13.1 – My experience with Option Pain theory

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

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

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

So, let’s get started.

13.2 – Max Pain Theory

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

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

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

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

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

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

M6-Ch13-Cartoon

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

13.3 – Max Pain Calculation

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

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

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

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

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

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

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

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

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

Scenario 1 – Assume markets expires at 7700

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

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

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

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

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

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

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

7700 PE writers will not lose any money.

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

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

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

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

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

Scenario 2 – Assume markets expires at 7800

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

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

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

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

The 7700 and 7800 PE seller wouldn’t lose money

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

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

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

= 182340000 + 255937500

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

Scenario 3 – Assume markets expires at 7900

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

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

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

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

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

7900 CE writers would retain the premiums received.

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

So therefore the combined loss of option writers would be –

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

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

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

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

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

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

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

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

Image 1_comuputation

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

Image 2_max pain

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

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

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

13.4 – A Few Modifications

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

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

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

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

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

You can download the Option Pain computation excel.

13.5 – The Put Call Ratio

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

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

Image 3_PCR

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

37016925 / 42874200 = 0.863385

The interpretation is as follows –

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

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

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

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

13.6 – Final thoughts

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

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

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

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

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

Good luck and stay profitable!


Key takeaways from this chapter

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



1,058 comments

  1. nishu says:

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

    • Karthik Rangappa says:

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

      • Guruprasad V says:

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

        • Karthik Rangappa says:

          We are working on it Guru 🙂

          • Ravindra Thakur says:

            Sir I am trying to make the Max Option Chart on Excel sheet but the calculation of Cumulative Call & Put, I am not able to find it’s formula.
            Could you please help me with it…..?

          • Karthik Rangappa says:

            Have you looked at the excel sheet which I’ve uploaded? I guess it has all the details you need.

          • Ravindra Thakur says:

            Sir, I have gone through the excel sheet, And on the cumulative call on 18th columns, the formula starts extending to =R18*B2+R17*B3+R16*B4+R15*B5+R14*B6+R13*B7+R12*B8+R11*B9+R10*B10+R9*B11+R8*B12+R7*B13+R6*B14+R5*B15+R4*B16+B17*R3.
            And the data I have made for strike is exact up to 44 Strikes for analysis purpose so as the strike extents the above calculation becomes complicated, as well as one minor error, could lead to completely wrong data
            That’s the reason I am asking you for the solution / formula

          • Karthik Rangappa says:

            Ah, I get your point. It does complicated with too many sum product kind of calculations. Here is what I think you can do – try and break up the calculations into smaller bits leading to the main formula. When you do this, the chances of going wrong is also lower.

      • kiran says:

        sir,

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

      • Pramod Kumar says:

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

      • Kumar N KristeR says:

        Dear sir, I’m looking for FUTURES STRATEGIES, please upload as soon as possible.

        Thank for everything, Really it was awsome journey from Module 1 to Model 6.

    • Mihir patel says:

      Bhai, you can use Google translate..

      Gujarati: bhai, tame google translate use kari sako 6o for translation ( bhashantar)

      Maja karo mota bhai

  2. Amol says:

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

  3. thulasi says:

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

  4. khyativerdhan says:

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

  5. Suresh.ks says:

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

    • Karthik Rangappa says:

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

  6. Suresh.ks says:

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

  7. R P HANS says:

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

  8. Bharath says:

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

    • Karthik Rangappa says:

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

      • Suraj pradhan says:

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

  9. Khyati Verdhan says:

    When will zerodha bring order in kite???

  10. Khyati Verdhan says:

    I mean Bo order type

  11. Khyati Verdhan says:

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

  12. Suresh.ks says:

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

    • Karthik Rangappa says:

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

  13. Hari says:

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

    • Karthik Rangappa says:

      In fact the module on options trading is done. Starting Commodities by last week of this month.

  14. Suresh.ks says:

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

    • Karthik Rangappa says:

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

  15. Suresh.ks says:

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

    • Karthik Rangappa says:

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

  16. HARI says:

    lol what a coincidence 🙂

  17. Sastry says:

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

    • Karthik Rangappa says:

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

  18. DA7586 says:

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

    i really thanks to Zerodha Team…

    Good Luck

  19. Suresh.ks says:

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

    • Karthik Rangappa says:

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

      • Ravi says:

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

        • Karthik Rangappa says:

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

          • ShreyaDR says:

            Karthik, You said <<<>>>>

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

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

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

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

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

            This all sounds confusing.

          • Karthik Rangappa says:

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

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

  20. suresh.ks says:

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

  21. B S Sriharsha says:

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

  22. Sastry says:

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

    • Karthik Rangappa says:

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

  23. shivamrao37 says:

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

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

  24. B S Sriharsha says:

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

  25. Sastry says:

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

    • Karthik Rangappa says:

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

  26. ASHISH SODHI says:

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

    • Karthik Rangappa says:

      Not sure of any reliable source Ashish. Will let you know as soon as I come across one. Thanks.

  27. sastry says:

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

    • Karthik Rangappa says:

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

  28. sastry says:

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

  29. Sastry says:

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

  30. Khyati Verdhan says:

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

  31. varesh.et says:

    Dear Karthik,

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

    Thanks.

    • Karthik Rangappa says:

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

  32. toushif nadaf says:

    Please Add Download PDF link

  33. subrata dasgupta says:

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

  34. Sourabh Sisodiya says:

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

  35. sastry says:

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

  36. Sastry says:

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

    • Karthik Rangappa says:

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

  37. suresh.ks says:

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

  38. santosh jangam says:

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

  39. Prasheel says:

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

    • Karthik Rangappa says:

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

  40. Parth shah says:

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

    • Karthik Rangappa says:

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

  41. Amit D says:

    Nice learning, thanks Karthik & others for their Qs…

    • Karthik Rangappa says:

      Cheers!

      • Mohit Agarwal says:

        Could you please elaborate on the use of helper column? I mean that if you could please clarify that if the helper table in the excel sheet can be used in real life estimation of max pain point? And also, do you consider a certain range for put call ratio?

  42. Amit D says:

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

  43. Nitin Desale says:

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

  44. Naresh says:

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

  45. Naresh says:

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

  46. Raja Kishore says:

    Hi Karthik,

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

  47. uday says:

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

    • Karthik Rangappa says:

      Thanks Uday 🙂

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

  48. NG says:

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

  49. D says:

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

    thank you in advance.

  50. DR1840 says:

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

  51. D says:

    hello sir,

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

    thank you

  52. rohan says:

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

    Regards
    Rohan

  53. Amar says:

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

  54. Amit D says:

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

  55. Sudheer says:

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

  56. DNYANESHWAR CHAPHALKAR says:

    Sir this is very very imp for trading

  57. Samir Palit says:

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

    • Karthik Rangappa says:

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

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

  58. hardik upadhyay says:

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

    • Karthik Rangappa says:

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

  59. sastry says:

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

    • Karthik Rangappa says:

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

  60. SAILAJA K V says:

    Hello Karthik,

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

  61. Amit Pal says:

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

    • Karthik Rangappa says:

      Amit, thanks for the kind words 🙂

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

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

      • Aditya Abhas says:

        Hi Karthik,

        If there is no tool for plotting the max pain graph, can you suggest any way to fetch the required data so that I can manually plot it?
        It would be better if I can make some API call to fetch data in real-time.

        Thanks,
        Aditya

        • Karthik Rangappa says:

          Nothing that I’m aware of Aditya. However, we will make few announcements around options platform in a month or two. Watch out for that. Thanks.

  62. Hari Prasad says:

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

    thanks

  63. Amit says:

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

  64. arun kamath says:

    over here http://zerodha.com/z-connect/queries/stock-and-fo-queries/open-interest-maxpain-put-call-ratiopcr , nithin has mentioned that if PCR is above 1 means put has been written and hence, it would be bullish and vice versa.

  65. narsimha says:

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

    • Karthik Rangappa says:

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

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

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

      • narsimha says:

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

        • Karthik Rangappa says:

          Well, the choice is entirely yours!

          To begin with stick to stoploss, where the SL is based on logic. Here is a chapter which explains how to place logic based SL – http://zerodha.com/varsity/chapter/volatility-applications/

          • Sudipta says:

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

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

          • Karthik Rangappa says:

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

  66. narsimha says:

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

  67. pravin says:

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

  68. Ankur Agrawal says:

    Hi Karthik!

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

    • Karthik Rangappa says:

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

  69. sagar says:

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

  70. Ankit says:

    pls……upload PDF
    Guru ji…..

  71. Bharath says:

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

  72. bharath says:

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

  73. SantoshShetti says:

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

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

  74. SantoshShetti says:

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

  75. SantoshShetti says:

    Thanks a lot. ?

  76. Raj says:

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

  77. Sunil Tyagi says:

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

  78. DJ9425 says:

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

    Regards
    Haridas.

  79. shashank says:

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

    • Karthik Rangappa says:

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

      • shashank says:

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

        • Karthik Rangappa says:

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

          • James says:

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

          • James says:

            Ohh !! sorry, I was in little hurry to post my query regarding OI PCR. I got all clear answers by Honorable Nithin Sir at http://zerodha.com/z-connect/queries/stock-and-fo-queries/open-interest-maxpain-put-call-ratiopcr.
            Please ignore my query now. Sorry again!! 🙁
            Thanks Z-Team for such a kinetic ocean of dynamic thoughts on markets.
            Regards
            James

          • Karthik Rangappa says:

            Awesome 🙂

  80. Ankit says:

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

  81. Praveen says:

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

  82. amol says:

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

  83. uday says:

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

    • Karthik Rangappa says:

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

  84. avinah says:

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

  85. Ramya says:

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

    • Karthik Rangappa says:

      Glad you liked the explanation Ramya.

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

  86. Bibhu says:

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

  87. Prabakaran says:

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

    • Karthik Rangappa says:

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

  88. bbhalaji says:

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

    • Karthik Rangappa says:

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

      • bbhalaji says:

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

        • Karthik Rangappa says:

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

  89. Vishal Javakhedkar says:

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

    • Karthik Rangappa says:

      I have not, but if I were to do this, I’d run this on Wednesday evening to take positions on Thursday morning.

  90. Santosh says:

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

    • Karthik Rangappa says:

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

      • Santosh says:

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

        • Karthik Rangappa says:

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

  91. sumit says:

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

  92. Sachin Mahajan says:

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

    • Karthik Rangappa says:

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

  93. chouhan says:

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

  94. Shyren says:

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

    • Karthik Rangappa says:

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

  95. Yash Agrawal says:

    Dear Karthik Sir,

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

    Thank you

  96. Aniruddh says:

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

    • Karthik Rangappa says:

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

      • Aniruddh says:

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

        • Karthik Rangappa says:

          Sure, will try and do that.

          • AK014 says:

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

          • Karthik Rangappa says:

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

  97. Ronak says:

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

  98. Sudipta says:

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

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

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

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

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

    Thanks !

    • Karthik Rangappa says:

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

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

      • Sudipta says:

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

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

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

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

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

        Thanks a lot in advance.

        • Karthik Rangappa says:

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

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

          • Sudipta says:

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

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

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

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

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

            Thanks in advance.

          • Karthik Rangappa says:

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

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

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

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

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

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

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

          • Sudipta says:

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

  99. Sudipta says:

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

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

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

    • Karthik Rangappa says:

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

      Good luck and happy learning 🙂

  100. sastry says:

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

  101. Jay Arya says:

    Hi Karthik

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

    Call Butterfly
    Straps
    Strip
    Long & Short Iron Condor
    Long & Short Butterfly
    Box

    Are we going to discuss these?

    Regards
    Arya

  102. VANKUMAR says:

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

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

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

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

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

    Regards,
    VAN Kumar, Vijayavada, AP
    0866-2589106; 9490347419

    • Karthik Rangappa says:

      Happy to know that you like the contents here 🙂

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

    • VANKUMAR says:

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

      Regards, VAN Kumar

      • Karthik Rangappa says:

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

        Suggest you give it a try.

  103. AK014 says:

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

    “AK014

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

    • Karthik Rangappa says:

      Replied.

      • AK014 says:

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

        • Karthik Rangappa says:

          Like you said, better late than never!

          Good luck, Anirudh. Stay knowledgeable and profitable.

  104. 9SR says:

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

  105. VANKUMAR says:

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

  106. rajesh goel says:

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

  107. hanumm says:

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

  108. Mehul says:

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

    • Karthik Rangappa says:

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

  109. VANKUMAR says:

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

    • Karthik Rangappa says:

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

      TA is based on price action.

  110. Arpan says:

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

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

    • Karthik Rangappa says:

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

  111. Mehul says:

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

    • Karthik Rangappa says:

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

  112. Mehul says:

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

  113. VANKUMAR says:

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

  114. katthi G says:

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

  115. vinay kumar reddy says:

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

  116. anil bhasein says:

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

  117. VANKUMAR says:

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

    • Karthik Rangappa says:

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

  118. VANKUMAR says:

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

  119. Akash says:

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

  120. YOGESH SURKUTWAR says:

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

    Thanks & Regards
    Yogesh Surkutwar

  121. KUMAR MAYANK says:

    Hello sir

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

    • KUMAR MAYANK says:

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

    • Karthik Rangappa says:

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

      • KUMAR MAYANK says:

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

        • KUMAR MAYANK says:

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

        • Karthik Rangappa says:

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

          • KUMAR MAYANK says:

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

          • Karthik Rangappa says:

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

  122. salim qureshi says:

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

  123. KEDAR says:

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

  124. Aditya Sharma says:

    Hello Kartik,

    Thank you for the awesome explanation.
    On a practival note, I was going through Yahoo Finance article “https://finance.yahoo.com/news/traders-betting-big-stock-market-101500637.html” where I saw that:
    1) As per the article, VIX of S&P is at the lowest level
    2) Due to this low VIX, analysts are expecting a shock in the market soon. Why? Low volatility means stability. Is it that they feel markets are at lifetime high and still VIX is low thus there will be a correction?
    3) One of the traders went heavily for “Bull Call Spread” strategy and another bought “Put Options” heavily. Aren’t the expectations completely different? Former strategy is for moderate market and the latter for Bearish.

