.e. 4.1%, i could sell 26400 pe which is a slightly more riskier strike. Now ifi want to hedge it with buying a pe of lesser strike, say 26100, i cannot

iii) It is tedious and impractical calling everyday to support centre and asking for this % (im told this keeps changing daily). Could you please take some steps like putting it on your website (best), send a mail to clients who are interested to do so (better)?

Looking fwd to hearing from you.

Regards

Check this, Pratheesh – https://tradingqna.com/t/banknifty-bracket-and-cover-order-blocked/14152/2?u=bhuvanesh

Hi Karthik, I did go thru the thread but i didnt see any answers on the people’s query (which is similar to mine). Not sure if this was the intended link you wanted to share. Just to reiterate, my concern is that i am not able to short far OTM strikes with regular orders – not BO/CO/MIS.

Are you talking about far OTM of Bank Nifty weekly expiry? If yes, we do not allow that for reasons mentioned here – https://tradingqna.com/t/banknifty-bracket-and-cover-order-blocked/14152/2?u=bhuvanesh

If a client wants to know which is the farthest OTM BNF weekly option strike price that can be traded on that day, do you intend him/her to call the customer care to know that particular day’s percentage? Can the process be simplified please?

Still didnt get my answer 🙁

Pratheesh, as of now you have to call up the customer care and check the limits. We are trying to make this process simpler

Hi Karthik – Am new to options and trying to learn using zerodha. Must say it is awesome tutorial. I have a query . in the below example which you have given

“Call Option 1 has a delta of 0.05, Call Option 2 has a delta of 0.2

Now the question is, which option will you buy?

Let us do some math to answer this –

Change in underlying = 100 points, Call option 1 Delta = 0.05,Change in premium for call option 1 = 100 * 0.05, = 5

Call option 2 Delta = 0.2,Change in premium for call option 2 = 100 * 0.2,= 20

As you can see the same 100 point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2. ”

I thought Option 1 is better as the trader will pay lower premium for the same strike price ? why is option 2 better ?

In fact, your decision to buy or sell an option should NOT be based on DELTA. It should rather be based on the opportunity the candlestick pattern (or any other analysis).

Hope i am not misunderstood when you suggest to refer the candlestick too.

I have a query here, If i am to trade on NIFTY options and am to follow the candlestick, which chart shall i refer? is it the nifty, nifty future for the running series or the chart of CE/PE for that particular strike price?

Say e.g. i plan to buy/sell 10600CE for which i will be obviously following the greeks and trend, and if i am to look at the candlestick pattern then which one shall i refer? shall i refer the chart of nifty50 or chart of nifty running month future chart or 10600CE chart?

Ajeet, it is always best to look at the chart of the underlying asset. So the chart of Nifty 50 is what matters. No point looking at the chart of options.

Noted. Thank you Karthik.

Welcome, Ajeet.

Hi,

Really appreciate clear and simple way of explaining these topics. I have a few questions.

1) Where can we get the quotes of delta, gamma, vega, IV etc on the Kite platform? I know that NSE has the option chain table but even there could not find out the Greeks values.

2) When we trade an options strategy and are required to take more than one trade in that strategy, do we have to place individual orders for each trade or is there a method by which we input our criteria and the platform executes it simultaneously for multiple trades?

3) Do you’ll a program where you can mentor us for options trading and how to execute the strategies. Is there a demo platform available where we can practise taking such trades?

Thanks and Regards.

1) Not available on Kite, meanwhile you could check this – https://zerodha.com/tools/black-scholes/

2) Yes, you will have to place each order separately

3) Unfortunately no, but I’m always available on this platform and can help you to my best possible extent.

Good luck.

Hi Karthik,

Thanks for such an awesome content.

Just out of curiosity,

Lets assume the premium for nifty CE spot @ 10250 is Rs 9 and delta for an option is 0.5 and if nifty falls by 50 points , then going by the definition of delta , the change in premium i.e. (50*0.5 )= 25 will make the premium negative.

Has the above scenario ever happened?

Sorry for sounding so naive, i just want to be clear with the content

Thanks in Advance!! Cheers 🙂

No, the premium cannot go -ve, if you see the Delta is capped between 0 and 1. Also, remember, Delta is just one contributor to the premium, apart from this, there is also Vega and Theta which is contributing to the premium.

The line below if from the chapter above:

Note – 8268 is a slightly ITM option, hence the delta is around -0.55 (as indicated from the table above).

Here the Strike price is 8300 . This is for a Put option

How can this be slightly ITM option, as per the explanation of the chapters which says that higher the strike price from an ATM for a PUT option it is ITM, this needs to be a slightly OTM otpion, kindly clarify my understanding or mis-understanding

Santosh, it works like this. For Call options – ITM – ATM – OTM. So all strike below ATM are ITM and all above are OTM. For Put options OTM – ATM – ITM. So all option strikes above ATM are ITM.

Where can we view the delta in the options chain and any reference site for the same

For now, you can look at this – https://zerodha.com/tools/black-scholes/

Hello sir,

Can i buy only just call premium and sell it?

Or i have to exercise it?

Yes, you can do that and not really wait for expiry.

Hi, really informative article. I bought infy 1180 pe (lot 600) at 18/- premium. The delta value is -1 and the expiry is this week Thursday. As the delta value is -1, I assumed that even a slight fall of say 2 to 3/- in the underlying share price can bring almost a similar movement. Currently the option is closed at 16. Can I hold it till the expiry or book Profit or Loss? Your advise for this practical test..

Srikanth, the decision to close the trade is completely dependent on your P&L aspirations, I cannot really comment on it 🙂

Please ignore my previous question, as a few values are wrong.

Hi, really informative article. I bought infy 1180 pe (lot 600) at 18/- premium. The delta value is -0.52 and the expiry is this week Thursday. Currently the option is closed at 16. Can I hold it till the expiry or book Profit or Loss? Your advise for this practical test..

Like I mentioned in your previous comment, this is dependent on your P&L aspirations. However, you need to remember that the effect of Theta on long options will start eating into the premium in the last week of expiry. So from this perspective, maybe you may want to close the position if you are happy with the P&L.

can I know how the brokerage is charged in the currency derivatives segment

Check this Pavan – https://zerodha.com/charges

In nse website and in zeordha website where i can find delta value.

Check this – https://zerodha.com/tools/black-scholes/

i want to see live delta value of a particular strike.

strikeprice ltp iv oi DELTA

10650

Live delta is not available yet, but please do watch out for announcements from our side.

Live delta is availaible in NEST software, which software zerodha use

We also have NEST. However, most of the clients use our own proprietary web-based trading terminal called Kite.

how do we get Delta 0.55

You can use the options calcualton for this. Like this one – https://zerodha.com/tools/black-scholes/

hi kartik

am new to options & trying to trade as per the Tec analysis of charts , but however , i cannot make any profits

how do the greeks impact the option premium , how to know when to enter trade & exit trade

reg

Sammir

I’d suggest you read up the concepts and start taking small directional bets. Get used this and then try figuring out the effect on greeks on your option premiums. This will help I guess.

[…] The Option Greeks (Delta) Part 1 […]

Hi Sir

The link which you are providing to get the Delta value i.e https://zerodha.com/tools/black-scholes/ asking the volatility % , Dividend and interest% . Can you please help , from where we can get these figures to put there ?

Check this, Ashish – https://zerodha.com/z-connect/queries/stock-and-fo-queries/option-greeks/how-to-use-the-option-calculator

Hi Sir

As you said to check delta values we should refer https://zerodha.com/tools/black-scholes/

In that it is asking the values of

VOLATILITY (%)

INTEREST (%)

DIVIDEND

from where we can get these values for particular index or stock option?

Please guide.

Put options

Case 2: Nifty is expected to move to 8230

Expected change = 8268 – 8230= 38

Delta = – 0.55

= -0.55*38

= -20.9

Here wouldn’t it be accurate if we subtract the other way round ,that is 8230 – 8268 = – 38 .So the premium automatically comes positive as well ,

-0.55 * -38 = 20.9. There it will be added anyway ,.instead of having a minus sign and still adding the value .

What about the writer?

The point is to convey that the premium of Put option increases with the decrease in the spot price.

In a reply to Richa bohra, you have stated that on a bought option, profi ts will be credited on expiry day. I thought since the option was held till expiry heavy STT will be charged on the squar ed sold option.

Also on an already short option STT would have been deducted normal,. 05percent. So on squaring on ex piry day, there should not be exorbitant STT.

Pl clarify

Ah, that is not right. When you buy options, the P&L is credited upon square off.

In the first example…when 8288 falls to 8200 and premium is 0.55….

Caluclations are -80×0.55

But when delta is negative

You take 80 vlaue as positive even though it decreases in call option.

So calculation will be

-88×-0.2 =-17.6

*I am really confused on this now.

My next confusion is lets consider if in long call the stock value falls from 8200 to 7200 . And delta is 0.5 and premium is 40 at 8200. The. Fall in underlying i.e. -1000*0.5 is -50

Then premium comes in negative….how is this possible coz you said premium cant be negative.

Correction in question.

-500 instead of -50

But im bot cases premium is negative….how is that possible.

Replied to you earlier comment.

Yes, the premium is capped to 0 on the downside, so the premium will be stuck to 0 if this were to happen.

Edward, remember this –

1) Call option lose value when the underlying drops in value. Delta is +ve for call option.

2) Call option gains value when the underlying gains in value. Delta is +ve for call option.

3) Put option gains value when the underlying drops in value. Delta is -ve for put option.

4) Put option loses value when the underlying gains in value. Delta is -ve for put option.

Given this, take the increase in points in underlying as +ve and the decrease in underlying as -ve.

Instead of making delta -ve for put options it would be simple to have them positive and to consider following formula for

New premium for put = old premium + ( strike – spot) * positive delta

Here if spot decreases below strike ,then strike > spot, overall premium is increment

If spot increases above strike then strike < spot, hence overall premium decreases

Well, this should be ok as long as it leads you to the same end results.

The following example should help you understand this better –

Nifty @ 10:55 AM is at 8288

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = + 0.55 How you got delta value 0.55?

The delta value is derived from the B&S formula based on the spot value.

Very good info on delta. The delta factor influence on option price is illustrated with nice examples. Easy to understand and grasp.

Very nice info.

Glad to note that 🙂

Happy learning!

Why Delta for ITM option is high and less for ATM option?

Thats the way the delta functions, Jasdeep. Its higher for ITM, around 0.5 for ITM, and less than 0.5 for OTM.

Sir in bs calculator we enter spot price,strike price,expiry date, volatility, dividend and as a final output we get some values for ce premium,pe premium is it those values on expiry the premiums will be trading exactly and what about those delta values here suggesting.

Yes, these are fair prices of premiums all else equal. Delta is based on spot values.

what will be the nu premium value if the nifty has fallen say 300pts.

Mutiply 300 with strike’s delta value and you will get to know.

Hi Sir,

why is the delta varies for different moneyness of options? Why can’t it be same for all? Why is this disparity for different moneyness?

Thats the nature of the variable.

Hello,

In the explanation of why delta cant be less than zero, In the scenario 2 instead of -0.2 if you put -0.1.the resultant premium would come to +0.2. can you explain that bit further? does it has to do anything with the volatility or premium decay?

THANKS

But then it cannot be generalized right? as in it can work for few -ve values and not for few others?

I mean from my general observation it happens all the time in NF and BNF options.The prices are going one way but premium of option will go in opposite direction (for small amount).

THANKS

This is because the premium is not just dependent on the direction of the trade but also on various other parameters such as volatility, time to expiry etc.

sir,

I have a query please solve this. (example)

Cipla spot price is 556.

I have short 560 CE at a premium of 14.7 and 560 PE @ 17.2 (for June expiry)

if Cipla is moving upward to 600 or if Cipla is down to 520.

what will be an effect on my trade?

Is it the right strategy to trade.

Please clarify

hi Karthik

first of all your material is awesome. keep writing.

you mentioned the change in nifty prices for the calculation in a change in the value of premium but when you considered the example 2 of call option delta analysis you took the net difference as negative ie -88.

/*******

Nifty @ 10:55 AM is at 8288

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = 0.55

Nifty @ 3:15 PM is expected to reach 8200

What is the likely premium value at 3:15 PM?

We are expecting Nifty to decline by – 88 points (8200 – 8288), hence the change in premium will be –

= – 88 * 0.55

= – 48.4

***/

but later on in put option example, you considered the net difference as positive.

/******

Spot value 8268

Nifty is expected to move to 8230

Expected change = 8268 – 8230

= 38

Delta = – 0.55

= -0.55*38

= -20.9

Current Premium = 128

New Premium = 128 + 20.9

= 148.9

*******/

I am not able to understand the logic behind the two different cases.

For Call option the delta is +ve meaning, with an increase in spot price the delta gets added and with a decrease in the price, the delta reduces. Likewise, for a PUT option, if with an increase in spot price the delta reduces and with a decrease in the price, the delta increases.

Good afternoon Karthikji

What I discover is one pattern of options trading amongst institutional investors or some smart professional traders is that they sell ITM calls & puts. This is beyond our retailers imagination but from OI analysis & some interviews I read (even on international websites) I came to understand this. Only thing I want to ask is your opinion in following points

1)Supose Bank of Baroda is trading at Rs 100 approx so why these smart traders sell ITM put(or Calls for that matter) at 102.5 PE & not OTM or far OTM. Is it because to negate high premium lose due to DELTA EFFECTS ?? (as u told that ITM premium moves almost in tandem with Spot)

2)From above eg ATM has little less oi standing or addition as compare to immediate ITM or OTM ? So it’s to avoid gamma effect. Am I right here

3)From ur trading experience what u think is right… is it better to sell slight ITM options or far OTM options (calls/puts) for better risk management as spreads (not naked)?? [only ur wise opinion, kindly don’t take it as trading advice I’m taking :)]

Thanking you for your time 🙂

Harsh, irrespective of who is trading, selling naked deep ITM options is not a good idea. If the institutions are selling it, then they must have a cover for it.

1) Like I said, a naked short ITM position is unlikely. They would be selling this as a spread

2) If you are selling, then naked OTMs are the best bet.

Good evening Karthikji

No u’d not read properly my query dear sir. I’d not mentioned anywhere to sell naked options of ITM nor will I take as margin is quite high too.

What is the advantage of selling ITM options with covered selling compared to OTM. Is there any Greeks benefits?

Your opinion on this query I needed. Sry for asking again. Thanking u 🙂

Ah, ITM options have higher deltas, which means that for every one-point move in the underlying, we have a near 1 point change in the premium. THis means that the ITM options behave like a futures contract and in fact, can be used as a proxy for futures.

Hi Kartik,

This content has helped me greatly.

I have a doubt, regarding topics covered before this,

Is it possible to explain the following wrt the Ajay and Venu example?

1) Cash settlement

2) Trading on premium before expiry of contract

Please help wrt what happens to the underlying asset i.e. land, does it change hands in cash settlement?

What happens to underlying asset i.e. land when option is bought and sold based on premium.

Thank You in advance 🙂

Abhi, this and more is explained in the subsequent chapters, request you to read on 🙂

Also, In the case of trading on premium, what is the role of the call option seller (Venu)?

He too is trading the premium where he has sold first and is expected to buy back later.

I think there is a correction in Delta for Call Option- “Sc. 2 When Delta is below zero”

Delta= -0.2

Nifty changed from 8288 to 8200 = -88

Therefore, change in premium = -88*-0.2 = + 17.6

Thus, new premium = 9+17.6 = 26.6

Since premium is increasing with decrease in underlying, it is impossible for delta to be negative.

Am I wrong? Since you haven’t taken the negative sign for 88 into consideration.

—–

Think of it in terms of the PUT options. Premiums increase with the decrease in the spot price right? This is a positive effect on the premium, which is what gets captured in the math above.

Hi Karthik,

Thank you very much for your effort.

Just want your view … when I am very sure for any stock/ option to go up , in that condition which one I should prefer … call option vs future

Futures 🙂

Good morning Karthikji

I’ve one question.

1)Since Futures delta is one. How should I hedge it with say Call options when I’m say long in Futures ?

2) This one is most important. Suppose I hedge Reliance or Nifty Long Futures with two 0.5 delta call options. But the problem is that when the spot moves up so is the delta and say the combined short call options delta turns 1.5 on robust upwards movement(since many times on market opening things r hardly in our control we all know). So essentially I’m at loss by 0.5 delta since Futures delta anyway remain one only ?? So how should I deal with this problem

Kindly explain with examples thoroughly esp 2nd point.

Thanking you for your time & will be pleased with ur wise opinion. Hv a great day 🙂

1) Since futures long is +1 delta, you will have to offset this with -1delta, hence 2 lots of selling ATM call (each with delta of -0.5) will help you hedge the position

2) Yes, you will have to adjust this especially if you intend to carry it overnight. You can ignore it for intraday

Hope that helps 🙂

how is delta calculate pls illustrate with example

Sridhar, plenty of examples in the chapter itself.

I think in the put option example here,

Case 2: Nifty is expected to move to 8230

Expected change = 8268 – 8230

= 38

Delta = – 0.55

= -0.55*38

= -20.9

Current Premium = 128

New Premium = 128 + 20.9

= 148.9

It’s better to calculate expected change as

8230-8268=-38

Delta= -0.55*-38 =20.9

Net premium =128+20.9=148.9

Hmm, both works.

First let me quote a portion of this chapter, “Call Option 1 has a delta of 0.05

Call Option 2 has a delta of 0.2

Now the question is, which option will you buy?

Let us do some math to answer this –

Change in underlying = 100 points

Call option 1 Delta = 0.05

Change in premium for call option 1 = 100 * 0.05

= 5

Call option 2 Delta = 0.2

Change in premium for call option 2 = 100 * 0.2

= 20

As you can see the same 100 point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2. ”

Sir my question is as a call option buyer we should always prefer low premium isn’t it? Then why are we selecting option 2 in this case I didn’t understand.

Hmm, the selection of strike should not really depend on just the premium. You should look at greeks as well, such as the delta and the theta.

Sir in Black & Scholes formula what is ” Risk free interest rate”

You can take the T bill rate as available on RBI site.

Sir in black scholes model, how to determine dividend value for Nifty or bank nifty to input in calculator

The dividend yield is published by NSE, please do check their website for the same. Check this – https://www1.nseindia.com/products/content/equities/indices/historical_pepb.htm

Hi Karthik,

First of all, many thanks for such a wonderful writeups and sharing knowledge on all these topics.

I’m really confused by your response to query on section 9.5, “Delta for a Put option”. Strike is 8300, Spot is 8268. Option is Put. Its mentioned as slightly ITM. Shouldn’t it be slightly OTM?

No, 8300 PE is slightly ITM considering spot is at 8268. All strikes below 8268 are OTM and higher are ITM.

Got it. Revisited moneyness topic too and is clear now.

Super! Happy reading 🙂

Karthikji,

The subject is presented in an excellent manner. Thanks from the bottom of the heart to You and Your assistant who had taken these screenshots. I know it is a tedious job. Thank you again.

/jayadevan

Happy reading 🙂

Hello Sir

Thanks for the education you are giving. All the content are so arranged that a novice can also understand the subject. Superb explanation power.

May I know where can we find the DELTA value from?

Happy to note that, Satish. You can get the delta value on Sensibull or any other B&S calculator.

Thank you Sir for your prompt reply.