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

    Regards,
    Aditya Sharma

    • Karthik Rangappa says:

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

  125. Ashok says:

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

    Or how it works?

  126. promit banerjee says:

    hey zerodha,

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

  127. vinay bansal says:

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

  128. Kotesh says:

    Sir

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

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

    Pls check n confirm.

    ThanQ

  129. Arumugam says:

    Dear Karthick,

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

    God bless you my friend.
    Arumugam.

    • Karthik Rangappa says:

      Chilled beers should nice 🙂

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

  130. Pankaj K says:

    Don’t know if already asked…….
    For options pain calculation… does the optimum strike value (i.e. Least pain strike value for seller) always arrive as the middle (or near to middle value). If so (and since u are already applying 5% deviation) then would this calculation more or less work.
    Optimum strike value = (lowest strike value in option chain + highest strike value in option chain) / 2.

    Thanx.

    • Karthik Rangappa says:

      Yes, when you plot the option pain curve, the strike at the center is where you will have the least amount of pain.

  131. rajesh goel says:

    how to calculate 15 days from expiry. Trading Days or all days including non-trading days

  132. Brahma Reddy says:

    Sir,Can I use the excel page written by and replace the values as of today?If yes,
    1.As Iam seeing for nifty there are many other strike prices.Can I ignore them and fixed to strike rates which are nine above and nine below the underlying?
    2.You only write about the prices like 8000,8100 etc and ignored the strike prices like 8050,8150 etc.Is it okay?Me too done the same because helper column will get distance if I altered it.Is it okay?
    3.Finally,I have calculated the pcr of nifty.The value is 3.70.Why the value is that much big.Is there extreme bearishness?But october series market rallied to new heights and the rally continued even today?What I can expect from 3.70 value?

    • Brahma Reddy says:

      I mean excel page written by you

    • Karthik Rangappa says:

      1) Yes you can use the excel and you can stick to 9 above and below
      2) Yes, use the strikes which are relevant to the current market condition
      3) You can also use PCR as a contrarian indicator 🙂

  133. Narasimha says:

    Can I reversly use Max pain for buying options rather than selling sir?I mean I will buy call option which cause minimum pain to option sellers ??

  134. Brahma Reddy says:

    In option chain, at the end the total OI of both calls and puts are provided individually.Can I simply divide put value by call value??I think it will have some credibility, since Iam taking all the strike prices into considiration.

  135. santanu says:

    Would you please explain the “Helper Column” a bit more of the “Option Pain computation excel”.
    Is it ok to use a calculation like “Current Strike – Lowest Strike ” instead of fixed values in “Helper Column”

    • Karthik Rangappa says:

      I’ve used the helper column for data manipulation. YOu can use the formula – ‘current strike – previous strike’.

  136. ravi says:

    Thanks for your great initiative.

    But I feel it does not give dealt of practical aspect

    Please also include an example that the same like

    What will be cost when you buy /write a call
    what action/precaution you have do at the date of expiry
    what will be extra cost when you will not take such action like increase in STT or brokerage etc.

  137. Shankar says:

    1. Is risking 500 on a spread option same as risking 500 on a naked option?
    2. If I quantify my risks in naked options, is it necessary to go for a spread?
    3. When i am going for premiums instead of expiry, is it necessary to go for spread?

    • Karthik Rangappa says:

      1) Rupee wise, naturally it is the same. However, in a spread, you will know that 500 is the maximum loss no matter what
      2) Not really, you just need to ensure you follow a strict stop loss
      3) Really depends on the trading situation. Sometimes it is better to opt for the spread rather than a naked option position. For instance, if you want to play the election news, where the volatility is invariably high -under such circumstances, playing naked options could be quite risky.

  138. karthikjayasimha says:

    Dear Sir,

    I calculated the range for Nifty for certain strikes for 28th Dec expiry as explained by you. I arrived at a value of 10500 where the option writers would lose least amount of money. But, I did not get the shape of the graph as you have in the above example. I thought that market’s upsurge after the Gujrath election result is the reason for the same. Also, if we take 5 percent above 10500, then we arrive at 11025. But the markets expired at 10477.90. I also calculated the range of nifty from normal distribution method and it landed between 10410 and 10622.

    Correct me if I am wrong.

  139. Karthik Rangappa says:

    I’ve not checked the range myself, but I get a feeling these numbers make sense. Can you share more insights into your calcualtion? Max pain graphs are quite easy to generate, not sure why you’ve not got it.

  140. rajesh says:

    Thank you for valuable lessons…
    Kindly make a module on mutual funds also

  141. Nanjundaswamy says:

    Karthik sir,as per max pain I have manually enter the OI of put and call strike price before 15 days to expiry and I got the max pain strike.
    But my question is should I stop the OI update now? or should I continue for manual entry of OI till expiry date?
    If I continue till expiry how to vary 5% buffer for calculate maxpain.
    Please explain sir

    • Karthik Rangappa says:

      I would suggest you run this 15 days prior to expiry and identify the max pain strike (which is what you’ve done), further give a buffer of 10-12% and identify the strike to write. I’d suggest you stick to just the Call option.

      • Nanjundaswamy says:

        Sir as per max pain table 10700 was maxpain strike at exactly before 15 days to expiry after that I stopped the update of OI in table and just watching the nifty by add the 5% of buffer to 10700.
        Please tell me sir is this right way or should I continue till expiry date.

      • Nanjundaswamy says:

        Sir what it means of additional buffer of 10% to 12% will given.
        I mean on which valve you have taken for reference for additional buffer of 10 to 12%.

        • Karthik Rangappa says:

          Its basically the strike to 10%. For example 10700 + 10% = 11770, so you may want to consider the strikes around this range. If the premiums are not attractive, then you may want to reduce the buffer. But I’d suggest you do not go below 5% buffer.

          • Nanjundaswamy says:

            Thank you lot sir for your response.
            Sir last question ,it means Are you suggesting me for stop the option pain table update after 15 days to expiry?
            Actually I am bit confused about this
            for calculate the option pain,that’s why I asked you sir.

          • Karthik Rangappa says:

            Yes, you need set a cut off – either 15 days prior to expiry or 10 days prior to expiry or even 5 days prior to expiry.
            The lesser the time to expiry, the more lenient you can be with the buffer. For example with 15 days prior to expiry, I may be inclined to have a 10% buffer, but with 5 days to expiry, I may choose to go with a 5% buffer. So on an so forth.

            The point is to run the max pain algo, and identify a strike in a time-frequency you are comfortable with. Remember, as the markets move, so would the max pain number, but the variation may not be much and the buffer will take care of these variations. Given this, sticking to an agenda is quite important here.

            Good luck.

  142. Nanjundaswamy says:

    OK sir
    Thank you for your suggestions…

  143. karthikjayasimha says:

    Dear Sir,

    I calculated the range for Nifty a fortnight prior to expiry as suggested by you and I arrived at a range 10600-11130. Today market expired at 11069. But, as usual, I did not get the shape of the curve the right way.
    Also, I calculated the range for Nifty and Bank Nifty on a daily and weekly basis using standard deviation. On certain days both the index values exceed even 2-Standard Deviation (or 95% Confidence) values.

    Thank you very much for all the inputs and making us think as professional traders.

  144. Mehul Karia says:

    Hello sir,
    Thank you so much for valuable lessons…sir I would like to know your view on covered call strategy…I have 600 shares of infosys, i want to keep it for long term. Can I short OTM call option of infosys every month for additional income.

    • Karthik Rangappa says:

      CC is a great way to make some passive income on long term holding. Give it a try, although I think the pay off may not be very impressive.

  145. Arjun Rajwar says:

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

    Sir Please help to understand 2nd and 4th line.

    • Karthik Rangappa says:

      When traders accumulate a certain position (accumulate in large quantities), then there is a scope for the opposite to happen – hence I suggested look for reversals.

  146. Ram Niwas says:

    Karthik sir good morning.
    I m novice in option trading and lost so much money.
    In option trading, there are so many strategies.
    My question is that , which type of strategy most probably used in option

    Thanks
    Ram Niwas

  147. Rushabh Doshi says:

    Am i the only one who felt upset have this module ended. :/

  148. A Agarwal says:

    Dear Sir
    The calculation of maximum pain on the excel chart needs some modification. At every level the cumulative open interest needs to be multiplied with a cumulative figure of notional loss. If open interest (CE) is 1 at every level and strike prices are 1, 2, 3, 4, and 5. The loss at 1 strike price would be zero. At strike price 2, the loss would be one. At strike price 3 the loss would be 3. At strike price 4 the loss would be 6. At strike price the loss would be 10 … and so on.

  149. Akhil says:

    Hi Karthik… Great work… Amazed to learn from your knowledge…. Pls confirm if strike wise PCR has any significance in analysis. Thanks

  150. Somesh says:

    Hi Karthik,

    When using the above max pain excel sheet to calculate maxpain data and graph, I got negative values Cumulative Call which was greater than Cumulative Put and hence, the total went to negative, which again represented in graph shown me a negative value for OTM strikes. I created for TCS and INFY and both graph were representing highly negative total for last OTM and decreasing from there. What can you comment about this result? I created the above with Mar 09,2018 EOD OI data. Please clarify whether it is usual at the first week and will change at the last 10 trading days.

    Thanks,
    Somesh

    • Karthik Rangappa says:

      I’m really not sure about this. You cannot get -ve values. If people are cutting positions, then the OI will drop or at the most stand still at 0. It cannot really go -ve. I’d suggest you look at the excel sheet more carefully, I’m sure you;ll spot a silly mistake 🙂

  151. Jayanna says:

    Dear Karthik,

    If I’am correct, I don’t find about Iron Condor strategy and spreadsheet. I would like to see about it on Varsity.

    Thank You,
    Jayanna

  152. Nikunj says:

    Hi karthik good job ! You make all strategies clear for reader.
    I frequently trade in Banknifty so what you suggest when max pain should be calculated in weekly expire ? On Tuesday (2 days to expiry ) ?
    And also suggest any strategies which can be use for day trading in weekly expiry options

  153. santosh patidar says:

    In one of the chapter you mention your friends election trade and your short day in trading career.
    What if similar news comes on expiry day and market makes high, upper circuit within 10 minute and close or lower circuit and close in 10 minute or less.
    How the settlement will happen and at what price ?
    Asking in last have gone through all the chapters and comments also. curious…. 🙂

  154. Satya Koneti says:

    Hi Karthik sir,

    I have gone through all the modules and understood 100%, I have never seen such a wonderful content any where. Is this knowledge enough to start trading? Do I need to still need to go through any other books. If so, please suggest the books.

    You are the best teacher I have ever seen.

    Thanks
    Satya.

    • Karthik Rangappa says:

      Satya, to be frank, no amount of reading will compensate the actual market experience. Go ahead and place your first trade with confidence. Don’t worry about the P&L, remember this is an integral part of your learning and you have to keep learning to move ahead 🙂

  155. Shankar says:

    Hi Karthik,
    How does the margin for option seller work in Zerodha? Suppose if i sell ITM call & put option and buy slightly OTM call & put option, then my potential loss is only the difference of the option value,right(ex:- for Nifty it is 75*50=3750). Does the margin requirement also of the same logic

    Thanks,
    Shankar

  156. Hina says:

    Undoubtedly this is the best material to learn about the options. Thank you so much sir for sharing this with us ?.

  157. Hemalatha says:

    Namaskara Karthik,

    Hope everything’s fine, have doubt with respect to the number of strikes to be considered for computing max pain value, read few questions above regarding the same
    Considering Bank Nifty for analysis, there are a good number of OTM contracts(liquid) being traded.
    The contracts being traded spans over 2000 points (2500 actually) that’s roughly about 1000 points above and below the current spot.
    But there are contracts beyond the 2000 points range. How do we go about this? Should we consider the ones beyond this range or not?

    • Karthik Rangappa says:

      Namaskara, Hemalatha! I’d suggest you consider 10 strikes above and below the ATM strike. So roughly 21 strikes.

  158. Pradeep says:

    Hi,
    Based on the excel provided and the formula I’m arriving at option pain of 10600 as of May 4th 2018. This level is in agreement with various sites who shows this max pain data in real time. But there is a difference in total value for call and put (And of course final total) i’m arriving at versus what all other are quoting. Mine is significantly low than the number shown in these sites.

    Needless to say, all other web portal data are showing exact same number. Example 10600 Call pain value from other sites is 8175615000. Based on the above formula and the excel method i have got 77860080000.

    In deeper analysis, I have seen they are first calculating sum of OI from top to the current strike where i’m trying to calculate the pain (in the above example 8550 to 10600) and multiply that by 10600 the current strike. Then they subtract the sum-product from this calculated value. If I do that, I’m also getting the same value.

    The formula looks something like – IFERROR($C45*SUM($A$3:A45) – SUMPRODUCT($C$3:C45,$A$3:A45),0) . I know it doesn’t make much sense looking at this formula, but why they have a different way of calculating the max pain?

    Which one is correct?

    • Karthik Rangappa says:

      I’m really not sure about why they are doing this way, Pradeep. But please do note, if they are doing this on an intraday basis then it could be a problem since intraday OI is not too reliable.