Regards

Satish Baichwal

Call Option 1 has a delta of 0.05

Call Option 2 has a delta of 0.2

I these two call options the later one would have bigger premium then how come it is suitable for buying, should we not prefer to pay less premium? If there is something I have missed please let me know.

BTW these articles are just mind blowing..

Thank you

The amount you pay as premium depends on many factors –

1) What is the volatility?

2) What is your expectation of future volatility?

3) What is your expectation of the price movement?

4) Time remaining for expiry

So the delta is just one parameter to look at. I’d suggest you read the rest of the chapters to connect the dots.

Sure I will

Thanks

Hi, Where can i find respective Option delta in the Option china

Not available on option chain, you will get this value in a standard B&S calculator.

Can we derive any conclusion about movements of underlying based on options chart and then put it to use in spot-market trading?

Hmm, I’ve not really explored that 🙂

Sir, for the 9.5 topic

(the Delta for Put option)

Note- 8268 is a slightly ITM option.

*i think it should be, 8268 is a slightly OTM option* because strike price is at 8300. or am i wrong? i am not sure.

By the way, i love your teachings. Thank you so much. God bless you.

I’m glad you liked the content here 🙂

Since the strike is 8300 PE, it is slightly ITM as the spot is at 8268.

Is it possible to calculate accurate delta by comparing the attributes of 15 min candle of option and that of underlying.

Say for a OTM CE, 15 min candle had a movement of 30 points bullish whilst the underlying concluded with 100 points bullish move.

Thus giving a 30 percent change i.e. 0.3 delta

Have not tried that, but you can use a B&S calculator to find out precise delta, so why reinvent the wheel 🙂

Hi karthik,

Really very beautiful and understandable content.

My Question.

Under delta for put option section.

Case 2: Nifty is expected to move to 8230

Expected change = 8268 – 8230

What i thought is expected change will 8230 – 8268 because 8230 is final price.

New premium = old premium +/- ( delta*expected change of spot price)

Where as in above formula + for call option because call option premium is directly proportional to change in spot price and – for put option because it is inversely proportional to change in spot price.

By doing this also the final premium will be same compare to your calculation because negative value of delta will take care.

Please correct me if my approach is wrong.

That’s right, the -ve sign associated with a change in underlying is multiplied with the -ve sign associated with the put delta and the resultant is a +ve change in put premium for the given change in the underlying.

Sir where can we get the delta value of the call option. I can’t find them on kite, kindly help!

You can check Sensibull for this.

should we exercise an American Call option before an ex-dividend date if yes then what are the factors we should consider….?

We don’t have American Options in India, Aditya. All options are European in nature.

Due to the quality of content I have switched to reading this rather than watching Youtube Videos.

My Question is .

1. If I have Sold PE In case the margin get short will I get some warning and how much time will I get to add funds?

2. In options and futures which time is considered as expiry explain through an example. What will be the charges/fine after expiry?

3. Future : If I have bought future of a stock(lot size 500). It requires a margin of around 1.5 Lakh. So If I buy a lot (say at 1500 )and sell after 15 days ( at 1550). Will my profit calculated by

a) the Investment (margin) 1,55,000(new future value) -1,50,000(old future value)= 5000

b) with respect to the total value of the lot which is 7.5 Lakh. ( Profit 50*500 = 25000) where I have only paid/blocked 1.5 lakh only.

4. How to roll over the future to next month on expiry?

5. How to take delivery of the stock through Futures and Options.

Happy to note that 🙂

1) Yes, usually you have to do this quickly. Please do read this up – https://zerodha.com/policies-and-procedures#tab-equities

2) The expiry date is usually the last Thursday of the month

3) Yes, that is one of the ways to calculate the profit. The other way is to just take the difference between the buy and sell price of the futures and multiply that with the lot size

4) You square off the position that you hold for this month and initiate the same position in same quantity for the next month

5) Do check this – https://zerodha.com/varsity/chapter/quick-note-on-physical-settlement/

I know that American options are not applicable in India but it is something that came up while I was studying for FRM so can you kindly answer it

“should we exercise an American Call option before an ex-dividend date if yes then what are the factors we should consider….?”

That depends on both stock and F&O settlement criteria. For example, if this was in Indian context, yes, it would make sense as you would get the stock before record date to received corporate benefits.

Hello,

I have observed one thing on the sensibull platform, the sum of Call Delta and Put Delta (ignore the +ve and -ve symbols) is 1. Lets say if the call delta is 0.2 and obviously the put delta will be -0.8; Doesn’t it make sense to buy PUT if the underlying is going down (I Know selling a call option has higher probability of making profits however using the higher delta on the put side we can make more money by buying PUT rather than sell call, almost 1:4. (Of course we need to be sure of the direction of the underlying) .

Am i making sense/ is my understanding correct?

Regards

Vikram

Vikram, call delta os 0.2, does not mean the PUT dealt is -0.8. But I dint get the other bit of your question. Can you add more context to this, please? Thanks.

If Min value of delta for CE is zero. How does the premium reduce for long call when spot goes below strike.

Ex Nifty 8200 CE long call

Premium 10

Spot 8145

Assume Delta 0

Spot moves to 8090

The new premium will be definitely below 10.

So, how is the premium calculated?

Kindly clarify.

Thank you

Delta wont be zero, it is will have a non zero value. In this case it could be around 0.3 or 0.35. So for every 1 point move in Nifty, premium will change by 0.3 or 0.35. So you can do the math accordingly.

Hello Karthik,

I am not able to upload the snapshot, however please check the delta values of any strike price in sensibull both call delta and put delta. Its always equal to 1 (I mean if we ignore the + and – symbols next to them)

These strikes must be deep ITM options. If yes, then their delta will be near 1.

Hi Karthick.

Thank you so much for providing endless amount of knowledge through varsity zerodha

Here goes

Concept wise Beta & Delta is same right ?

Beta shows how much percentage the stock will move when compared to index ? And

delta shows how much percentage the premium will move when compared to the spot price ?

Am I right ?

In a way yes, although they both are very different 🙂

Thanks for your answers. I now have less doubts but I am confused from this answer.

—————————–

Future : If I have bought future of a stock(lot size 500). It requires a margin of around 1.5 Lakh. So If I buy a lot (say at 1500 )and sell after 15 days ( at 1550). Will my profit calculated by

a) the Investment (margin) 1,55,000(new future value) -1,50,000(old future value)= 5000

b) with respect to the total value of the lot which is 7.5 Lakh. ( Profit 50*500 = 25000) where I have only paid/blocked 1.5 lakh only.

Your Answer – Yes, that is one of the ways to calculate the profit. The other way is to just take the difference between the buy and sell price of the futures and multiply that with the lot size.

——————————

How can be there more than one ways to calculate profit.

It would be very helpful if you could tell me through Reliance Example

CMP is 2172.05

Margin Required for Future 2,98,021.58

Lot Size 505

Lets say In 5 days Price Moves by 21.72 Points to 2193.77 ( i.e 1% increase )

and I sell it that at that price.

Now what will be my profit in Rupees? What will be the value of Future lot now.

Please explain this in detail. As it is the last question which will finalise my strategy.

Buy Price = 2172.05

Sell Price = 2193.77

Quantity = 505

Difference between buy and sell price = 21.72. This means you’ve made 21.72 per share. You hold 505 quantity, hence your P&L = 505*21.72 = Rs.10,968.6/-

Hi Karthik, thanks for the article. It’s very helpful.

I have a question. I see LTP for every option contract in Zerodha. I guess this is the premium.

For some reason I believe this LTP moves based on the bids and asks and not the option greeks. Correct me if I am wrong.

If this LTP moves based on bids and asks, then can I use technical analysis of this LTP to take a position?

Thats right Deepak, the LTP moves based on Bid and Ask, but that is just one factor. What largely influences the options is the movement in the underlying itself. Hence you are better off applying TA on the underlying rather than the option contract.

Hi,

Plz refer to my trade details below:

Option – Short call

Strike price- 2500

Spot price-2300

premium- 21

Days to expiry-20

If lets says after 5 days the spot price moves to 2400, the option premium will increase and the person who is in contract with me exits his/her postion, will my position get squared off automatically or it will have no impact on my postion?

No, it will get squared off only when you want to.

Can we consider the option delta (a rate change in option premium based on the rate change of the underlying) to be similar to a stock or a future’s beta (a rate change of an asset based on the rate change of an index)?

Hmm, no. Delta is faster to react while the change in beta is slow.

SIR WANTED TO KNOW IN THE IN CASE IF NIFTY INCREASES AND WE KNOW THAT PUT OPTION PREMIUM GETS DECREASED BUT IN MY CASE THE NEW PREMIUM (DELTA*CHANGE IN UNDERLYING) COMING NEGATIVE WHILE SUBTRACTING THE OLD PREMIUM. WHAT CAN BE POSSIBILITY ?

CAN IT BE THAT I M PREDICTING CHANGE THE UNDERLYING A LARGER AMOUNT ?

PLZ REPLY ASAP

REGARDS

The premium cannot be -ve. It is capped to 0. Are you adding up the deltas properly?

Sir my question is about finding the change in the premium so for that I have (multiplied the delta with change in underlying points) and after that I have subtracted with the old premium in the put option. and then the new premium is coming to negative. The change in the premium is more than that of old premium so it is coming negative.

Got it. Since premium cannot be -ve, it has be to capped to 0.

sir then we will try to avoid such option or the strike price ? or we can take it in such circumstances ?

Do we need to calculate delta or it is available on NSE

You’ll have to calculate this yourself.

Sir ,I have a positional trade which I have taken one week ago in options .Can I convert that trade into MIS today? If yes then can that be done in both long and short positions? Thank you sir.

Monu, yes you can convert to MIS anytime you want, but before 3:20 PM.

In the above case -2, change in value is Minus 38 (-38); only then -38 *-.55=+20.9

New premium will be 128 + 20.9 = 148.9

Thank you very much for Deep Explanation ..

Happy reading!

Hey,

In case 1 of the put option, the delta value is -0.55 which is ATM as per the table. However, you have mentioned that it is slightly ITM. Please check it again!

Strictly speaking, ATM is supposed to be 0.5 for calls and -0.5 for puts. If its higher than 0.5, like 0.55, then it means that it is slightly ITM.

Hi sir , in the beginning of chapter 9.5 , you mentioned “Note – 8268 is a slightly ITM option, hence the delta is around -0.55” , i think OTM , ITM for an option is classified for strikes by comparing them to spot value . Here 8268 is a spot value not a strike value, i didn’t really understand why that was taken as ITM option.

That’s correct, moneyness is determined by taking strike wrt to spot. Let me check on this.

Please let me know what is the mistake in this analysis:

A stock value reduces from 8288 to 8000 during the day. Its premium is 133 and delta is 0.55.

So its underlying value has reduced by -288 points,so the change in premium will be (-288*0.55)=-158.4.

So the current premium amount becomes 133-158.4=-25.4

Since the option cannot have -ve value, it will be 0 plus time value of option.

Hi Sir,

Where do we get the values of Delta for different stocks? and for different strike price? do we always have to assume based on our experience?

I’d suggest you look at Sensibull.com for this, Sumit.

This is extremely useful information to have while trading options. For example assume you expect a massive 100 point up move on Nifty, and based on this expectation you decide to buy an option. There are two Call options and you need to decide which one to buy.

Call Option 1 has a delta of 0.05

Call Option 2 has a delta of 0.2

Now the question is, which option will you buy?

Let us do some math to answer this –

Change in underlying = 100 points

Call option 1 Delta = 0.05

Change in premium for call option 1 = 100 * 0.05

= 5

Call option 2 Delta = 0.2

Change in premium for call option 2 = 100 * 0.2

= 20

As you can see the same 100 point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2.

Why will the trader select call option 2 and not call option 1 as the change in premium is higher in call option 2. Can you please try to guide me?

Its the same explanation, Krunal. The rate of change of delta is higher in the 2nd case, hence its likely to be more profitable.

Thank you sir

Sir,

Here in the example, you considered delta as constant for both the cases(gain and decline in underline).but in the real market delta will get change at every move of underline right and so the calculation ?

Loving Varisty 🙂

Thanks

That’s right, the delta is on a continuous basis, but that would make explanations very hard to comprehend 🙂

Dear Kartik sir,

You mention that delta for CE will always range between 0 to 1. However, I just checked the Bank Nifty @11:26am (today 7th Oct’20) and the premium at 20500CE is at 2424 while BankNifty is trading at 22807.45. A while ago too I had checked at 10:21am(today 7th Oct’20) at that point in time 20500CE with a spot at 22882.4 was trading at a premium of 2569.15. So essentially the point I am trying to hammer home is, that with a fall in the underlying index by 74.95 the premium for 20500CE fell by 145.15, suggesting a delta of -145.15/-74.95=1.94, assuming a formula of delta as change in premium/change in underlying.

So does not this prove your hypothesis wrong that delta for CE can only range between 0 to1?

I may be wrong, but I don’t know where am going astray. Could you shed some light sir?

Many thanks.

Let’s assume your theory of Delta being any number higher than 1 is true for a bit. Assume, the delta is 2. Now, underlying moves by 1 point, what does that mean? That means the option premium moves by 2 points, which essentially means the premium is moving at a higher rate than the underlying itself. Do you think this makes sense?

Also, you cannot calculate the delta with the kind of division you’ve illustrated. That does not work that way. Delta is an output from the B&S options calculator.

hi,

In the above example where one had choices between buying two Call options with delta 0.05 & 0.2 and Nifty has 100 points upwards movement. Why do you say CE with delta 0.2 is better? Wont it mean the premium is expensive?

Gautam, given that the underlying is expected to move just 100 points, the option with delta of 0.2 will react better in terms of P&L.

Dear Karthik sir,

Thank you very much for your this knowledgeable, authentic and free course. Really it’s a great initiative by you and team. I think nothing can be better than this.

Sir would you please explain about one more type of Greek rho.

Best regards

Sanjay Pandey, Bangalore.

Thanks, Sanjay, glad you liked it. I left of Rho thinking it is not of much practical use. Will try and put up something on it soon.

Thanks Karthik. just wanted understand what does the IV column in Nifty option chain signifies ?

It implies the implied volatility of the strike.

Which Value of DELTA you prefer to trade with. ?

Delta alone is not a deciding factor, so I hardly look at delta.

Very good execution Karthik sir

Happy learning!

Hi Could you please change put delta calculation senario 2 as when underlying expected to decline by 38 point means -38….. and when it will be multiplies by -.55 it would simply converted into a positive value i.e. -.55*-38 = +20.9 and you need not to state that as spot value decline we need to add it will simply add as value is positive…. and in case of positive change from current underlying value product of delta and change would be negative i.e. -.55*x = -.55x and it will simply get subtracted from current premium.

Thanks, Vikas. Looking into this.

Sir,

I did not follow your answer given to Gautam. When Delta is 0.2, Premium will be expensive. For both 0.05 and 0.2 Delta, spot price will move by 100 points, which is constant. So how option of expensive premium would be more profitable? Would be glad if you elaborate.

Sorry, but can you please share more context?

Cannot find the greek details in varsity application.i downloaded the application.

Please look for it under the options module.

Hello Karthik,

What a marvellous job you have done !

I have a query in chapter no. 9.5 Delta of a put option – In the example you have mentioned that:

Note – 8268 is a slightly ITM option, hence the delta is around -0.55 (as indicated from the table above). I think as it is a put option and strike is 8300, 8268 should be slightly OTM and Delta should be around -0.45. Kindly revert.

Regards,

Rajesh Mestry

Thanks Rajesh, hope you will continue to like the content 🙂

The spot is 8268, lower than 8300, hence 8300 PE is slightly ITM, with an intrinsic value of 32.

Thanks dear, Gochha !

I mistake, I misunderstood as 8268 as stike price hence considering 8300 as spot price. Now very well understood

Good luck!

i think there is mistake in topic of”delta for put option” example no.2

you first calculate underlyingprice-spotprice

i know why yo do this,

but in all other delta example you first calculate spotprice-underlyingprice(when option buy).

i think it create some confusion in reader’s mind.

underlyingprice-spotprice —> sure? both are the same right?

The below note in Section 9.5 seems incorrect.

–>Note – 8268 is a slightly ITM option, hence the delta is around -0.55 (as indicated from the table above).

8268 was the Spot Price. Delta should be based on Strike Price, which is 8300. Right ?

Harish, it is always in comparison to the spot price with respect to the strike.

Dear Kartik Sir,

Let’s take one example

Friday Reliance closed at 2080.30 (cash)

25.02.21 expiry PE at Strike price 1,600 (Deep OTM) premium was Rs 0.20

Today Reliance drop by Rs 50 and presently trading at 2,030 and premium dropped to Rs 0.15

This drop of 0.05 is due to time decay but my question is here delta ( say at leat at 0.05 ) did not work. I mean at 0.05 delta with price drop of Rs 50, premium should have been increase by around Rs 2.50 but that did not happen.

Does it mean, delta worked at 0 and is this because it is near expiry?

If this price drop happened 10 days before , the effects of Rs 2.50 would have worked?

Is delta and Theta have co relation?

I mean, delta drops as time decay and over the price VS delta proportion?

I will appreciate, if you answer

This is because of the expiry since we are very close to expiry, the effect of theta is much higher than the effect of any other variables (especially true of deep OTM options). FOr this put to move, the drop in price has to be significant, like 200-300 Rupee drop. In such case, delta will overtake theta.

Refer to 9.5 – Delta for a Put Option

“Note – 8268 is a slightly ITM option”

You mentioned that Strike is 8300. If so, will 8268 be slightly ITM or slightly OTM? Please clarify.

Slightly ITM.

I have a trading account with Zerodha. Please inform from which website can I get the Delta for Different strike prices for Call and Put

Please do check https://sensibull.com/, they have all metric that you are looking for, put in a very user-friendly way.

Nifty is expected to move to 8230

Expected change = 8268 – 8230

= 38

Delta = – 0.55

= -0.55*38

= -20.9

Current Premium = 128

New Premium = 128 + 20.9

= 148.9

Sir in above Ex shouldn’t we do 8230-8268

-38*-0.55=+21.9

and than 128+21.9 = 148.9

Not really, Utsav, we just take the difference in the spot change. The delta indicates the sign anyway.

Expiry day what I am doing?

How to exit?

If exit what is happening?

If not Exit what is happening?

What you will do, depends on what you want to do. To exit, you can press the exit position button on the terminal. If you don’t exit, it will be settled by the broker.

Why the delta in Put Option is between -1 and 0? While I understand the it cannot go lesser than -1, what if I take the delta say 0.55 (greater than 0)?

The calculation is as below

Nifty Spot – 8268

Expected – 8310

Expected change – 42

Delta value = 0.55*42 = 23.1

Ideally we should subtract the value from the premium as the underlying is increasing in a put option. If we do that, we get 104.9 (which was like the first case).

There’s a confusion here.

Can you please clarify?

With Puts, as the spot moves higher, you reduce the delta from the premium right?

Hey Kartik, how to login to Varsity(on a PC or through browser), do you need a Zerodha account for logging in? Also, why don’t comments work on the app? I didn’t even know that comments were an option until I started using Varsity on my PC.

Thanks a lot

No need to log in for VArsity web, you can comment without one. however, we need login for the app to ensure we maintain your progress.

Could you elaborate on

`As you can see the same 100 point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2.`

This means, based on the moneyness of the option, the premium may vary for the very same movement in the underlying.

Why would he be better off buying call Option2 is my question.