  159. NAJEEB T P says:

    Dear Karthik,
    My passion for understanding pricing dynamics interested me to traverse an out of the box thinking.How , when, and whereto the price moves with passage of time looking more into natural science theories connecting to mathematical theories than economic theories in lesser time lengths.To my limited understanding a futures index movement and the index options movement derived from it is based on the underlying motion of the combined expression in prices of the individual securities and not the other way round of normal thinking of individual underlying moving around the movement of index.So it is a natural flow based on a combination of rational calculus and irrational randomness.Derivatives are structured to tick based on the underlying motion and where do open interest play a big part in option pricing.Rather it is the velocity and the acceleration of the underlying motion that determines the option price.Combined expressions of the sigmas of the individual underlying does the noise in index and normal(Gaussian ) distribution cannot be taken as a thumb rule for writing options.Butterfly effects matters more.

  160. NAJEEB T P says:

    It is an interesting topic to peruse if derivative market moves the underlying market or the underlying market moves the derivative market.To my understanding futures price is mathematically structured to move by the combined dispersion of underlying stocks in index and not by mere open interest study or demand supply concentrated in the futures and options segment.A sort of dynamic market making is happening between the cash, futures and option segment and to the variations in the cash futures and options orders are structured to have trades executed in a relative manner .Put it simply derivatives just travels like the shadow of the underlying index and the underlying index too has no entity of its own It is just a sum expression of the flow of the individual underlings which can have duffing oscillations and not always standard. Could explain to you in detail if I could communicate to you direct.

  161. NAJEEB says:

    For eg if the daily volatility of say Bank Nifty is for an example sake is 250 points .from there you can calculate a one minute volatility.It ought to be 12.9 points.But in reality if bank nifty makes a random walk of 300 points a day may be 5 candles out of 375 would have walked 200 ponts and the remaining 370 minutes around 100 pointsSo the markets is all of duffing motions and the path of least resistance called butterfly effects matters more.In a nutshell market is a natural flow and not bellcurve calculations.In such a case the role of open interests are of least significance.

    • Karthik Rangappa says:

      Najeeb, not sure how you are interpreting this. Max Pain as a concept does not consider either volatility of distribution of any sort. We use Open interest to assess the likelihood of where the option expires.

  162. NAJEEB T P says:

    Karthik, I know what I mentioned above has no relevance with the idea of option pain but , I was highlighting my view that option pain which derived its underlying idea from open interest and PCR ratio itself seems a gibberish idea to me and hence , may be not much academic work gone into it.To my understanding options derived to be a hedge tool for the underlying. Better traders structure their trade seed capital in such away that either option as their seed and underlying as their hedge or underlying as the seed and options as the hedge. It started giving me more insights when I moved looking into the scientific price motion rather than the economic price action.

    • Karthik Rangappa says:

      I agree with you on this – both option pain and PCR are empirical. In fact, OI itself is empirical in my opinion.

  163. Nikunj Purohit says:

    Hi Karthik,

    This chapter was a nice read. I was watching trading carnival videos, there some smart traders were talking about managing premiums by writing options on other side in 1:4 ratio in last 2 days of expiry to counter volatility , specially last 3-4 hours on expiry day…can you suggest a resources from where I can look this and also get some more examples of setting up trade in different situations like you gave 4 examples in last module

    Secondly, from the module it seems like there is a zerodha resource of backtesting. Can you provide me a link to that and some sample code to understand platform

    Regards
    Nikunj Purohit

    • Karthik Rangappa says:

      Nikunj, if a trader is writing options on the last day especially when there are few hours left to expiry, the play is just on the rapid decline of theta. Look for any OTM option which has any residual value and write them. Usually, if you are lucky you may get 1.5 or 2 Rupees for an option which is trading 2 strikes away from ATM (on Nifty).

      For backtesting, check this – http://streak.tech/

      • Nikunj Purohit says:

        Kartik , Thanks for a prompt reply.

        For Max Pain — I have been calculating it for last 2-3 days on NIFTY and BANKNIFTY. It seems like value will be lowest around spot prices only. It may give other strikes for less liquid and volatile stock options.

        For PCR ratio – As option writing will be profitable 70% of time, so smart money will generally write put option so PCR will 1.3-1.5 will be bullish.

        Short covering – how can I say that there is a short covering looking at change in volume and premium for put & call at particular strike price

        Any particular book or blog that can be referred for improving option strategy.

        Nikunj

  164. SATYA KONETI says:

    Hi Karthik,

    Are there any strategies (combination of futures and options) which can give 1% consistent returns on monthly basis irrespective of market direction?

    Thanks
    Satya.

  165. Nikunj Purohit says:

    Kartik,

    I have been looking at bank nifty and nifty for sometime for max pain during expiry days. The point is always next strike to spot price. There was much volatility last expiry of bank nifty, still OI were changing to make sure max pain is near spot. Am I missing something here?

    • Karthik Rangappa says:

      Not really, Nikunj. I’d suggest you do this for a couple of expiries to get a full flavor of the theory.

  166. Sumit Pradhan says:

    How much data should be taken for max pain calculatation.
    example1 – I have taken BANKNIFTY(expiry-28JUN2018) data on 15JUN2018 for strike price of range 22500 to 28600(62 distinct values)
    Output of max pain calculation = 25100

    example2 – I have taken BANKNIFTY(expiry-28JUN2018) data on 15JUN2018 for strike price of range 25000 to 28000(31 distinct values)
    Output of max pain calculation = 26500

    BANKNIFTY index spot is 26417.40 on 15JUN2018. First example included all strike prices available on NSEINDIA while second example included subset of all strike prices available on NSEINDIA.
    Suggest how should I do analysis to get robust result.

    • Karthik Rangappa says:

      I think its best to use Max Pain on monthly options. Use at least 15 days data.

      • Sumit Pradhan says:

        Actually Above given example is for Monthly BANKNIFTY(28JUN18) Expiry and almost in the 2nd half data(after 15 days).
        My question is that How many strike prices should I choose b/c output is different in both examples but I have taken same data(BANKNIFTY-28JUN18) with different strike prices(ex1 has 62 strikes, ex2 has 31 strikes).

        • Karthik Rangappa says:

          Sumit, I’d suggest you take at least 5-6 strikes above and below the ITM option. If there is liquidity beyond these strikes, then take those as well.

  167. Shankar says:

    Karthik Sir

    This is a noob qn. Hence please pardon my ignorance. An OI can have 1 or more than once contract and each contract can have different lots like 75 or 40 for NF and BNF respectively. Therefore, does OI reflect how strong the quantum is viz a viz a strike price? A 7800 strike put may have say 3 OI but the contracts under it can be 240 while a 7700 strike put can hae 5 OI but the contracts can sum up to 200. Hence, would multiplying the OI with points yield a realistic picture?

    • Karthik Rangappa says:

      Shankar, OI is usually expressed as “lot size * Number of Contracts”, so if you see an OI of 150 for Nifty, divide this by its lot size i.e 75, to get a perspective of how many contracts are outstanding in the market. So, in this case, it will be 150/75 = 2.

  168. Chirag I Sharma says:

    Karthik, you’re luring me so much into writing options. I think its time to loan 1L from my parents for margins 😀

    Anyway, my question is- How does the combination of SD/ Normal distribution Upper and Max Pain (whichever is higher +5% margin ) sound like for selecting a strike to write?

    • Karthik Rangappa says:

      Chirag, I hope I’m luring you to learn options 🙂
      General advice – trading based on loan funds can be dangerous to your trading account, even if it is from your parents 🙂

      I think it is one of the best ways to select strikes, but the assumption here is that there are fundamental factors affecting the market or the stock you are looking at.

      • Chirag I Sharma says:

        Oh yes, you sure are luring me into learning to fish and not rely on fishermen.
        I feel I am getting there, slowly and steadily.

        “…there are fundamental factors affecting the market…”
        You meant that there is nothing unusual around the corner affecting the market like quarterly/annual results or Trump’s tweets, right?
        If there is- then the probability of my chosen strike price going right gets low. Correct?

        • Karthik Rangappa says:

          Yes, thats right. If there is a fundamental play, then you should avoid trading the scrip, unless you are in a position to access the fundamental factor in great depth.

  169. Kiran raj says:

    Hello Karthik..,

    I was asking one of my colleagues to go through varsity for better understanding of the math behind Options trading. He said he has been successful with options trading without knowing any math behind it. Halfway through our conversation.. he shared the way he operates. He basically operates on indices, keeps an eye on the option chain to understand possible support and resistance for the month. All the buying he does is limited to the first week of expiry. He buys few lots of both put and call (both preferably 1% away from spot price) with 50 % of the corpus he wishes to invest. Based on the movement of the underlying in the next few days.., he decides what is to be done with the other 50% of his corpus. Say, If the index moves 1% upside, he then buys PE 1% away from the new spot. ( He is still holding the contracts he bought in the beginning, where in CE contracts would have become ITM, PE contracts bought at beginning would become OTM, New PE contracts bought would be slightly OTM. The moment index starts moving downwards, he will realize profits on CE, Starts buying PE conracts more aggressively. He was saying, he also keeps an eye on NIFTY VIX to be clear about Voltality. He doesn’t monitor charts, doesn’t follow any technical analysis behind his strategy. He cliams to close the month on a positive note every single time, 20K of the money gained using this strategy goes into his various SIPs, rest for his monthly expenses. He claims to have hardly touched his salary for his expenses over the past 6 months. I wanted to know if this a strategy or if he is purely being lucky. After going through all the technical analysis, if some guy randomly appears and claims that he is making money consistently with no application of TA, I couldn’t believe it. I wanted an expert’s view on this, and so I’m writing. Hope my explanation was clear about the strategy.

    Thanks in advance.

    • Karthik Rangappa says:

      Kiran, if your friend is saying the truth, then he maybe lucky and continue to be lucky for few more months. None of us can take a punt on that 🙂
      But generally speaking, people in markets tend to exaggerate their profits and underplay their losses. No one wants to appear stupid.

      From what I can see, the only smart thing he seems to be doing is that he is avoiding buying options closer to expiry, so with or without his knowledge, theta is favoring him.

      • Kiran raj says:

        Thank you. I was convinced that he was just getting lucky, I wanted your confirmation too. He is very content with the way he operates, is reluctant to learn options theory. His take is, ” when something is working for me consistently, why do I even bother changing it? ” I believe, the biggest threat behind a not so strong strategy is, when it starts working in our favor ( may be by luck ), we start believing in it way too much, get complacent and end up taking bigger risk, which may eventually backfire. Luckily , I’m a Varsity reader. Thanks to Karthik and team 😉

  170. Kiran Thakur says:

    Hi Karthik,

    Before asking my query I would like to thank you for writing such a wonderful and easy to understand content. I have a doubt around the derivatives, Someone told me that index futures can drive and lead the price movement of the underlying stock indices. Given my limited experience with futures, I am puzzled. My textbook knowledge tells me that index futures are derivatives of stock indices. Therefore, futures prices are derived from stock indices. It should be indices that drive and lead futures. Logically, there should not be price feedback from futures back to stocks. How does it really work, if there is no feedback from derivatives to stock / indices then how max pain works…?

    • Karthik Rangappa says:

      Yes, Kiran…the stocks influence the derivatives. However, there could be brief periods where the other way round could happen, but this does not sustain through for long (not more than an hour or so).

  171. Prasanna says:

    Hello sir,
    Really useful chapters on options trading. Thanks for taking efforts for beginners like me.
    I trade in banknifty regularly. I need ur guidance in following.
    I sold itm call of 26000 & put of 27000 when the spot was 26500. After two days market moved 200 points on one side and my put sold is showing profit. ( Off course call sold is showing loss) I want to book profit of 200 points so i squared off the put side. Now i have loss making side of call sold is in hand. What position should i take to get insulation in both directions for call side making loss. I don’t want more profit. Happy with booked profit. Just want to retain it by taking new position. May b hedging i guess. Pls suggest preferably options as i don’t want to trade in futures.
    Your guidance will really help me.
    Thanks once again.

    • Karthik Rangappa says:

      Prasanna, I’d suggest you close the position and book profits. Usually, things get messy when you try to hedge and make other positional adjustments. However, if you really want to hedge the open call short, then you will probably have to buy futures to offset the position.

      • prasanna says:

        Dear Sir,
        Thanks for the reply. If I close the position then I will not get any profit as I am short on both call & put.. Hence I was thinking for booking profit from one leg & reduce loss from other leg. so overall P&L will be on plus side.

        • Karthik Rangappa says:

          Yes, but do remember, when you close one of the positions, you will have a naked exposure to one of the legs. The risk element drastically increases here.

  172. Somesh says:

    Hi Karthik, I have created a webpage in my personal blog to calculate Nifty and BankNifty max pain in realtime. Please have a look at it and let me know whether the calculations are working fine. https://www.someshr.com/p/optionsmaxpainchartniftyandbanknifty.html

    • Karthik Rangappa says:

      Somesh, looks like you have taken the content from Varsity, can you please give the necessary credits and a link back to the original source?

  173. Kiran raj says:

    Hi Karthik,

    I have a small doubt. Kindly clarify. I was closely watching Nifty 50 chart today as I was holding 16 lots of Nifty 11300 Aug CE purchased at 88 (cover order). Close to the end of the day .. around 1445 the index went haywire.. I believed it was possible manipulation by option writers as this was the expiry day for July series. It started dropping for no reason… there was no news.. no recognisable bearish pattern on charts.. option premium even dropped to 80 at a particular point of time. Since I strongly believed that it was manipulation, I kept putting a steep SL. I have modified it to 75 at a point of time. (I know this is against what I have learnt from varsity, but I believed it was just a matter of time before index breaks off the shackles). It eventually did.. in the last 45 min, index started gaining momentum .. option premium surged back to 96. I have closed the trade at 95. I wanted to know if my interpretation was right about the whole scenario.. or if I was just lucky to get out without loss. I have breached the stop loss rule.. but I have learnt one great lesson.. I’m never trading MIS on Options on expiry day. If I see clear opportunity, I will look for CNC but not MIS On expiry day.