Please check my previous response. Thanks.

Hello kartik, Can I buy a call option at 9:20 Am and sell it on the same day (3:20pm)?

Yes, you can Jaydeep.

Note – 8268 is a slightly ITM option, hence the delta is around -0.55 (as indicated from the table above) : From the module

If 8300 is the strike of the PUT OPTION, then won’t 8268 be slightly OTM option?

If 8300 is the strike, and spot is 8268, then 8300 is ITM right?

Yes, it’s clear. Got confused in that bit. Thanks 🙂

Good luck, Robin. Happy learning.

Hi Karthik, I had one query. In the first example of this chapter of Nifty, 8250 CE is ATM considering Spot price 8292. So, the Delta should be around 0.5. Now, if the underlying moves to 8315, it’s a (8315-8292)=23 point upward move, so the premium should also move (144*0.5)= 72 points up, right! Whereas, the new premium is just 149.40. Why is that?

It’s middle of the month and I understand that other greeks are effecting the price too. Can you elaborate what is happening here like what other greeks are effecting the price and how? That would be a great help. Thanks.

That is true assuming only delta moves and all other greeks are constant. In reality, all greeks exert a force on the premiums which you need to factor in.

In the example given for delta of 0.05 and 0.2, I assume the call buyer will take the one with lower premium. However the example mentions that the user will buy call for costlier delta 0.2.. Could you please explain

This depends on the larger context of the market and expectations right? I’ve tried to explain this in the chapter itself.

Hello, It is mention here that value option can’t change more than value of underlying, i.e. delta value can’t be more than 1.

But on 28.05.21

change in Havells spot price is -1.7 rs ( change from 1019.8 to 1018.1)

But change in Havells jun ce 1060 is -3.35 rs( change from 27 to 23.65)

Avinash, you need to compare the delta of the option, not the absolute price change of spot and the premium.

Excellent explanation. Thx.

Hi, is it possible to cover Credit default swap in detail? It’s a request.

It is not an instrument that can be traded in India, Daksha.

Sir can u plse provide us pdf of each modules

It’s already there no?

Sir where?

How do we get excess to it??

I have found the pdf’s.

But there is no pdf for modules12 and 13

As per understanding section 9.5 correction require

Case 2: Nifty is expected to move to 8230, spot price is 8268

Expected change = 8230 – 8268 = -38

Delta = – 0.55

Premium expected to change by = -0.55*-38 = 20.9

Current Premium = 128

New Premium = 128 + 20.9 = 148.9

Checking this, btw, I think this was discussed and clarified in the comments above. Can you please check?

option 1 delta 0.05 , change in premium for every 100 points in underlying = 5

option 2 delta .2 , change in premium for every 100 points in underlying = 20

we have to pay more for buying call option 2,

why it is better to buy 2 as given in example

Which option is better depends on the market situation. If there is more time to expiry and you are bullish, then option 1. If there is not so much time to expiry and you are bulish, then maybe option 2.

I have a similar question, ” WHO DECIDES VALUE OF OPTION PREMIUMS? which came into my mind when I read this” Who decides the value of the Delta?”

Rishabh, these are all market-driven. Its collectively driven by the market. Very similar to vegetable prices. For example who decides the prices of onions? Its market-driven right?

Sir where can i get delta, iv, theta of an option strike price

Pinaki Nandy

Please do check the Sensibull site for this.

Hi Karthik

Well explained. This so much for your efforts

Happy learning!

😂😂I was reading so deeply when I red keytakways from this i was like 😔ohhhh this end here

We’ll take that as a compliment 🙂

How you came up with delta 0.55 in the example of Nifty you gave ? how to find that or calculate that ?

I’ve explained how delta varies based on the moneyness of the option. Request you to kindly check that. Thanks.

sir so can we conclude that buying an deep itm option is better than buying future (considering intraday), even i will need less amount to get equal benefit. and even the loss will be same in both the scenario.

Not always true, very dependent on the market and its context 🙂

* Call Option 1 has a delta of 0.05

* Call Option 2 has a delta of 0.2

Now the question is, which option will you buy?

* Change in underlying = 100 points

– Call option 1 Delta = 0.05

Change in premium for call option 1 = 100 * 0.05 = 5

– Call option 2 Delta = 0.2

Change in premium for call option 2 = 100 * 0.2 = 20

Could you please explain how option 2 is better?

Prerana, the decision to buy or sell an option should not be dependent on the delta, rather should be dependent on what you expect from the market.

Thanks for sharing valuable information sir

Good luck, Anil. Happy learning 🙂

Best explanation #tradingwithbooks

Happy reading!

where can we see the Delta value of option of a underlying stock

I’d suggest you look at Sensibull website for this.

Hello nikhil, I wanted to know that how can we know (Volatility% and interest%) when we calculating Delta value by using B&S calculator

FOr volatility, you can consider the implied volatility of the index.

Hello Nikhil,

First of all thank you for such useful contents to understand options. I have query on the following sample scenario (in quotes below) discussed under the heading “Delta for call option”.

“For example assume you expect a massive 100 point up move on Nifty, and based on this expectation you decide to buy an option. There are two Call options and you need to decide which one to buy.

Call Option 1 has a delta of 0.05

Call Option 2 has a delta of 0.2

Now the question is, which option will you buy?

Let us do some math to answer this –

Change in underlying = 100 points

Call option 1 Delta = 0.05

Change in premium for call option 1 = 100 * 0.05 = 5

Call option 2 Delta = 0.2

Change in premium for call option 2 = 100 * 0.2= 20″

As you can see the same 100 point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2.”

Since the payoff for call option buyer is max (0, spot – strike) – premium, wouldn’t it be helpful for the trader to opt for low change in premium (i.e. 5) as premium reduces the payoff overall? Please help on this as I have hit a roadblock here.

Premium once paid is a constant. But the larger the ‘Spot-strike’, the bigger the payoff right?

Hi Karthik,

I have a query. Here is the example you mentioned.

Nifty @ 10:55 AM is at 8288

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = + 0.55

Nifty @ 3:15 PM is expected to reach 8310

and then calculated the new premium as 133 + (8310-8288)*0.55 = 145.1

What this means is that @10:55AM, the nifty spot price is 8288 and to buy the 8250 Call option, one has to pay 133 rupees as premium so that at the end of contract expiry, buyer can get nifty at 8250 rupees irrespective of spot price of nifty in market.

If suppose, the nifty spot price increased by 300 points by @3:00PM

Nifty spot price: 8288 + 300 => 8588

New Premium: 133 + 300*0.55 => 298

So now, to purchase nifty at the end of contract at 8250 rupees, one has to pay 298 rupees of premium. If you see here, current spot price (8588) > new premimum (298) + strike price (8250).

Is it possible to have this type of situation in market where the current spot price is greater than premium + strike price?

If yes, then won’t the buyer have higher chance of getting profits? He makes profit if nifty stays at same price (or) moves up.

which is a contradiction to what we learned in call options theory where seller have more chance of getting profits than the buyer.

I know these numbers are used as an example, but point that I want to ask is “Is it possible in market where the current spot price is greater than premimum + strike price”?

Thanks,

Anil

Yes, its very possible for the spot to be higher than strike + premium. But remember, there is also a time component that keeps eating away the premium with the passage of time, so all else equal the premium will come down.

I’d suggest you take a look at the option chain to see how the premiums are behaving wrt to spot price, you will understand this better.

hello sir,

in the above example of put option you have said

Note – 8268 is a slightly ITM option, hence the delta is around -0.55 (as indicated from the table above).

but in the table its written that , Slightly ITM Between + 0.6 to + 1(CE) Between – 0.6 to – 1(PE)

Then according to the table it should be ATM option.

Anything above 0.55 is assumed to be ITM, Yakshdeep.

Sir u tell me that, if I have deep otm option and it became atm on the same day then delta value of my option will be remaining same or it will change? If it will change than how we can calculate?

It will change, Sandeep. Delta will be close to 0.5 for ATM options.

Hi Karthik, How the expected premium is calculated for option writers? As we know CALL option writer delta will be negative. When underlying increases the CALL premium should increase but in math calculation it is not. How exactly do we need to calculate?

Values

Current Underlying Price @ 100

CALL Option Premium = 5

Delta of the option = + 0.50

Assuming Underlying Price will rise to 108

CALL Option Buyer

Change in Underlying = 108-100 = +8 Points

Change in Premium = 8*(+0.5) = 4

New Premium = 5+4 = 9

CALL Option Seller

Change in Underlying = 108-100 = +8 Points

Change in Premium = 8*(-0.5) = -4

CALL Option seller Delta value taken as negative (-0.5)

New Premium = 5-4 = 1 ???

Can you help me??

The premium remains the same for both buyers and sellers, so does the delta. The position sign changes though, its + for long and -ve for option writers/sellers.

Thanks for the quick response Karthik

1. in this case the New Premium will be = 5-(-4) = 9 right?

2. I’ve another question same was asked in tradingqna

As the option moves out of the money (OTM) the delta will start reducing

so the rate of Delta wont be 0.5 % throughout

Yet it is an interesting question

Lets take a real example – say ITC (Share value at Rs 227 at the end of the trading session on 24th Nov 2021)

And the premium value of the ATM Put Option (with Strike Price of Rs 227) is Rs 1.15

What if the value of ITC share price increases by Rs 20 in the first five minutes of trade the next day , then what happens to the value of the Put option ?

Even if Delta value falls rapidly, say it becomes 0.02 by the time ITC share price reaches 247 and the average change in Delta is 0.25, that would still mean that it would reduce the Option price by Rs 20 X 0.25 (Average Delta) – which is Rs 5 .

So the new value of the Put Option should be

Rs 1.15 – Rs 5 = (-) Rs 3.85

But we cant have Premium values in the negative

So what am I missing ?

What exactly happens ?