    PS: Thanks to these few lines below
    ” Now if this statement is true, then we can make a bunch of logical deductions –

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

    These were the lines that helped in clinging on the trade and not lose confidence.

    • Karthik Rangappa says:

      Well, I’d say you were both lucky and smart to have managed to get out of this position. Lucky, because there is no way to figure out what which direction the index would move 🙂

      • Kiran raj says:

        Hi Karhtik,

        Thank you 🙂 .. I was lucky, I admit. I also wanted to know if my interpretation about the scenario was correct.. Was that a possible manipulation by writers which attributed to the index falling sharply in the last hour of 26/07/2018 ( July expiry) ? Or was it something else, (Have I wrongly interpreted it) ?

        Thank You 🙂

        • Karthik Rangappa says:

          Kiran, I think you were indeed thinking in the right direction 🙂
          Good luck and hope you continue to remain profitable!

  174. SHyam says:

    Hi,

    It is always said that it is better to sell options with high IV . But what if IV is high and PCR is above 1 . Doesnt PCR above 1 indicate bullishness?

  175. SHyam says:

    Dear Sir,

    Today’s max pain was 28000 and bank nifty is at 28350 at 3.15

    I was under the assumption that BN will expire approx 28100 level. I wrote 28300 calls .Then I realized there was huge put writing at 28200 and 28300 and banknifty surged to 28387 level. Luckily i I closed my position little earleir.

    I am confused here. Just unable to understand where did I go wrong

    • Karthik Rangappa says:

      Well, theories like Max Pain is just empirical, Shyam. There are no guarantees in the market. I have explained how I personally use Max Pain.

  176. prakhar says:

    will you please explain steps invoved in calculating options max pain in excel .

  177. omi says:

    I want to ask wheather increase in open interest in some strike impliy more option writing or option buying because in some analysis increase in open interest is termed as option writing and in some it is termed as option buying for example if we term increase in call option open interest of some out of money strike it could be termed as more option writing which is ought to result in price stabilisation or bearishness but if we would term this increase as more option buying this would impliy bullish view. So how would we interpret this contradictory view. I hope you got my point.

    • Karthik Rangappa says:

      On a standalone basis, increase in OI means nothing, because there are both buyers and sellers for the same contract. Hence traders associate price movement along with OI to make interpretations, this is similar to volume analysis.

  178. Prem Kumar says:

    Sir,
    How can I download PDF format of Module 10, All other Modules have PDF format. Could you help me out?

  179. adhik says:

    Sir,
    where from we can get daily historical data for max pain and PCR

  180. Muffadal Katheria says:

    Dear Karthik,
    Greetings for the day. Thanks for such a nice and simple explanation. I have below doubts.

    e.g. Stock xyz current price is say 150, maxPainPrice is 185 and PCR is 0.27, in this case PCR says that there would be further downside and Max Pain say that the price may rise to 185, what should we do in this case ? How do we interpret this ?
    Generic question is like if Max Pain suggest rise in price and PCR suggest fall in price, than what should be the action ? Which is more powerful signal Max Pain or PCR ?

    Thanks in Advance.

    Muffadal Katheria

  181. Sudeep Poswal says:

    Hi Karthik , Not sure if this is the right platform with regard to a query on covered call on Nifty Futures.

    I was just curious to know if it is worthwhile to write covered call on Nifty futures by selling deep in the money call say by 800 points below the spot price and just focus on time value in the call which will although be low but going to be a sure shot profit as Nifty does not move that much in a month.
    Please let me know if my understanding is correct.

  182. Sudeep Poswal says:

    Thanks for replying.
    The covered call by buying a Nifty future and selling a deep in the money call so that the downside is protected by getting a huge premium and on the upside there will be a limited profit…essentially the time value in the call.

    Please also let me know as to why it is scary ? Does it have any risk attached to it even if we are long on future at the same time ?

    • Karthik Rangappa says:

      Ah, I think I didn’t notice the buy Nifty future in your previous comment, thought it was a naked short. If you are long futures and short Deep ITM, it should be alright in terms of containing risk. However, there is liquidity risk here in terms of exiting long ITM, you may not have buyers at the time of square off.

  183. Sudeep Poswal says:

    Thanks Karthik,

    So what I understand is, there is a liquidity issue if I want to exit before expiry, however if I keep it till expiry I don’t need to find a buyer as exchange will itself square it off. Is that correct ?

  184. Edward aka Gulrose says:

    Good Morning Karthik Sir.
    You may know me from twitter, the guy who sent you excel screenshot.
    Today i got my first profit(obviously after many manageable losses).
    I want to my one and only teacher whom i consider my GURU.
    So i bought BN 25800CE 17 oct at 60R.coz of two reasons (Correct me if I am wrong)
    1) Fundamentally WPI rate increases and that translates to rise in Bank Nifty (I may be wrong)
    2) Technically due to formation of Bullish hammer that day.

    Next day as my trade proved right I squared off the deal at 90R. of 2lot =80.
    Booking 2400 by 10:00 AM next day.
    I want to thank you sir coz as a medical student itbwas difficult for me to learn a different but Varsity is really good for a beginner noob like me.
    Can you correct me if i was wrong somewhere in my trade.
    I will accept if you tell me if i am wrong in my reasons behind these trades.
    Thank you.
    Here’s the hammer that formed that day.
    https://twitter.com/edward_thought/status/1052253676385927168?s=09

    • Karthik Rangappa says:

      Hey Edward, thanks for the very kind words and congrats on a profitable trade 🙂

      The take on WPI and Hammer was right. I always think the best trades are the ones in which there are both technical and fundamental factors at play. Good luck and hope you have many more profitable trades 🙂

  185. Alok says:

    Hi Karthik,
    Just came across all this good work created and published by you. I cannot think of appropriate words to express my appreciation for the quality of content!!! Just tooo… good.

    I am naturally trying to download the material so that I could go through the same peacefully at my pace. However while I have been able to download a couple of modules, but trying to download Modules 2, 3, 4, 6, and 10 just throws up an error message. Could you please look into it.

    Regards and thanks again!
    Alok

    • Karthik Rangappa says:

      Thanks for the kind words, Alok. Glad you liked the content. I’ll check on this and get back.

    • Guess few of the users were facing this issue due to download limitations from Dropbox.
      We’ve moved all the PDFs to our own storage and the links have been updated.
      PDF for Module 10 will only be available after all the chapters have been published.

  186. Gokul says:

    Dear karthik
    Commendable job by you sir …. I have gone through all of your modules.. and my journey from a newbie to a trader is started with varsity ..thanks A ton…
    One module is really missing in varsity so I request you to add future oi analysis , option chain ,
    So please look into it. Will be helpful

    • Karthik Rangappa says:

      Glad to know that, Gokul. Wishing you all the very best!
      Will try and add these lessons as and when possible.

  187. Ghanendra Singh Rawat says:

    Hi Karthik,

    Thanks for wonderful lesson on option strategies.
    I was going through the MAX. PAIN strategy.
    I tried to calculate the strike price at which the option writers would lose the least amount of money using excel sheet as provided by you with different set of strike prices for the Nifty Option Chain of 01-Nov-2018 using data from NSE website.
    I found that the strike prices, at which option writer would lose least amount of money, are different for different set of strike prices as follows:
    Strike prices set: 8800 to 10400 ………….and I get strike price with least amount as –10200
    Strike prices set: 9100 to 10700 ………….and I get strike price with least amount as –10300
    Strike prices set: 9600 to 11200 ………….and I get strike price with least amount as –10400
    Strike prices set: 10100 to 11700 ………….and I get strike price with least amount as –10400

    I used strike prices as multiplier of 100 only, sequentially, 17 readings each time ( Avoided strike prices like 9850, 10250, 11050 etc that are not multiplier of 100).
    I think results for the option chain of same day should not vary with different sets of strike prices.
    Can you please help me to find where did I go wrong? Is formula foolproof?

    • Karthik Rangappa says:

      The formula used in the chapter is right. Remember, the formula is just about using the intrinsic value of the option upon expiry..the rest is simple arithmetic. Can you double check the intrinsic value formula for both call and put?

      • Ghanendra Singh Rawat says:

        Dear sir,
        I appreciate your prompt response. Thank you very much.
        Today, I did the same exercise again for the Nifty Option Chain data of today, i.e. 02-11-2018.
        End of the day data used after the normal market was closed.
        Again observed the similar discrepancy tabulated as follows:

        Strike prices set: 9000 to 10600 ………….and I get strike price with least amount as –10300
        Strike prices set: 9600 to 11200 ………….and I get strike price with least amount as –10500
        Strike prices set: 10100 to 11700 ………….and I get strike price with least amount as –10500
        Strike prices set: 10400 to 12000 ………….and I get strike price with least amount as –10600

        Sir, the same nifty option chain table will remain available up to Monday morning due to weekend.
        Please cross examine and enlighten.

        • Karthik Rangappa says:

          Why are you splitting the strikes? You need to consider all the strikes at once.

          • Ghanendra Singh Rawat says:

            Thank you sir.
            I split the strike prices because in the excel sheet provided by you there is provision for only 17 entries/data points at a time. Hence I can select only 17 entries at a time.
            From 9000 to 12000 there will be 31 entries/data points. Since I myself do not know how to put formulas in excel, hence could not increase entries more than 17.
            Pls suggest.

          • Karthik Rangappa says:

            That will take some time, Ghanendra. Instead, I’d suggest you take a look at the way I have explained the process. I have given step by step guidelines on it, follow the same. The number of entries does not really matter.

  188. Ghanendra Singh Rawat says:

    OK.
    Thank you sir.

  189. Amit says:

    Hi Kathik,

    I have an account with Zerodha and i am starting to trade in options. I did paper trading for a while based on the virsity strategies and seems to work fine. 🙂

    I have a question.

    In banknifty, when does next week’s option trading open? Friday after previous expiry and not before that?

    Also as soon as on friday when market opens, who decides the initial price of options? Option writers?

    Are number of writers and buyers same? As during expiry everything gets squared off.

    For eg. If a writer writes 2 lots at 100 Rs. 2 buyers buy 1 each. But overall floating options yet to be squared off = number of options written. Am i correct?

    • Karthik Rangappa says:

      When a new month contract releases its weekly options are also made available. The initial price is set by the traders 🙂
      No, the number of traders and buyers need not be the same.

  190. Himanshu Kane says:

    Does Max pain strategy work for both Nifty & Stock options ? Under what circumstances one can apply put writing exercise(s) in max pain considerations ?? Since you emphasized mainly on call writing phenomenon.

  191. RUPA DEB says:

    Dear Team , I have a confusion over the calculation of max pain. you are considering the difference point as amount but if the point difference is 100 or 200 then why not loss is being calculated as per premium amount for that difference of point? how can point is being multiplying with open interest?

  192. kiranintouch says:

    Dear Karthik,

    Thank you for providing varsity. There were many useful insights.

    Request to provide typical day to day activities of an options trader. This will help us organize our day and arrive at a game plan for trading.

  193. Akshay says:

    Karthik,

    How significant is NSE Currency Options Chain data ( OI, Strike with max Puts, Strike with max Calls, PCR, Max Pain etc.) to drive inferences about movement of a currency pair?

    I have found NIFTY Options data useful to some extent but not sure about currency options.

    Thanks,
    Akshay

  194. Robert Yates says:

    Where and how do I get the data for ticker symbol SPX (index for S&P 500) into the Excel spreadsheet, please?

    • Karthik Rangappa says:

      Robert, you will have to download the historical data in either text or csv and open the same (import) into excel.

  195. Akshat Joon says:

    I always find study material by zerodha quite useful as it explains various concepts in simple language .

    Great work for trying to enable others understand although just like everyone else i would appreciate more if you can share a profit making strategy .

    Thanks .

    • Karthik Rangappa says:

      Thanks, Akshat. We have shared everything that we can, one has to calibrate these to convert them into a strategy.

  196. Narendra says:

    Karthik – I wonder, Nifty has lot of open interest at all levels starting from strike price 3600 levels to 14100 levels. So my question is do we need to consider all these prices while calculating max pain or do we go with a band say 1000 points. e.g if today Nifty is trading at 10750, so do I look at from 10000 to 11000, or is there any standard inclusion criteria for this.

  197. Lokesh says:

    Sir, where can we get option chain historical data for 1 or 2 years to back test PCR.

  198. Alok says:

    Hi Karthik,

    Just want to understand why do many experts say that 90% options expire worthless, when they also say the most of the options are squared off and very few exercised. Aren’t these two statements contradictory??

    When the seller knows that he is making money and the market will not reach his strike price, he will not square off his position (since he is not affected by the STT trap too) to pocket the entire premium. i.e If i had sold a 10500 CE in the beginning of the month and on the day of expiry the market is at 9900..i know the nifty cannot move 600 pts in a day(normally)..and even if it reaches 10490…my profit is still the entire premium. That means there has to be a buyer on the other side for such sellers..and if 90% sellers make money..that means that many buyers must also be there right??

    Thanks,
    Alok.

    • Karthik Rangappa says:

      Just want to understand why do many experts say that 90% options expire worthless, when they also say the most of the options are squared off and very few exercised. Aren’t these two statements contradictory?? ——->

      Better way to put this is that only options which are above ITM have intrinsic value, rest all (including ATM) expire worthlessly. Yes, most of the time, traders prefer to square off the position rather than letting it expire.

  199. Alok says:

    Ok..thanks…but where is that 90% coming from..or its just a ballpark figure??

    What about those who make money and get out of the market..i mean a buyer could have made money n exited…likewise a seller may have entered on the day of expiry and made a loss…

  200. Patel Sr says:

    Hi Kartik sir, Can you please translate all modules in Hindi language..How much time it will take to translate in Hindi?

    • Karthik Rangappa says:

      Patel, the problem with translation is that it won’t be accurate. We tried this in the past, but we weren’t happy with the final output.

  201. Mani says:

    Sir, I am using SD to write options for quite sometime, want to explore other writing strategies but don’t know where to look.

    • Karthik Rangappa says:

      How is the SD approach working out, Mani? The other classic technique is the technical analysis way. You may want to go through the TA module for that.

      • Mani says:

        I am using SD and IV to write sir, made some money consistently, roughly 13% in last 5 months sir. More than the strategy I believe managing the trade is the key sir, also wrote only call options sir.

        I did use TA sir, didn’t work out for me. I believe more in probability that SD offers sir. Is there any book or can you point me in right direction sir? I believe I am more of math person sir.

        How big Fund houses and institutions write options sir?

        • Karthik Rangappa says:

          Mani, thats nice to hear. Use SD+IV, this, in fact, is one of the best approaches to writing call options. Apart from this there are few techniques such as dynamic delta hedging, slightly complicated but will try and write about this.

          • Mani says:

            sir, any books on dynamic delta hedging?

          • Karthik Rangappa says:

            There was one by Taleb, but that was quite complex to understand, Mani. Have not really found anything interesting on that subject since then.

          • Mani says:

            I am trying a dynamic hedging strategy using long Futures and short call options sir, in that I neutralised gamma then delta sir, but I am unable to eliminate the risk of gap down or gap up opening. Another issue is selection of strikes, there are so many combinations available donno which one to select.

          • Karthik Rangappa says:

            Mani, the gap part is the volatility bit which needs to be hedged Mani. This can be a little tricky.

        • Mani says:

          so I have to set Vega to some value like -500, so that when Vega decreases I will make money and also make sure that delta, gamma is zero and theta is positive, so that time is also in my favour. correct sir?

      • Mani says:

        also I am aspiring to become professional options writer sir

  202. Sandeepan says:

    When we are looking at OI data we judge from a seller’s perspective. Suppose spot is at 10900, then the increase in put OI at 10800 means that longs are being created at 10800 by “selling” puts. But when it comes to PCR we consider it from the buyer’s perspective (i.e. number of “puts” being bought). Why is that?

    Also, I do realise that looking at PCR from the seller’s perspective produces the same outcome.

    • Karthik Rangappa says:

      Actually, OI should not be looked at from either the seller’s or buyer’s perspective, Sandeepan. If a strike has OI, then it means there are both buyers and sellers there in equal measure.

      • Sandeepan says:

        Okay. I want to present two scenarios to you.

        1. The spot is trading at 150. All things remaining the same, there is a 25% increase in call OI at strike 160. What do you infer from this? A bullish signal or bearish?

        2. Same as 1. but result day is tomorrow.

        • Karthik Rangappa says:

          1) I look at this as increased activity in 160 CE. To figure bullish/bearish I’d see how the overall trend of the stock has been over the last few trading session. Increase in OI with an increase in price indicates bullishness. Likewise for bearishness.

          2) Same as above, in the absence of insider information

          • Sandeepan says:

            Alright. Thanks a ton! I really appreciate everything you and your team are doing for the community free of cost 😀

          • Karthik Rangappa says:

            Happy reading, Sandeepan! Good luck.

  203. Manoj says:

    Calculation mistake in Case 3: market expires at 7900…1823400*200 = 364680000. Extra ‘0’ added i guess

  204. Rohit Gupta says:

    Dear Mr Karthik,
    Is India vix is historical volatility of nifty or IV of nifty? Pl clarify me.

    • Karthik Rangappa says:

      Technically, both India ViX and Nifty volatility are different but can be used as a close approximation for one another.

  205. Kushal Agarwal says:

    Hello. Wonderfully written. One quick question. As an option seller, I would ideally want to sell at a time when the volatility is highest so that I can collect maximum premium. What is the rationale behind waiting for 15 days? The rationale behind a buffer of 5%? The pain point will vary everyday.

    Is there any forecasting technique to identify which day’s option pain point will be truly (as true as possible) representative of the actual expiry level?

    Thanks!

    • Karthik Rangappa says:

      I would ideally want to sell at a time when the volatility is highest so that I can collect maximum premium –> agreed. So your call should be on volatility here and not really on time. The explanations put up talks about time assuming all else equal.

      I’m not sure if such a predictive tool exists, the closest I can think of is the max pain theory – https://zerodha.com/varsity/chapter/max-pain-pcr-ratio/

  206. Harsh Singh says:

    Dear Karthikji
    I sell options(mostly call) considering some rational perspective u’d taught like high volatility, close to expiry, buffer using std deviation after getting max pain & of course market direction. My following questions are these…
    1) when to sell call options using pcr ratio. For example if I want to sell call options of Nifty OTM then what should be ideal pcr ? (Here I’m very much confused with pcr)

    2)The std deviation of 1 or 2 isn’t working even with most liquid stocks like RIL, TCS or infy (but yes in index it’s working). All in zerodha kite showing illiquid & can’t trade using market order & one can try LIMIT order. So is it OK to sell LIMIT order of OTM options of high quality liquid company stocks. Can I be guaranteed of retaining premium in LIMIT order if all goes well ??

  207. Suvajit says:

    Hi Karthik,

    A quick query please, Let’s assume I BUY Call PE Deep OTM and by the time of expiry it becomes further DEEP (ha ha ha) and their are no Buyers for that Option Anymore. Then what will happen after the Expiry Day or How do I SELL that position?

    Just little curious. 🙂

    Thanks,
    Suvajit

  208. Jayant says:

    Hi Karthik R,

    First of all, I would like to salute you for training via such a amazing module. After going through both the option modules, I realized how much planning one needs to do, in order to place successful trade.

    Please keep it up.

    Kind regards,

    Jayant

    • Karthik Rangappa says:

      Jayant, thank you! Yes, options need a lot of thinking through. Good luck and happy trading 🙂

  209. Yugandar Reddy says:

    Hi Karthik,

    Awesome for explaining it so clearly.

    This article reading has struck me at PCR vaue . As it says PCR is greater than 1 you said puts have brought more than calls and it is kind of bearish but i have been known this in opposite way.
    If PCR is greater than 1 than it is something puts have writen more and it is kind of bullish.

    Please help me understand here.

    Thank you for taking time to read this .

    Thanks

    • Karthik Rangappa says:

      It is basically treating PCR as a contrarian indicator. If more puts are being bought, then there could an expansion and vice versa. That’s the basic logic.

      • Yugandar Reddy says:

        Hi Karthik,
        Thanks for the information.

        I understand it’s basically the contrarian the way each individual think. For every sell there is a buy and some people think it was write and some other think it was brought. The big one is how we think.

        I was trying to see max pain and now it is at 10700 and maybe after few days it may move to 10800 or 10600 depending upon the bullish and bearish nature. Where can i get the max pain chart moved last month and may be last 6 months of max pain movement .

        Thank Karthik for helping retail investors for understanding the basics. Kudos to you

        Thanks,
        Yugandar

  210. Jagan says:

    Hi Karthik,

    I was going through the sensibull tool. It is really awesome to get the basics right.
    I have a question
    When we calculate PCR for nifty is it something we take all the open interest of puts divide by all the open interest of calls . If that is right than the PCR value will come at 1.16 but in the tool it is showing as 1.09 under screener.

    I was supprised this PCR value is showing under Nifty futures . Do we really have PCR for Nifty futures . i was thinking it will be there only for Nifty.
    Or we consider only ATM stike price OI for the puts and calls to get PCR .

    How exactly we calcualte it .

    Thanks for taking time

    • Karthik Rangappa says:

      Thats right, Jagan. PCR is calculated by taking all the OI of CE an PEs. I have shared the step by step procedure to calculate the PCR.I’d suggest you go through it. Btw, PCR is available only for derivatives contracts, not for the spot.

  211. Bala says:

    Hi sir, I’ve a doubt, for monthly expiry we’ll calculate max pain after 15 days.. But in case of nifty and BN weekly expiry which day is sufficient to make a decision on max pain strike?

  212. NAVEENKUMAR K says:

    “If the PCR value is above 1, say 1.3 – then it suggests that there are more Puts being bought compared to Calls. This suggests that the markets have turned extremely bearish, and therefore sort of oversold. One can look for reversals and expect the markets to go up.”

    Greetings Sir, While analysing Max pain, we look from a sellers perspective. But why PCR alone we are looking from buyers perspective ?. If we look from a sellers perspective, PCR 1.3- suggests more puts being written by sellers, hence It’s bullish sign only … Please let me know in which way we should analyse PCR and why?

  213. Venkat says:

    Hi, can you pls clarify on tax applicable if one is trading in options.
    As option trading is considered as speculative income,one need to file itr3 return even though one is a salaried person.

    Also I have read that if the annual turnover is more than 3crore rupees which includes profit+losses+ traded value. one need to get his account audited.

    So can pls clarify the facts

    Thanks in advance
    Venkat

  214. suraj says:

    hello,in the above calculation of max pain how do we select the range of the strikes(like you selected from 7000-8600),please clarify my doubts.
    thank you

  215. Aniket says:

    Hi,

    Please can you tell where we can get historical values of Max Pain for Nifty? For example: Max Pain at close of each day in 2019

  216. samier says:

    In real scenarios how to calculate helper column data? Should we need to take actual LTP as mentioned below, or ranges mentioned in excel i.e 100 to 1600
    e.g
    a) 10700 CE, LTP is 152 * 10700 PE, LTP is 5.55 = 157.55
    b) 10700 CE, LTP is 152 * 11100PE, LTP is 254.55 = 406.55

    Kindly help.

  217. Girish Kumar maurya says:

    Hi Karthik,
    I really loved and enjoyed the way you have explained the chapters. Like we have calculated max pain for index, can we calculate the same for stocks. As you mentioned max pain is the point where buyers lose money.
    Can we buy the strike where sellers lose max money as per max pain theory.
    Please guide and suggest.

  218. Anupam says:

    Hi,
    How would you read this situation : OI PCR has gone down and Volume PCR has gone up?
    Thanks in Advance.
    Rgs
    Anupam

  219. Deviprasad says:

    Hi Karthik,

    Thanks for the knowledge sharing.
    For weekly expiry of bank nifty & nifty options, what is the right time/day to calculate max pain.

    Thanks in advance,
    Deviprasad

  220. Arun says:

    Dear Karthik,
    i wud like to put up my query in form of example. Say i write option SBI at LTP of 5.00 and next day spot shoots up & LTP rises to 10. That means i m in loss. But at expiry spot goes down and LTP comes to 1.00. I immediately sells it to earn a diff of Rs. 4 profit.
    Am i thinking right or once spot moves up my options gets squared off and I book a loss?

  221. Deviprasad says:

    Hi Karthik,
    I have calculated BN range for one week from 17.10.19 to 24.10.19 and first sigma range is 28000(28029.98) to 30000(29984.26) and max pain as mid of the period (weekly) obtained 29300. Which one need to be considered to write options.

    Thanks,
    Deviprasad

  222. Narendra Bande says:

    Hi karthik, Thanks for this quick and crisp sessions. You are our tom sossnoff.
    I want to ask you that I have taken index data for last 5 years. Then I calculated SD and AVG over 5 years.
    1. Should I use all 5 years data to forecast weekly or monthly. I have been trading using 5 years and 2SD range. The range of outcome is big and I found the option prices were very cheap at 2 SD but very attractive at 1SD. But I consider only year data, then the range of 2SD may be equivalent to 1SD of 5 year. I mean less broader than 5 year data. Means the 2SD range may be very close to ATM. It also means that my stop loss or drawdown could be very heavy as range is narrow and I am totally dependent on market mercy to ensure profit. I am unsure becoz I feel I may be considering only bear or bull phase and my outcome would be seriously wrong as the feed is. Should I consider only one year? What say you?
    2. If I am option buyer, should I use 1SD or 2 SD.
    3. If I am option seller, should I use 1SD or 2 SD?
    Regards,
    Narendra Bande

    • Karthik Rangappa says:

      You are our tom sossnoff—-> this is too much, and I don’t think I’m worthy of that mention 🙂

      1) In my opinion, 5 yrs of data can be a bit too much. Maybe you should stick to 1 years data and monitor the price moves closely
      2) & 3) 2SD

  223. Subhash says:

    Sir,
    When I tried to calculate the max pain using all strikes available for Bank nifty, the resulting strike is not correct as it shows far ITM strike as Max pain. So how do I calculate it?

  224. Sachin Singh says:

    Hey Karthik, I’d executed an Iron Condor yesterday (expiry day). Sold 12000 PE & 12200 CE, and bought 11950 PE & 12250 CE. There wasn’t much movement so I was able to make a small profit.
    What I wanted to know was what I could have done in case the market moves too much in one direction. Say, the Nifty moves above 12200. Should I have let the CE side remain as it is (loss) and made PE side a bit nearer to the Nifty or try to adjust the CE side instead?
    Would appreciate your two cents. Thanks!

    • Karthik Rangappa says:

      Sachin, this depends on your original thesis for the trades. If you continue to expect the market to be rangebound and not move much, then perhaps you should stick/adjust the iron condor. However, if you develop a directional view, then you can get rid of all the legs that are against the directional move and ride on only the one which benefits from the directional move.