Thanks

Option premium cannot be -ve, it’s capped to zero. In this case, the premium will rapidly decline very close to 0.

Sir can you please explain why the value of a Put Option can never go above 0? I am unable to calculate it myself.

Options don’t have -ve value, neither calls or Puts.

Sir , option premium is the same for option seller as well as the seller buyer , so why do we add the new premium in one case and subtract in the other case. For instance if there is a call option , the premium would be the same for buyer as well as writer , so why the delta is positive in case of buyers and negative in case of writers?

Sanvi, yes the premium is the same, but the sign difference is to indicate the directional difference. +ve indicate long position, -ve for short position.

Sir Namaste,

I couldn’t understand the very first para of the module. How 0.55 came the Delta? I am a late student of varsity.

Ramesh, if the option is ATM, then the delta will be around 0.55.

Hi Karthik

I think in the second example of Put option premium change you have deducted spot value minus current value while it should’ve been the other way round as in the first option the difference multiplied by a negative delta value gives reduction in premium and a negative reduction in spot value multiplied by a negative delta will give a positive change in premium of put option because a reduction in spot increases the premium of put option.

Let me recheck this, Ansul.

Greeks

Hi karthik,

One doubt, please refer section 9.3 example for call option Delta

@9.15am spot price 8288

I am @3.15pm expecting nifty at 8000

So

8000-8288=-288

=-288*0.55

=-158.4

So premium 133-158.4=-25.4

Premium is minus 25.4.

I am expecting @3.15pm nifty at 8093

So 8093-8288= -195

=-195*.55

=-107.25

So premium 133-107.25=25.75

Here premium is +25.75

In these two nifty , premium value is same but in negative and positive sign.. how to calculate… Pls help..

Premium cannot go -ve, it will be a non-zero positive number. Since the intrinsic value is near zero, whatever value remains is due to the time value only.

Below statement is wrong. Please correct:

Case 2: Nifty is expected to move to 8230

Expected change = 8268 – 8230

= 38

Delta = – 0.55

= -0.55*38

= -20.9

Current Premium = 128

New Premium = 128 + 20.9

= 148.9

——————————-

It should be as below:

Expected change = 8230 – 8268

= -38

Delta = – 0.55

= -0.55*-38

= +20.9

Current Premium = 128

New Premium = 128 + 20.9

= 148.9

Yup, Praveen. Idea was to illustrate the fact that PUTS gains premium when the spot price decreases.

How do we get the entry and exit?

Chitra, you can look at TA for identifying entry and exits.

Karthik Sir, did you left discussion RHO intentionally or by mistake sir?

Intentionally Muthu, Rho is not actively used, so took the liberty to skip it.

Hello sir

I have one simple question as you mentioned earlier that we get full IV on exercising our right on expiry. Sir if we are sure about upcoming trend like if am sure that XYZ option will close many points up on expiry than I would exercise my right on expiry and will not bother about to trade premiums . Then sir would i still worry about all option greaks if I will only exercise my right and can wait for expiry and is there any sense that i am seeing all these option greaks if were to only exercise right and not to trade premiums.

For this to play out, you need to be 100% sure about the directional move of the stock. Which in my experience is very tough to estimate 🙂

I understood very well in quick

Thank you so much ZERODHA

Happy learning, Rohit!

Sir I have a queries….

If I buy call option 17000 today with expiry date 17th March that is last week of a month, then can I exercise my contact tomorrow or next week? Or should I have to wait for the last week of that month that is 17th March expiry…

Please sir clear my doubts, it’s really very confusing for me.

YOu can sell the position anytime you wish, but exercise is only on the expiry day.

So there is difference between selling and exercising one’s position?

Yes, there is. You can sq off your position anytime you wish, but exercising is only on the expiry day.

Thank you sir… 😊

Hoping I can clear all my doubts in coming days if a mentor is like you..!!!

Have a great day ahead sir🙏

Happy learning!

Case 2: Nifty is expected to move to 8230

Expected change = 8268 – 8230

= 38

Delta = – 0.55

= -0.55*38

= -20.9

Current Premium = 128

New Premium = 128 + 20.9

= 148.9

Here I’m adding the value of delta since I know that the value of a Put option gains when the underlying value decreases.

shouldn’t this be

Expected change = 8230 – 8268

= -38

Delta = – 0.55

= -0.55 * -38 (- – = +)

= 20.9

Current Premium = 128

New Premium = 128 + 20.9

= 148.9

The above explanation is confusing, it coveys that even if the result of delta is negative we are required to senselessly add it to current premium to get the new premium…

Hey Nathan, I agree with you and few others who have pointed this out (please see the comments). The idea was to emphasize how the deltas add up and subtract out wrt to the movement in spot.

I feel the reason for delta value of Call not to be below 0 would have been explained better by using -88 (8200-8288) as the difference in the drop in value of underlying. In which case delta of -0.2 and the change in price would be -88 would give a change in premium of +17.6. hence the premium would keep rising even when the underlying is dropping which cannot be the case for Calls.

I am new to derivatives and still learning. So pls excuse me if I am wrong. Logically I felt this would serve a better explanation while working it out for my better understanding.

Perhaps, and I need to check that again. But the idea of explaining it this way is to ensure that the concept of delta increase/decrease with the change in market direction is clear. Let me re-look at this.

In your example “what if one anticipates a drop in Nifty? What will happen to the premium?” you have shown the decline in NIFTY to be -88.

However, in your example “Delta lesser than 0 for a call option” when the decline in NIFTY is 88, you have shown the figure as 88. So when the stock declines, do we take the difference as negative or take the absolute value?

Another student brought this up and your response which I did not understand was

Thats because the delta is lower bound to 0…it cannot go lesser than 0. If it was lesser than 0, it means the option is moving faster than the underlying, which is counter intuitive.

In summary, if the stock declines by 88, do we use +88 or -88

Kalika, you will have to use -88.

Hi,

How frequently Value of the Delta changes? The Value of Delta is counted same for all the strike prices while calculating even of Deep OTM Options

Delta changes as and when the value of the underlying value changes, so it is on a continuous basis.

Hello sir,

For the call option delta case where the delta can not be less than 0, the following was the scenario mentioned.

Scenario 2: Delta lesser than 0 for a call option

Nifty @ 10:55 AM at 8288

Option Strike = 8300 Call Option

Premium = 9

Delta of the option = – 0.2 (have purposely changed the value to below 0, hence negative delta)

Nifty @ 3:15 PM is expected to reach 8200

What is the likely premium value at 3:15 PM?

Change in Nifty = 88 points (8288 -8200)

Therefore the change in premium (considering the delta is -0.2)

= -0.2*88

= -17.6

For a moment we will assume this is true, therefore new premium will be

= -17.6 + 9

= – 8.6

But, shouldnt the change in premium value be = -0.2*(8200-8288) = +17.6 ?

I am not able to understand clearly from the comments part for this query.

I’m taking the absolute change in Nifty here, Parth. The directional movement is captured by the delta sign.

How is it seen , the call option premium increases with the increase in the spot value and vice versa ? Pls explain

Hmm, I’ve explained this right in the first chapter Mayank. Request you to read that again. Thanks.

sir in the above section 9.5 delta for a put option

the value 8268 can be slightly OTM because in the put side of option chain the 8268 will be in the white section not in the pale yellow section.

please explain

thanks

regards

Yes, it is slightly OTM, Yash.

How is the value of delta for different strikes derived?

It is based on the Black & Scholes model.

In 9.3 – Delta for a Call Option , you have written ” As you can see the same 100 point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2. ” Why would trader choose call option 2? Can someone please explain?

Recently i bought axis bank 850 CE option…My Question is Today Morning (28-Apr-22) axisbank opened at 776.90 same 850Call option opened at 9.20 later axis bank share price went to 785 but option call is not moved that much…bit option contract price should be moved above 9.20

Can anyone clarify?

That’s because today was expiry and therefore zero time value. Hence the option won’t move much unless the stock itself moves closer to the strike.

Karthik Rangappa says:

May 28, 2015 at 9:15 am

You are absolutely right – when it comes to option trading you should be using Option Greeks and other parameters to trade and not really Technical Analysis.

Here,we can say that look first at greeks and then consider TA. For example, we choose a proper strike say for CE and we expect Nifty to move up. Now we look at TA and find out that the candle formed is bearish; we further look at other indicators,EMA,RSI,MACD,BB and conclude that instead of moving up,Nifty may come down.

There must be a correlation between greeks and TA indicators. Please enlighten us.

Regards. ETU737

Yes, but like you mentioned take your cues, especially for designing the trade from Greeks and maybe use TA to time our entry and exit.

Right!😊

Happy learning!

i think in the below sentence that’s written, 8300 should have been mentioned as it is the strike price.

8268 is the spot price right in that example right?

Note – 8268 is a slightly ITM option, hence the delta is around -0.55 (as indicated from the table above).

Ah, yes. Let me try and fix it.

Hi …

Regarding the explanation for why Delta cant be negative, I felt the more logical explanation could be that the direction of change of premium cant be in the opposite to the direction of change of underlying. Please correct me if I am wrong

Thats also true, Chandana.

Here we see delta is between +1 to -1 is in rs or in decimal?

I mean is Greeks are in rs or in decimal?

They are considered in units, usually translating to Rupees. For example, if the delta of a call is 0.45, for every 1 point (or Rupees) change in underlying, the delta is expected to by 0.45 points (or Rupees).

TODAY IS Wednesday,

Today’s bank nifty CMP: 35000

A) I bought a bank nifty call option strike price of 34900 (ITM)which going to expire tomorrow

If I failed to square off that what will happen

B)I SOLD A BANK NIFTY OF CALL OPTION OF A STRIKE PRICE OF 40000(OTM) WHICH GOING TO EXPIRE ON TOMORROW

If I failed to square off what will happen

How many days I can hold the short selling position of the option contract

On Thursday evening bank nifty CMP is 35600

On Thursday evening, what will happen to OTM & ATM contract

1) It will be settled by the broker

2) Same as above, provided its ITM

YOu can hold the short to expiry.