  225. abhishek jangir says:

    Bad Ass Material Rangappa
    Just Amazing………!!

  226. sahil says:

    hii sir pls cover some material on weekly options as well

  227. sahil says:

    sir, when does the theta decay, starts to play out in monthly options contract what would be the right date of someone wants to play on theta decay by shorting straddle with protection is after the 15th day when decay really starts to speed up?

    • Karthik Rangappa says:

      The theta decay is on a continuous basis. It accentuates towards the 2nd half of the series and peaks towards the end of the series.

  228. sahil swaroop says:

    hii sir my name is Sahil Swaroop and big fan of your material just wanted to ask whether if u are interested in collaborating as I majorly do options backtesting at algo trading firm in Mumbai in python.i have created one successful trading wich is running live in automation that I coded and is doing good till now I was wondering wherein if we can collaborate I backtest trading strategies that u think are good and I will share the thorough backtest results with u if u want I like to find new trading strategies and both of us can benefit from that it might sound weird to u. I am your student I have reading varsity for quite some time and when I think of collaborating with someone u were the first who came to my mind and i also have minute by minute options chain data u dont worry about the data. sir i hope i am not going out of the line i read lot your content just felt collaborating . but its totally ok if that if u cannot do that thier must be sveral valid reasons for that .but still if u are interested pls let me know my email will be thier.

    • Karthik Rangappa says:

      Sahil, thanks for thinking about me for the collaboration work. However, I’ve stopped trading as it occupies too much time, so not sure if I’ll be able to devote the time this work demands.

  229. sahil swaroop says:

    sir, u share an idea and after 2 to 3 days I mail u results u can improvise and give a review on those results if needed tell me what to improvise on the mail we might get some good strategies sir I think there is a lot to be found in the Indian market in options segment.u will have analyse the backtest results and interpret them. but I totally understand u would be having time constraints to be able to do this if u cannot its fine sir I totally understand. but if u can let me know sir.

  230. raj says:

    Max pain theory, Applicable on BankNifty as well?

  231. raj says:

    Max pain theory, Applicable on BankNifty weekly expiry as well?

  232. sahil swaroop says:

    i can understand sir its ok

  233. Fede says:

    In my experience I came to conclusion max pain theory applies just to high volume and OI stock options. Do you agree ? If so, how much would be the minimum volume to be intrested in applying maxpain theory ?

    Thanks

    • Karthik Rangappa says:

      I agree, in fact, most of such theories (including TA), works on the underlying assumption that there is enough liquidity. Unfortunately, I cannot put a number to this.

  234. sanjay says:

    Thank you so much for sharing such intrinsic knowledge over the platform.
    I am not able to find the max pain excel, can you please help with link or attachment where I can find the same.

    Thanks

  235. Fede says:

    MAXPAIN automatic calculation:

    http://maximum-pain.com/options/max-pain

    Reagards
    Fede

  236. raj says:

    Hi Karthik,

    Do Nifty and BankNifty really expire at max pain point? what does your experience say about it?

    Thanks,
    Raj

    • Karthik Rangappa says:

      No, it does not, at best it is a rough approximation. It is best if you can build a range around the max pain level and expect the expiry to occur anywere within that range, rather than looking at 1 particular price point.

  237. raj says:

    Ok. Thanks : )

  238. Atal says:

    http://niftyinvest.com/max-pain
    here you to can find max pain for any stocks

  239. Aasim says:

    Does it simply means that the strike with highest oi by adding both call oi and put oi. Please correct if my understanding is wrong.

  240. Tamil Selvan M says:

    Hands up…. The best explanations about the concepts and theories of the stock market I’ve ever seen. It’s like feeding a baby. Kudos to you sir : ) ..

  241. Anish says:

    Hi Karthik,

    Thank you so much for writing these articles. Each module is top class, lucid and yet so insightful.

    I have a question regarding max pain. While calculating losses for option writers, we have not considered the premiums they have received while selling the options. I realize that this data is not readily available, but aren’t we subjecting ourselves to availability bias by eliminating this key component? The losses could be much lower when we consider the premium received.

    • Karthik Rangappa says:

      Hmm, Anish I agree to some extent. Some because on expiry what matters is the intrinsic value of the option. Anyway, these things is what constitutes a ‘model error’, hence its always better to take a range as a possible final solution, which is what I’ve mentioned in this chapter as well.

  242. Tejas says:

    Hi Karthik,
    Thanks for awesome I formation.

    I have question,
    As we all know option chain data keep changing for every min. So how do we calculate correct strike for Max. Pain?
    Let’s say Experiy on Thursday. Today is Monday. How can I write calls based on option chain data of Today? It is gona change tomorrow and even on day of Experiy, right?
    Please correct me if I am wrong..thanks in advance.
    Regards

    • Karthik Rangappa says:

      One thing you can do is…You can look at the Max pain value, estimate a range around the max pain value and then write options outside this range.

  243. Srinathjayanna says:

    Sir in sensibull they are referring pcr above 1.3 as over bought and 0.5 as over sold which one is correct.

  244. Srinathjayanna says:

    1.They say in their webinar,pcr above 1.3 means more puts big(sellers) have sold puts and the market is bullish and over bought and we can expect reversal and vice versa for calls.

    2.After adding the 5% buffer should we go with naked selling or with hedging.

    • Karthik Rangappa says:

      These are tools developed based on emperical science. There is no defenite answers, I’d suggest you use this, observe and then make adjustments to match your risk and reward temperments.

  245. Ram says:

    The knowledge you possess in trading is enormous.
    It might sounds crazy, why don’t you give us your own trading strategies?
    There will be many out here who ready to pay for this:)

  246. Ram says:

    What you are doing is really appreciable..
    Is there an strategies out there on expiry day? Many are marketing about hero or zero calls which I feel like a lottery.

    Also do you think retail traders can make out of living with this? As I am seeing around, there are very few who are successful and taking it as profession..

    • Karthik Rangappa says:

      Ram, don’t trust stuff like zero to hero or whatever, it is most likely a scam 🙂

      It is hard to make a living, not that people have not done that. They have. To give you a perspective, 1 in maybe 25,000 can do this successfully. What is a more likely possibility is that you can make trading as a supplementary income, to complement your main source of income.

  247. Aasim Nagarwala says:

    Hi Karthik,

    Thank you for your valuable information.

    I think you are seeing PCR from byers perspective. I have observed that whenever the pcr is rising bullishness turns in the market. and whenever its decreasing bearishness.

  248. Dhritiman Chakrabarti says:

    Hi Karthik,

    Really liked the way you explained the stuff. I coded the excel calculations using R and wanted to share it here for benefit of everyone.
    Method of use:
    1. Install R software.
    2. Set up your working directory.
    3. Make a CSV file called “Options.csv” which contains the following columns: “Strike”, “Call OI” and “Put OI”. The names of the columns should be exactly the same as written here (else the code will throw an error). The data of the strike price, and OIs needs to be pasted into this CSV file and saved in your working directory. The numbers need to be in normal format (without commas).
    4. The code needs “ggplot2” package for producing the bar diagram. This can be done by typing the following into R console:
    install.packages(“ggplot2”)
    5. Now the following code can be run on the R console:

    ###########################
    library(ggplot2)
    D<-read.csv("Option.csv",header=TRUE)
    D[D=="-"]<-NA
    D<-data.frame(apply(D,2,as.numeric))
    Call_val<-NULL
    Put_val<-NULL
    Helper<-D$Strike-D$Strike[1]
    RevHelper<-D$Strike[nrow(D)]-D$Strike
    for(i in 1:nrow(D)){
    Put_val[i]<-sum(D$Put.OI[nrow(D):i]*RevHelper[nrow(D):i],na.rm=TRUE)
    Call_val[i]<-sum(D$Call.OI[1:i]*Helper[1:i],na.rm=TRUE)}
    Total<-Put_val+Call_val
    PCR<-round(sum(D$Put.OI,na.rm=TRUE)/sum(D$Call.OI,na.rm=TRUE),3)
    G<-ggplot(data=D,aes(x=factor(Strike),y=Total))+geom_bar(stat="identity")+labs(x="Strike Price",y="Total Pain",title="Max Pain")
    print(G)
    cat("Max Pain Level= ",D$Strike[Total==min(Total)],"\n","PCR OI = ",PCR,"\n")
    View(data.frame(D,Call_val,Put_val,Total))

    ###########################

    Thanks again,

    Dhritiman

  249. Dhritiman says:

    Cheers bro!

  250. Venkata Koteswararao mogali says:

    @Karthik Rangappa

    I have read both the modules with regard to options, they are simply superb. 🙂

    Using python i have calculated option pain for each day w.r.t monthly expiry options for all the months in 2017, 2018, 2019.
    I have downloaded contracts data form NSE Website.
    The results were written to an excel file.

    Please share your email id so that i will share the python code, input files used and the results.
    I am sharing these because you could use them for to improve the option pain chapter.

    Thanks, 🙂

    • Karthik Rangappa says:

      Hey thanks so much for the offer. Maybe you can share the link here to download, will help many others too.

  251. Venkata Koteswararao mogali says:

    Yes, that’s a great idea and its my pleasure to share…! @Karthik Rangappa

    Simply put the results of back testing :– The maximum deviation that i have seen from option pain on any given day of expiry month to underlying expiry on the day of expiry is between 7.13% for 2019, 8.78% for 2018 and 7% for 2017.

    Therefore, we can confidently add 9% or like 10% to least option pain expiry on any given day in expiry month so that the expiry would not be beyond the strike.

    However the Python code along with results of the code and input files can be downloaded form google drive link below:
    https://drive.google.com/open?id=1zuEqxhzbjcjD7iXfH79fZIx9DmRJefld

  252. Sivakumar Kannan says:

    Hi Karthik,

    I read somewhere that PCR is to be viewed from the angle of option writers, not the option buyers.
    For example, if PCR is 1.3, this means there are more put writers than call writers. This means more writers believe markets will not go down further and hence bullish.
    Is this view correct? Thanks.

    • Karthik Rangappa says:

      Hard to say that, simply because the OI is reflective of both buyers and seller right? Cant really distinguish one from another.

  253. Abdul says:

    sir I can clearly see all the options strategy excel sheets except Max Pain & PCR ?
    Plz share.

  254. Akash says:

    Sir
    I have following queries:
    1. PCR (put-call ratio) when viewed from seller’s perspective would give better understanding. Correct me if I am wrong.
    2. We have a fixed number of outstanding shares of a company that can be traded on exchanges. Is there any relationship between the no. of outstanding shares and the no. of options contracts (i.e. OI) that can exist at a time?

    Thanks

    • Karthik Rangappa says:

      1) Not really, its not biased towards buyer or seller
      2) Nope, no direct relationship as such.

  255. Arvind Verma says:

    Hi Karthik,
    Thanks a lot, u have explained the option trading very nicely. I would like to suggest one thing why don’t you start your YouTube channel and make videos on these modules.I watched a lot of videos to understand the option trading but none was good enough.

    • Karthik Rangappa says:

      Thanks for the suggestion, Arvind. It is just that videos will take away a lot of bandwidth, so we are kind of hesitant to do that at this point.

  256. Akash says:

    Sir
    As per recent SEBI Circular, there is proposal for reduced margin requirement for hedged positions in FNO w.e.f. 01 June 2020. But at the same time, it is stated that brokers may remain conservative if they wish. Will we as Zerodha’s client be able to have this benefit or Zerodha will opt out to remain conservative with no change in margin requirements for clients?

    Thanks

  257. Saurav Kumar says:

    Hi Sir

    Thanks for such clear and precise explanation for Max Pain and PCR. All your chapters are amazing. I just have 1 small query. In your improvised implementation of Max Pain, you are taking positive 5% buffer. Any specific reason why you considered only positive buffer and not a negative?

    Thanks

    • Karthik Rangappa says:

      The buffer is just to accommodate the errors if any. Think of it as a safety net.

  258. Vaishnavi Sanjay says:

    hi Sir

  259. Vaishnavi Sanjay says:

    Sir , why my postings are deleted is it not relevant or idiotic or offensive.

  260. S. Kawade says:

    Hello sir,
    How option circuits are calculated.
    What is max risk, if CE 9500 is bought in current week and sold in next week at same time.

  261. Nilesh R says:

    Hi Karthik,
    Many thanks for making option trading learning easy and interesting. I have liked contents and the way of explaining things.
    Interesting read about max pain.

    After reading modules related to options, got so much interested into options trading, now i wanted to become quants!

    Thanks!

  262. Abhijeet says:

    Simple and Well explained best part is Excel template

  263. R VINOD KUMAR says:

    Dear Karthick,
    Thanks for the wonderful module on option, i enjoyed reading them, my thanks for keeping them as simple as possible and also have gone through your twitter thread about option buying couple of days back, it was crisp and clear

    Just help me out in clarifying few things
    1. Do net credit strategies yield more profits compared to net debit, I am just looking for probabilities. Please indicate the same out of your experience

    2. I have come across IVP and IV ranks, have also read we need to use either one of them, which will be better to use IVP (Percentile) Or IVR Rank

    • Karthik Rangappa says:

      Glad you liked the tweet thread 🙂

      1) No, they both have similar probabilities. Net credit gives more conform to the trader though
      2) I’d prefer the IV rank

  264. ANKIT says:

    hi karthik .
    i want to know that market is a place of uncertainity (trading).suppose if i trade a plan well there is no certainity that it will be profitable it can go to loss also.
    i want to know when is the right time to trade a big trade like paul tudor jones or george soros .
    thought process before getting a trade ,trading physocology etc
    how will i get the conviction to take that big trade .