Hi

You mentioned that delta can not be more than one as the option can not gain more value than the underlying itself. But if we see real trading cases, when some stocks trades at 10% sometimes their derivatives trade more than 50%, specially OTM contracts. (I am just giving an example here). In that case options price moves faster than the underlying.

Yeah, thats possible. I’ve explained this case as well where the option strikes especially OTMs have a higher % change and this is because of the delta acceleration part (refer to the delta curve). That said, if you look at these options purely from delta perspective, then you will realize that the delta cannot move beyond the upper and lower bound.

Where can I find option geeks ?

Try Sensibull.

Sir Can you please give an example with Explantion that in case of Put Option Why Delta cannot be above 0.?

For the same reason why PE and CE are upper and lower bound.

Hey kartik, In delta for a put option strike price written as 8300 and spot price as 8268 then it should be slightly out of the money option ?

8300 PE strike is ITM if spot 8268 right?

Superb learning.

One of my Mentor and GooD Motivating friend Guru told me about this.

This theory is fantastic.

Thanks Guru Bhai Thanks Team Zerodha.

Happy learning 🙂

Hi Karthik ,

I am confused when you calculate DELTA FOR A PUT OPTION in Scenario –

1. Subtract the SPOT VALUE (8268) from EXPECTED NIFTY VALUE (8310)

So, 8310 – 8268 = 42

But in Scenario –

2. Subtract the EXPECTED NIFTY VALUE (8230) from SPOT VALUE (8268)

Like, 8268 – 8230 = 38

But as I learned in previous chapter that PUT OPTION = STRIKE PRICE – SPOT PRICE. This is little confusing to me . Please help me to understand the difference.

Strike Price – Spot price, if its a positive number, is the put option’s intrinsic value. I’m not sure about the delta value thing you are talking about. Can you share more context?

Hi Karthik,

First of all thanks for the reply.

My question is when I calculate the delta value that time I am confused when you calculate DELTA FOR A PUT OPTION in Scenario –

1. Subtract the SPOT VALUE (8268) from EXPECTED NIFTY VALUE (8310)

So, 8310 – 8268 = 42

But in Scenario –

2. Subtract the EXPECTED NIFTY VALUE (8230) from SPOT VALUE (8268)

Like, 8268 – 8230 = 38

But as I learned in previous chapter that PUT OPTION = STRIKE PRICE – SPOT PRICE. This is little confusing to me . Please help me to understand the difference.

The expected nifty value is replacing the sport price on expiry. SO here you are trying to figure out what will be the intrinsic value if Nifty on expiry is at a certain value. That certain value is called ‘expected value’.

In 9.5 delta for put option case 2:

Below correction required pls check

Expected change = 8230 -8268

= -38

Delta = – 0.55

= -0.55*-38

= 20.9

Than only new premium will be

128+20.9 = 148.9

There are a few comments regarding this, Holas. Please do check that for clarity.

BEAUTIFULLY AND INFORMATIVE EXPLAINED. THANK YOU SIR

Glad you liked it, happy learning 🙂

Hi Karthik,

Thank you for Varsity and all the educational contents.

In section “9.5 – Delta for a Put Option”, in the note below the table it is mentioned that “8268 is a slightly ITM option”, shouldn’t it be “8300 is a slightly ITM option” as it is the strike value and in the money put option with respect to the spot value of 8268.

Ah yes, I guess 8300 is the strike under consideration.

Sir at the end of the day, option premiums move according to demand/supply, and greeks are tools with which we can better analyse/forecast them.

Is my understanding correct?

Also sir as you said “Option Greeks are forces that influence the premium of an option”, is this like a cause effect thing ; i mean do greeks “control” premium or rather greeks get their values from the premium’s movement?

Thank you for providing us with such lucid learning material…

Absolutely, Yash. Thats the way it works 🙂

strike price = 8500 PE and spot Price is 8550 and premium value is 100, ith delta value of – 0.55. Suppose if price increased from 8550 to 8750, then there is 200 points increase in underlying, this ill result in 110 points decrease in premium right? which attributes to premium value to ZERO(100-110 pts= -10 = 0),so now the premium value will be zero. but if the spot price falls from 8750 to 8510(240),with delta value = 0.55, premium change is 132, so does this means that the new premium value will be 132, or it should stay at zero itself?

These are approximate values. Remember, the premium is a function of both delta (intrinsic value) and time value.

hlo sir

my question is Case 2: Nifty is expected to move to 8230 and spot is 8268 can we subtract like this 8230-8268 = -38

then delta = -0.55*(-38) = +20.9

now the new premium is 128+20.9 = 148.9

is this right ?

Yup, it is.

Hi, when we buy 1 CE (Delta-0.6) and PE (Delta -0.4) of same strike it becomes Delta 1 (0.6-(-0.4)=1). Pl confirm if the same concept is applied in below situations is ok –

1. Buy 1 CE (0.6), Write 1 PE (-0.4)= 0.6+(-0.4)= 0.2

2. Write 1 CE (0.6), Buy 1 PE (-0.4)= -0.6-(-0.4)= -0.2

3. Write 1 CE (0.6), Write 1 PE (-0.4)= -0.6+(-0.4)= -1.0

This is the correct way to add up the deltas, Rahul.

one of the best teacher i have ever come across. Happy teacher’s day sir…

I am a new bee here…my doubt is…

sir when the strike price 18300CE LONG spot price is below the strike price if the market move above the strike price we will be in profit right?

sir what if we chose 18300CE long when already spot price is above the strike price how do we profit how it works sir pls explain.

Yes Arpitha. The call option will be profitable if the spot is above the strike. If you choose, a strike that is already above the strike (also called ITM), then premium you’d pay would be very high. For you to profit, the spot price has to move even higher.

sir, I have doubts..my doubt is regarding Rahul Chaudhary saying:

related to adding deltas; if there any formulas to add up deltas …. how it works sir pls explain to me …

Rahul Chaudhary says:

November 11, 2022 at 9:44 am

Hi, when we buy 1 CE (Delta-0.6) and PE (Delta -0.4) of the same strike it becomes Delta 1 (0.6-(-0.4)=1). Pl confirm if the same concept applied in the below situations is ok –

1. Buy 1 CE (0.6), Write 1 PE (-0.4)= 0.6+(-0.4)= 0.2

2. Write 1 CE (0.6), Buy 1 PE (-0.4)= -0.6-(-0.4)= -0.2

3. Write 1 CE (0.6), Write 1 PE (-0.4)= -0.6+(-0.4)= -1.0

Here is an easy way to remember this –

1) Calls and +ve delta to indicate that the strike gains value with an increase in spot

2) Puts have a -ve delta to indicate that the strike loses value with an increase in spot

When adding delta –

Long CE = +(+Delta)

Short CE = -(+Delta)

Long PE = +(-Delta)

SHort PE = -(-Delta)

So Write CE (0.6) and Buy PE (-0.4)

= 0.6 +(-0.4)

=0.6-0.4

=0.2

Thats how you can add the deltas.

How option prices are influenced by option greeks? When we buy a call / put option, a buyer and seller needs to agree on the price right ? How the prices are influenced by greeks when the price needs to be matched b/w seller and buyer?

The price you buy and sell at is decided by how prices move, time to expiry, and volatility. These are essentially captured by the greeks, and that’s how the option premiums are decided.

Hello Karthik sir,

How are you? I have a doubt.. I have this situation.

Nifty spot = 8600 (let’s assume for the sake of example). I expect it to become 8500 and took a put option.

Premium = 70. Delta = -0.5. I want to calculate how much premium will become when Nifty becomes 8500.

Here’s how I calculate..

Expected change in spot = 100.

Change in the premium will be 100*-0.5 = -50.

Now since this is a put option, premium will increase when underlying goes down. (other factors being same).

So my premium will become 70 + (-50) = 20. Whereas the premium should become 70+50 = 120.

This is where I am wondering where I went wrong. Kindly correct me.

Sandeep, you can consider the change in spot as -100. So, -100*(-)0.5 = 50.

Ok sir thanks for your answer.

Happy learning 🙂

Hii kartik

I need to know that as you have told earlier that if delta of a call option is .2 it means there’s only 20%chances that this option will expire ITM.

So if we formulate a selling strategy based on that view how can we succeed in our strategy if there’s a change in underlying and it becomes a otm due a sharp rise/fall in the market.

How can we save ourselves in that situation.

The odds of the position moving against you is only 20%, but if you are selling, you want the position to go OTM right?

”’As you can see the same 100 point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2. ”’

Why is this?

is not paying lesser premium better?

Yeah, but you also need to worry about the probability of the option moving in your favor after buying right?

“In this case clearly the trader would be better off buying Call Option 2” – Can you explain this little more, i believe in the option 2 the premium will increase by 20 for the buyer so it is better to buy call option 1 right? in which option premium will increase only by 5 ?

Also at the time 3:15 if the NIFTY closes at 8310 in the very first example according to the delta of +0.55 it increases the premium to 145.1, if i decide to come out of the contract do i have to pay the difference in the premium (145.1-133(original premium)) ? Please help to elaborate

Can you check the previous comments, I remember discussing this in detail.

No compalints about the article but how can you forget the brilliant acting of Irrfan in the intro.

Of course 🙂 I should have mentioned that as well.

Hello Sir. Please would you kindly explain what do you mean by deep ITM and Slight ITM.

Ritu, please check the earlier chapter on moneyness of options. Have explained this there.

9.5 – Delta for a Put Option

Note – 8268 is a slightly ITM option, hence the delta is around -0.55 (as indicated from the table above).