    • Karthik Rangappa says:

      With more trading experience, the higher is your conviction on trades. This will take few years of market exposure.

  265. Varun Agrawal says:

    Hello Karthik,

    Just a personal thought. I feel a bit doubtful about max pain theory. There are very few articles on it. Wikipedia doesn’t say anything. Even the website mentioned on this page (optionspain.com) is dead. I also feel doubtful that bunch of options trader can really manipulate stock prices of large-cap stocks. aBut I guess there need more research as well as backtesting on this.

    One question. I believe the market will be sideways so I want to sell options. But I also want to limit my loss in case I am wrong. Are their popular strategies for my situation that I can read about on the internet?

    I think a short straddle with OTM long Call and OTM long Put would do the job. Wondering are there any other popular strategies?

    • Karthik Rangappa says:

      Varun, most of these concepts are like that. Obscure and not backed by scientific theory, just like TA. The problem is that you can’t disregard it as well 🙂 It is up to you to figure the best way to use in the markets, maybe reconfigure and reuse to match your trading requirement 🙂

  266. savan patel says:

    I think you have made mistake in writing in the para after 7th point in section 13.4. You should write “1.5 to 2 times” Std.Div away from mean instead of “1.5 to 2%” Std.Div.

  267. Kripesh says:

    Sir,Can you provide the excel sheet for calculating max pain theory?

  268. Aravinth kalaiselvan says:

    Hey man, I got some doubts related to the margin required for option writing.

    1) Let’s take an example where I sell a put option
    Instrument: niftybank
    Spot – 19000
    Strike – 17500
    Margin – 47k ( span – 30k + exp – 17k)
    Premium – 4.2k

    Now let’s say the trade goes against my view and niftybank spot becomes 18000.

    When I executed the trade, I had 12 trading secessions before expiry and the move to 18000 happened in 2 trading secessions.

    How will you this affect my margin? Will I have to pay more? In futures margin M2M makes prefect sense to me but I couldn’t understand how margin works in options.

    2) Here am implementing call ration back spread –
    Selling 1 ITM CE
    Buying 2 OTM CE

    my margin requirement is 70k(span – 40k and exp – 30k) according to zerodha margin calculate.

    From my calculations the max loss I can experience is 30k.
    Got more than 30 days for expiry.

    In this case will there be any increase or decrease in margin depending upon the underlying assets?( Because I have sold a call option)

    Let me know if my questions are not clear… I’ll put it in a different way but please help me out.

    • Karthik Rangappa says:

      Unlike futures, there is no M2M in options.

      1) When you write options, the premium will be credited to your trading account on T+1 basis
      2) The margins blocked will suffice in normal cases (like this one) for you to continue holding the position.
      3) However, if the volatility shoots up drastically or the underlying moves heavily against your position, then you’d be required to bring additional to suffice for increased margin
      4) The blocked margins will be released once you square off the position
      5) Your profit is to the extent of the premium received
      6) You make a loss if you square off the trade at a premium lesser than what you’ve received. The difference will be debited at the time you will square off the trade.
      7) Btw, going forward the margin for multileg positions will reduce, check this – https://tradingqna.com/t/new-margin-framework-sample-calculations/78211

  269. Aravinth kalaiselvan says:

    Hey,

    “3) However, if the volatility shoots up drastically or the underlying moves heavily against your position, then you’d be required to bring additional to suffice for increased margin.”

    Will the margin reduces with a decrease in volatility or/and the underlying moving in favour of my viewpoint or will it stay the same till I square off my position?

    Other points are clear Karthik, Thanks.

  270. RATAN says:

    I”M IN CONFUSED SIR WE CAN FIND PCR FOR EVERY STRIKE PRICE SO BEFORE ENTRY WHICH PCR WE HAVE TO CONSIDER THE TOTAL OI PCR OR FOR EVERY STRIKE PRICE PCR PLIZ CLARIFY ME.

  271. Santosh says:

    Your PCR interpretation is just opposite. Today on 1st June 20, the PCR is 1.6 and market is heading to 10k and it is bullish and overbought. It may reverse in few days.

  272. Shubham Jain says:

    Dear Karthik,

    The maxpain theory seems quite impressive, but why come there is no research papers around this, can you share link of any such research paper if you have come across?

  273. Inder K says:

    Dear Sir
    cordially THANK YOU soo much sir for All modules.
    Sir please help me out to calculate Cumulative Values in Excel Sheet
    Please Sir!

    • Karthik Rangappa says:

      Where are you stuck in the calculation? I’ve tried to explain it stepwise in the chapter.

  274. Natwar Mandal says:

    Hi Karthik,

    Can we use the Max Pain excel shared by you in this chapter for nifty weekly expiry. I know you suggested to avoid weekly expiry. But i want to trade on nifty weekly expiry , please suggest the approach using this Max Pain excel shared.

    Thanks,
    Natwar Mandal

    • Karthik Rangappa says:

      You can, but just be aware that the theta decay in weekly options is quite high, which is good for the sellers.

  275. Natwar Mandal says:

    Thanks Karthik !!!!

  276. Natwar Mandal says:

    Hi Karthik,

    So I assume there is no change in any formula on Max Pain excel shared in this tutorial ( for weekly expiry trades ).

    One more thing regarding column R (Helper Column). does this need any modification for trading on stock specific ? or values in this column will always be multiples of 100.

    Regards,
    Natwar Mandal
    +91 6204194107

    • Karthik Rangappa says:

      Yes, no change in formula or logic. No, helper remains the same. Use this according to the situation.

  277. Gaurav says:

    Considering Nifty 25 June 2020 Strike. If i take ATM PCR, it is ~1.2. If i take the total PCR of all strikes it is 1.53. Which one should be taken into account for setting up a trade ?

  278. Natwar Mandal says:

    Thanks !!!

  279. K N Viswanathan says:

    For calculating Max Pain should I take all Call & Put OI values or those which are “In the Money” only. Pl clarify

  280. K N Viswanathan says:

    Is there weekly expiry for Nifty options. I thought it there only for Bank Nifty options

  281. K N Viswanathan says:

    The formula in Excel sheet for Max Pain calculations can be simplified by using $ sign against column B (like B$4) copying down. Then only one more row & column combination (R..$B…) combination has to be added

  282. K N Viswanathan says:

    Will Zerodha accept shares in my demat account as collateral for options selling. If yes where can I see the procedure. I have a Zerodha account

  283. K N Viswanathan says:

    Yesterday I made a template for calculating Max Pain for Nifty & Bank Nifty. Now all I have to do is to copy the strike & OI data from NSE site. 5% addition seems very high for Bank Nifty. Don’t you think so?

  284. K N Viswanathan says:

    For working out Max Pain I took no of trading days for June series ( 20 days starting from 29th May & ending on 25th Jun ) & will work out the Max Pain for Nifty on 12th Jun i.e the 11th day ( not 13th😁). Is that ok

  285. Sekhar says:

    It is really nice explanation Karthik. Thank you very much for sharing. I need small clarification on your improvements.
    “ The OI values change every day. This means the option pain could suggest 7800 as the expiry level on 10th of May and may very well suggest 8000 on 20th of May. I froze on a particular day of the month to run this computation. I preferred doing this when there were 15 days to expiry.”
    Can you please explain the below point with example.

    • Karthik Rangappa says:

      What I meant here Sekhar is that the OI fluctuates daily, so the value you get today may be different from the value you get t’row. So the question is which value will you take? Y’day or today? Given this, one of the better approaches would be to calculate this on a fixed day of the month and stick with the values for the rest of the month. I prefer the midway to expiry i.e. around the 15th of every month.

  286. Natwar Mandal says:

    Hi Karthik,

    shared max pain excel template have 8 ITM , 1 ATM, and 8 otp strikes right ?
    it has to be 17 strikes only ? or we can add/ reduce ?
    please suggest.

    Regards,
    natwar

  287. Natwar Mandal says:

    got it… Thanks 🙂

  288. manish says:

    hi karthik,can u plz guide how to make template on excel to calculate max pain of nifty.can u share from where on nse site OI data with strike rates is available?

  289. manish says:

    hi karthik,from where to obtain data on nse website regarding open interest and strike rate.

  290. Sekhar says:

    Thank you very much for the reply!

    I have another doubt on calculating the Maxpain.
    1. If I want to take the position for expiry 30-07-2020 on 15-07-2020 (15 days before expiry), which date Maxpain we should calculate( 30th or 15th)?
    2. 15 days before means, 15 calender days or market business days?

    Thanks in advance!

    • Karthik Rangappa says:

      1) Max pain is based on current OI, hence you cant take for 30th, but will have to take for 15th only
      2) 15 calender days.

  291. Abhishek Sharma says:

    Karthik sir,

    I have a small question in mind, how can someone lose money if he does call writting . suppose I write a call at 20 rs and if the premium surge up we would lose money. but the question is why to book the loss when I know at the end of the month premium becomes 0 and I can collect all the premium on expiry. can you clear this simple doubt sir. I will be grateful to you.
    regards
    Abhishek sharma

    • Karthik Rangappa says:

      There is no guarantee that the underlying will come down right, Abhishek? Hence there is no guarantee that the option will hit 0.

  292. Anil Gupta says:

    Dear Karthik,

    Small confusion. I have sold a Call of Tata motors @ 20.45. For one of my strategies
    though tata motors have gone up 6% I was expecting a loss and premium to go up.

    as the stock price increases, there will be an increase in premium.
    Is it only because of the fall in Volatility the premium has come down as I am closure to expiry?

  293. Anil Gupta says:

    Dear Karthik,
    Any reliable source where I can learn the co-relation between PCR and IV.
    have done little research your inputs will add value.
    And should we use PCR to find support and resistance of stocks/index?

  294. Nikhil Khurana says:

    Why it is called Maximum pain rather it should be called minimum pain considering it would cause minimum pain to writers if it happens to expire where it hurts less 😀

    • Karthik Rangappa says:

      Max pain looks at that price point, at which if market expires, maximum pain is caused to option buyers. Hence max pain 🙂

  295. Abhay says:

    Sir,I am fascinated with kite app and application and also i am college student.I just wanted to know how did you code zerodha like did you do it yourself or got it done by some third part because i was planning to make a very small project with moving average for stocks.

  296. Albin says:

    Sir,what if i used the oi of weekly options and calculate the max pain of the week? And write an option on monday with 5% sd waiting till the weekly thursday expiration

    • Karthik Rangappa says:

      Perfectly valid, no harm trying that out. Paper trade this for a bit, observe and then take a call 🙂

  297. Satheesh says:

    @ Karthik, @ Ravindra Thakur
    Just thought of sharing this info to make max pain calculations easier.
    We can leverage SUMPRODUCT (which is already used in Cumulative put) to make it lot more shorter formula.
    I could not find a reverse range formula in excel, so I got one from Google.
    Here is the code:
    Public Function reverse(rng As Range)
    Dim ary(), N As Long, i As Long
    N = rng.Count
    ReDim ary(1 To N)
    i = N

    For Each r In rng
    ary(i) = r.Value
    i = i – 1
    Next r

    With Application.WorksheetFunction
    reverse = .Transpose(ary)
    End With
    End Function
    ————————————–
    Just enter this in user defined function code editor (Alt+F11) and then cumulative call can be calculated as :
    SUMPRODUCT(reverse(R3:R9),B2:B8)
    SUMPRODUCT(reverse(R3:R10),B2:B9)
    where C column has call open interest and R column has helper values (Refer to original excel).

    Reference link for more details in excel:
    https://stackoverflow.com/questions/48751620/reversing-a-list-in-excel-within-a-formula

  298. Sharan says:

    Sir,
    Would it be right to say that Max Pain Strike calculation done 10 days prior to Expiry Date is likely to be more accurate/has higher probability to occur, when compared to Max Pain Calculation done 20 days prior to expiry?

    • Karthik Rangappa says:

      Tough conclusion, you need some sort to backtesting to validate this. Having said that, I’d take the values roughly 10 days prior and work with it.

  299. Sharan says:

    Sir,
    Consider Reliance Jul 2140 CE. Current Spot Price of Reliance is 2146.
    The PCR ratio calculated by Sensibull is based on the entire Option Chain OIs and the value comes to be 1.08 . Hence we expect the market to go up.
    However, if we calculate PCR ratio based on just 17 Strike Prices, as given in the PCR Excel file (8 OTMs + 8 ITMs + 1 ATM), the value turns out to be 0.48. Based on this value we expect the Market to go down.
    Now which value to use for forming an opinion about the market?

    Regards.

    • Karthik Rangappa says:

      In my opinion, the decision to include strikes should really be based on the liquidity of strikes. If all strikes are liquid, take them all. If the liquidity is spread across just 8-10 strikes, then consider just that.

  300. Aditya Vikram says:

    Hi Karthik,
    Scenario – I have been observing Lupin’s charts and have subsequently sold 1050 CE, and unfortunately it shot up yesterday by ~10% and is currently at ~1020(with 13 calendar days till expiry).
    I checked out the max pain which is at 960. The ATM IV is at 56 which is considerably higher than the average of around last 2-3 months.The stock has already broken its resistance 1, heading towards resistance 2.

    My point is the max pain seems way too far than the CMP right now. I was playing safe and hence sold it at a much higher strike price.
    With your experience, and with only 9 trading sessions left till expiry, what else do you see as the driving force or what other metrics should I give weightage to, on the same level that I’m giving to PCR, IV and Max Pain?

    Thanks

    • Karthik Rangappa says:

      PCR is secondary, what really matters is the IV. So please develop your thoughts on IV and set up your trades based on that.