I think number 8268 above is wrong here, instead it should be 8300 because in table we have strike as 8300 and spot price is 8268 so 8300 can be considered as slightly ITM option.

please correct me if I am wrong.

Ah, need to check. In general, if the spot is below the strike, then the option is considered ITM for puts.

Hi Karthik,

Its really very interesting going through the chapters, Kudos to you for bringing us these wonderful training material and that too at no additional cost. God bless you for being the person you are.

I posted another query in Moneyness chapter, please ignore it if you haven’t gone through it, I felt it is not a question you can spend your precious time on, and I didn’t find a way to delete that question.

However, I have a question in this chapter 😅.

Delta is an option Greek that captures the effect of the direction of the market. So wanted to understand how the different movements of price within this direction effect the strike Price.

I didn’t know if I put my question as I wanted to convey, so explained my question below a bit longer so that you understand what I am trying to ask. Please pardon my writing communication skills, I wish there is a feature for audio comments 😀

In the first example of this chapter:

At 09:18am, Nifty Spot = 8292, Strike = 8250, Premium = 144

At 10:00am, Nifty moved to = 8315, Premium now trading at = 150

My doubt here is, I do not know how (pattern) the Nifty moved between 09:18am to 10:00am before it ended at 8315 at 10:00am, would have the premium moved to same Rs.150, irrespective of how the movement was in this 1 hour?

Like, if in this time 09:18am to 10:00am:

1) Nifty has slowly moved up, without any much down fall and finally ended at 8315 (or)

2) Nifty drastically fell to 8100 and then suddenly moved up to 8315 by 10:00am (or)

3) Nifty surged up to 8400 and then fell to 8315 by 10:00am

4) Nifty moved sideways and then right at 10:00am moved to 8315

Nifty would have behaved in many ways in that 1 hour before coming to 8315, will in either of the above cases the premium would have been Rs.150 at 10:00am?

Another query, if I may ask:

I went through the comments and understood that Delta values are not available real time and we would need an options calculator, but, when we are doing live trading and we do not see Delta values in Real time, isn’t it difficult to trade in options? as we have to go somewhere else to calculate the delta and by that time, the numbers would have changed. Can you help us how to tackle such things.

Can I ask how you work on with Greeks when live trading in Options when markets are open?

Is there any platform that offers live delta values?

Thank you for taking the stress to go trough my loooong query.

Thanks for the kind words, Sai. I may have answered your previous question also 🙂

You are right. Nifty can move between two values in multiple ways. In this explanation, I’m only considering two end point values here and calculating the change in delta, this is mainly to explain the concept of how delta changes.. In reality, delta and, therefore the premiums change continuously. So if nifty shoots up and comes back to a certain value, so would the premium. But then it can also get a little complex, as the change in delta is also ascribed to other greek changes. For instance, if volatility increases, so would the premium. With expiry close, the theta delcay is higher.

So the way to look at greeks is to get a holistic view and not isolate the greeks and evaluate its impact on silo’d basis. Hope this helps 🙂

Rangappa sir,

Slightly ITM Between + 0.6 to + 1 Between – 0.6 to – 1 confused with this.

is it Slightly ITM Between + 0.6 to + 8 Between – 0.6 to – 8?

These are just reference delta values based on the moneyness of the option, Shashwath.

Hey Karthik, I hope you are doing well.

(9.3)

For example assume you expect a massive 100 point up move on Nifty, and based on this expectation you decide to buy an option. There are two Call options and you need to decide which one to buy.

Call Option 1 has a delta of 0.05

Call Option 2 has a delta of 0.2

Now the question is, which option will you buy?

Let us do some math to answer this –

Change in underlying = 100 points

Call option 1 Delta = 0.05

Change in premium for call option 1 = 100 * 0.05

= 5

Call option 2 Delta = 0.2

Change in premium for call option 2 = 100 * 0.2

= 20

Why 2nd option is suitable for a call buyer? It makes sense for me to buy a call for a lower premium right? How does probability plan in this?

Thank you 🙂

From an absolute change in premium perspective, option 2 makes sense. But if the expected move is significant and there is enough time to expiry, then maybe you should consider the first option 🙂

Enjoyed

Happy learning!

Thank you sir for explaining.

I request you to please elaborate on up delta ,Down delta, delta contraction

Abhijith, I’ve explained all that’s there to Delta in this and the next few chapters 🙂

At least, the ones that i think are important to know about.

In the ‘Delta for a Put Option’, table values for Spot & Strike might have got interchanged which is somehow causing the confusion in the explanation below regarding the delta calculation.

Just wanted to highlight as how 8268 would be ITM for 2300 considering PUT options?

In this example, spot is 8300, so 8268, which is close to the spot becomes ITM, right?

Correction: Just wanted to highlight as how 8268 would be ITM for 8300 considering PUT options?

Its actually both ATM and ITM, given that it a strike which is so close to spot. But more ITM than ATM 🙂

When I buy the call option where the delta was 0.65 (2 lots *50)=0.65*100 => 65

But unfortunately market goes down , on the second day

When I see the same strike price now the new delta is 0.27 which means for 100 is equal to 27 premium.

Now my doubt is which delta will be applied to me 65 or 27?

If 27 why

Because I buy the option with delta 65 means its the contract while buying the strike .

(I’m not buying on the second day I’m just going through delta values by holding my option)

You must always take the current delta value to estimate the overall delta.

Hi Karthik,

In case 2 of the put option, the expected change should be -38 (8230 – 8268). And therefore the change in premium should automatically be +20.9 (-0.55 * -38). This way, one does not have to remember when to add and when to substract the change in premium. You followed the same method when explaining the call option, but not sure why not for the put option.

Checking on this, Vishal.

is all chapter in hindi avalabile sir

Yes, click on Hindi module.

I never imagined I could understand Delta so easily. Have been super intimidated by options. Thanks a ton for simplifying!

Happy learning, Anaida!

Splendid..

Instead having moderate knowledge of Greek,this article has given so much insight about Greeks

Glad you liked it Ramendra. Happy learning 🙂

Hello Karthik Rangappa,

since i started my trading journey i was really confuse about call and put option premium.. in face, i didn’t know what is premium then i started finding about premium and greeks. Today i reached this page and everything is crystal clear about how to what to trade and when to trade according to Delta..

I want one more favor from you. Where can i find live greek chart of call options or anything like that.

Thank you so much…

Happy to note that Ashish. For live greek, you can check the Sensibull platform.

Hey Karthik,

Slightly ITM Between + 0.6 to + 1 Between – 0.6 to – 1

This should be

Slightly ITM Between + 0.6 to + 0.8 Between – 0.6 to – 0.8

Right?

The idea was to say its closer to 1 🙂

Hi thank you so much for your lesson on delta, I have one question, For simplicity i will assume nifty as 100, so spot price currently of nifty is 100, at 9:15, Nifty was trading at 90, the value of call option is 2, I am expecting an upward trend and i buy a call option but at 3:15, there was no movement at all, assuming, but at 3:15 despite nifty being at 90 the value of call option dips to 1.5, I have noticed this quite a few times, and this isnt the expiry day… can u help me with this

This is because the option premium is a function of factors including delta and theta. While one force tends to increase the value of the premium, others kind of drag it down. So you need to look at it in totality 🙂

Thank you so much sir, concepts are very well explained.

Happy learning 🙂

Thank you for the beautiful explanation.

Happy learning, Devang!

Rs 5 is premium that you booked as a profit

Thanks Sir

For explaining the delta in such a simple way.

Happy learning, Manoj!

Hello sir, if I may ask a question

Suppose I think Bnf will go down till 42500 today (just for example )and rise from there. And I want to buy at the money call option when the prices go to 42500. Now how can calculate what the premium will be for that strike price when the price goes to 42500 so that I can place a limit order for what the premium would be when bnf hits 42500?

Earlier I used the option calculator in sensibull but they have discontinued that.

That will be hard as the premium value is not just dependent on the price movement, but also on time and volatility. But over time, you will know the approximate value at which these options will trade, so you can use your experience to arrive at that 🙂

i intend to learn DELTA AND OTHER FACTORS IMPACTING option INDEX (NIFTY) premium. Regards

We have discussed quite a few details here, Bina. Request you to go through the same.

ITM has highest delta is a fact, but slots of ITM are also expensive wrt to OTM. What’s the best option to trade if I have limited capital of say ₹1,00,000, then what should i prefer, ITM or OTM.

There is no straightforward answer to this, Aayush. It really depends on many other factors – time to expiry, volatility, speed at which the market is moving etc.

Please advise on US Stock, where and when should i invest? I am originally from Nepal and been in US for work.

What are the stocks where i should invest, NASDAQ or S&P 500 ?

I think both these are good options – S&P 500 and NASDAQ. You can invest in ETFs directly, check with your broker for that.

PLEASE DO CORRECTION AT CHAPTOR 9.5 CASE 2 NIFTY EXPACTED TO MOVE 8230

AS PER YOUR

EXPACTED CHANGE=8268-8230 CORRECTION SHOULD BE =8230-8268

=38 =(-)38

DELTA =(-)0.55 DELTA =(-)0.55

PRICE CHANGE =38*(-)0.55 PRICE CHANGE =(-)38*(-)0.55

=(-)20.9 =20.9

Sure, checking this.

VERY SIMPLE LANGUAGE IN EXPLAIN AND UNDESATAND DELTA GREEK TOPIC.

Happy learning 🙂

I am a bit confuse. I watched the videos carefully still premium dint rise till the estimated value as per Delta. I calculated both strike n spot price still there was huge difference between the premium. Can you guide me?

The premium is not just a function of delta, it has other factors impacting too. Hence the difference 🙂

Hello Kartik,

Is there any merit in conducting technical analysis on a strike price chart, considering that option premiums are primarily influenced by options Greeks rather than supply and demand?”

I’d not suggest that, rather look at the spot price and analyse that.