  301. Premakumar K S says:

    Respected Sir, How to interpret the change in Max pain? It keeps on increasing or decreasing till expiry. Can we say that when the Max pain is increasing, the spot is bullish and vice versa or otherwise. For eg. Today Bank Nifty jumped up by 500+ points and Max pain reduced from 22600 to 22400. Getting bit confused. I could not find any resourse where movement of max pain is discussed. Kindly throw some light on this please sir.

    Warm regards.

    • Karthik Rangappa says:

      You need to calculate the max pain on a particular day and take a stance with that. The reason we add a % band around this is because it keeps varying.

  302. Siddhant says:

    Hello,
    I didn’t understood the meaning of helper column!

  303. Siva Kumar says:

    Dear Sir,
    As usual your explanations are crystal clear. We as a community owe a lot to you.
    My query here is… in your example you have mentioned buffer as 7800 + 5% of 7800. This addition is only on one side. what about the other side ? like 7800 – (minus) 5% of 7800. Hope you have ignored the same as you are looking more from the call option perspective. Otherwise it should be both sides..right ? Kindly clarify.

  304. Gaurav Srivastava says:

    Din’t actually get why the PCR is a contrarian indicator… can you please explain a bit more…. does hedging also comes into picture which makes PCR a contrarian indicator.

    Also instead of calculating the rupee value for option pain, Can we take only the cumulative OI of both puts and call side… I think that will also work or is there any catch in it..

    Thanks in advance

    • Karthik Rangappa says:

      Gaurav, I think another person had the exact same query, and we have discussed this in the comments. Can you please check? Thanks.

  305. koushik says:

    sir , how do you analyze when oi on option chain are nearly equal on both the sides (call and put ) ?
    thank you.

  306. Yets says:

    Dear sir, I am learning how read option chain but I am always confuse with Deep ITM writings. For example right now market has come already above 11400 but still we can see some open interest on 11000 to 10800 on calls side for current week(8th oct). May be those are hedged positions but why somebody will want to write below 11000 strikes as they are still very far for hedging purpose. same things I have noticed sometime on put side as well. please tell what does this means.

    • Karthik Rangappa says:

      Markets are made of different opinions, at every strike there is an opinion which translates to buy or sell. Hence you see OIs at these strikes.

  307. Yets says:

    oh ok. Thank you for reply.

  308. Chandrashekar SM says:

    Hi, Its very pleasant to read concepts in this simplified way. I can see the efforts of your Team in the content.

    It would be more beneficial if you guys can create Youtube Videos in a Channel.

  309. Nagarjuna Reddy says:

    First time I read Full article . Thanks sir god bless u.

  310. Nagarjuna Reddy says:

    Enlightening facts about max pain theory and PCR . Kudos .

  311. Shubham says:

    You are doing something very rare with varsity. Thank you for keeping it free for everyone. I am really learning a lot.
    I had a thought so wanted to ask your view regarding it?
    Considering trade for weekly expiry, example:
    Suppose bank nifty has maxpain around 26000 level Tuesday mid, days left to expiry is 3 so we calculate Standard deviation of 3 days around maxpain level keeping bank nifty Price action in mind and create short strangle or inverted strangle around it with 1SD till expiry day and exit by Thursday mid. What do you think about this strategy?

    • Karthik Rangappa says:

      Thanks for the kind words, Shubham!

      That sounds alright, but do bear in mind that 1SD can be taken off easily on expiry days as the volatility tends to shoot up.

  312. Jignesh Tank says:

    Request you to provide analytical details like PCR ratio, Max Pain details for nifty weekly expiry. Currently data analysis available for monthly expiry only in nifty.

  313. Rishabh Dey says:

    In PCR it’s mentioned that if PCR is more than 1 that means more puts are being bought, but it also signifies that the same amount of puts are being sold.
    Put OI means put open contracts if its 1 lac than that means 1 lac puts being sold and at the same time 1 lac puts being bought so that why PCR Formula should be puts bought/call bought or put sold/call sold.
    Please tell me where I am wrong.
    Regards

    • Karthik Rangappa says:

      True, the fact that there is so much interest in PUTs is the whole point. Also, keep in mind the price itself when you look at any OI derived parameter.

  314. Tejas Pol says:

    Hii sir….can you make a video on this and post it on YouTube. Many people will go through it which will count for there knowledge gain.

    • Karthik Rangappa says:

      Will try and do that Tejas, meanwhile I think Sensibull has already done few on this topic, you may want to check on youtube.

  315. Ritika says:

    Highly Commendable work Karthik. This is why Zerodha is the best broker out there, you guys are not just chasing profits, you are ensuring more people get into stock market and trade knowledgeably.

    However, I just have one problem with this chapter. I am not able to download Option Pain Excel sheet. It seems the word downlond is no more hyperlinked. Please help

    • Karthik Rangappa says:

      Thanks for the kind words, Ritika. I’m not sure what happened here. I’ll check with the team, but please give me few days time on this.

  316. Himanshu Kumar says:

    Hello Karthik,

    In one of the trading community the use max pain concept everyday to decide which strike price call or put can be bought on that day. This article is great but the it only considers the perspective of option sellers/writer. Can you please write an article how option buyers can use max pain on a daily basis to figure out which strike to buy call or put?

    Thanks,
    Himanshu.

  317. Cedric says:

    This is a fantastic piece of work. I learned plenty from it. Thank you very much!

  318. Gurutej says:

    Sir this eye opening chapter…iam beginner to market facing daily loss…no one told about pcr maxpain ….even iam not heard before these therotical words… From now I will not dive into market before seeing these basics..

  319. Tango says:

    Hello sir,
    Is there any chapter on ‘Delta hedging’ in detailed manner. I am consed with that one.
    If no, then when it will be added to this module?

  320. Tango says:

    Hi sir ,
    But in first chapter of Tading Systems’ you mentioned that you are going to write on this. Can we expect that in future? Or delta hedging is not much that important?

  321. LIONEL says:

    Sir;
    1. Is the Max Pain theory also applicable on the weekly options; that means : whether the weekly options also tend to close near their Max Pain point ?
    2. Is it advisable to trade Intraday option on expiry based on the Max pain concept ?

  322. LIONEL says:

    Thank You; Sir.

  323. Rajat pahuja says:

    hello sir,
    sir it is believed that elon musk wealth increased mainly because of increase in share price . but sir if price increase then the money made by buyers was arised out of the losses suffer by sellers . in this all money remain within the investors . then how it increased his wealth ?

    • Karthik Rangappa says:

      It depends on the market position you have right? You are a buyer of an asset, and the asset price increases, then you do make money off it.

  324. Rajat pahuja says:

    sir is there any link where we get all options strategy pdf format uploaded by you ?

  325. Tango says:

    hi sir,
    sir, how to select strikes for max pain ratio calculation. How should be range of strikes considering away from ATM strike? 🤔

  326. Rajat pahuja says:

    hello sir ,
    sir with in 2 days the max pain strike price changed by 200 points provided its last 2 days of weekly expiry. sir is it work like this , that within short span it chnaged position too quickly ?

  327. Rahul says:

    Is there any reliable portal where I can get the latest data (charts preferred) for Index PCR and Max Pain and can study the same over a period of time?

  328. Rajat pahuja says:

    hello sir,
    sir i go through various module of technical analysis and still find difficult to know in intraday that market had reached its trend limit and is now exhausted and its time for some correction . getting all of these things just by reading candlestick chart is i think incomplete .is there anything which can help ?

    • Karthik Rangappa says:

      That’s only a matter of practice Rajat, I’d suggest you keep at it and observe the markets for a while.

  329. Samir says:

    I actually only read the max pain section. Very well written. I’ve traded options for a long time, but wasn’t aware of this concept until a grade school friend sent me this link. Will read through all the chapters. A big thank you 🙏.

  330. Ajai Alias says:

    As u suggested as the safer side adding 5% to max pain. Why can’t be reducing 5% also. Ideally that 5% buffer should apply either side right. Can you pls guide on this..

    • Karthik Rangappa says:

      The assumption is that you will write only call option, hence we add 5%. Of course, if you are writing Put, then subtracting 5% makes sense.

  331. Sameer says:

    i recently learned that PCR is the ratio of puts sold to calls sold. So positive ratio would mean more puts sold and a bullish outlook, kindly confirm and for vice versa as well.

  332. Hiteshh Malik says:

    I am thinking in a different way that if PCR is above 1 means there are more put writers than call. Which actually means many people are thinking that market will go up i.e. bullish therefore they have written more put than call and vice versa. Can you please help understand that why have we taken more put are bought it may be the other way round. Isn’t it?

  333. JasonVoln says:

    Hello Sir,

    Past 4-5 months Nifty has generally had a PCR of 1.3-1.5..
    As a contrarian this would mean that if Nifty is looking very oversold and everyone has already made their bearish position, so it makes sense for it to go up as that is the only place for it to go. Which is what happened past few months.

    Am I right with my analysis ?

    Can nifty remain sideways instead of going up when a PCR is 1.3-1.5??

    • Karthik Rangappa says:

      It can remain sideways as well, and it can remain in that range for a long period, irrespective of the PCR reading.

  334. Gulam Bhajwa says:

    Hello Sir,

    For writing options you have mentioned that we should calculate SD etc.

    But this is an extremely tedious process to download data and calculate this every day correct? There must be a better way that calculates daily volatility and daily returns every day?

  335. Debasis says:

    I want to know max pain theory

  336. Ibrahim Basha says:

    Hi. I am unable to download the excel. Is there any way that I can do this now?

    Thanks

  337. SATYA says:

    HI Sir,
    Thank you very much for your efforts and stand for traders!
    I am unable to download Max Pain Excel from the link given above. When I click, nothing happens. Can you please suggest on this…

  338. CHANDAN NAGARAJA says:

    Does someone know where to download historical OPTION CHAIN DATAs from any website for backtesting?

  339. RAJESH NAMDEV MOKAL says:

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

  340. sandeep says:

    how can I calculate the value of total loss value of call and put options in excel sheet? I know its not important here still can you help me

    • Karthik Rangappa says:

      You can do that by looking at the price you paid for the premium and the price you sold the premium. Basically, the difference between the buy-sell price of the premium.

  341. Gururaj Shetty says:

    Hello Karthik Sir,

    First of all thanks for all the Options Strategies, I don’t think anybody can explain more better than this:)Thanks you!

    I have one question, do we deploy Max pain strategy as one naked trade(unhedged)? or this is a theory and we have to find a suitable strategy after finding the MAX pain?
    Why I am asking this is because, above you say that -(I would set up strategies keeping this expiry range in mind, ”my most favourite being to write call options beyond 8200”. ”I would avoid writing Put option”)
    Does this mean it’s one naked trade(unhedged)? Since you suggested writing the call option and avoid the Put option?

    • Karthik Rangappa says:

      Thats right, Gururaj. Max pain helps you identify a probable range within which the market is likely to expire. You need to figure strategies around this.

  342. Shivansh Agarwal says:

    If the PCR is above 1 then the markets have turned extremely bearish then how it can go up

  343. Chandu says:

    Sir do you recommend calculating Max pain in excel manually or it is readily available on sensibull
    But in the chapter I calculated when there is fifteen days left to expiry but in sensibull Max pain keeps on changing daily basis

    • Karthik Rangappa says:

      I’d suggest you use Sensibull. Yes, as and when OI changes, max pain changes too. Hence you calculate the max pain 15 days prior and freeze on it.

  344. Chandu says:

    Sir I stick to what Max pain shows in sensibull when there is 15 days to left for expiry and add 5% to that,it makes sense.

  345. Shabnam says:

    Hello Sir,

    Let’s say I have bought 1500 SBIN shares at 420.

    I feel SBIN won’t be rising till 470 so I sell 480 CE naked for 2 points. I am implementing a covered call strategy

    Will the system see that I have shares of SBIN and reduce my margin or will I get charged the full margin?

  346. JD says:

    From where we can see Max Pain Data?

  347. Pia says:

    Hi Sir,

    On Zerodha. lets say I have placed a bull put spread on nifty and another bear call ladder on nifty.

    Total positions are 5 legs.

    In my trade book it will show 5 different orders.

    Is there a way I can club my orders so that I can know which strategy is making money and by how much instead of manually checking each order for payment?

  348. sangeet says:

    Hello Sir,

    I would really like to thank you and your team zerodha for putting such learnings and experience over internet and that too free of cost. Before reading the Varsity, I was not sure where i would be learning the derivatives(F&O) and how to start with it. But after going through varsity from Module1-6, i have gained a decent knowledge and now i know what things to keep in mind if i want to enter the Derivatives market.
    I know this learning is simply the tip of an iceberg and now have to put a lot of effort and have to gain real experience to start making profit. But now atleast i have the clarity in which direction i need to proceed.

    Once again, I would to thank you and your team for making this possible for us.

    Regards

  349. Vaishakh says:

    Sir, Over the last few quarters, I have been following a price action method for trading. My trading startegy is entirely based on Price patterns or the movement of price in the market i.e. pure technical analysis.
    So my question is, will algo-trading suit my type of trading ?? (Given the fact that, in algo trading we need precise entry,exit strategy irrespective of market condition)

    • Karthik Rangappa says:

      Yes, it should. Just the fact that everything is predefined helps a lot better when it comes to trading.

  350. Vaishakh says:

    Ok,
    But i have one more big doubt.The prices are moving continuously here and there. And the essence of price action trade is that, we take different trading decisions (as per our startegy)based on different scenarios in the market and also we take a look at Volatility, Buyers/sellers sentiment, overvalue/undervalue scenario in intraday and other qualitative aspects of trade.
    Let me illustarte it with example.
    Lets asuume there is a major Resistance at Rs. 450, and CMP of stock is 435. And suddenly a big green candle of 15/30 min gains 4% and closes just above 450. At this point the RSI is still below (let’s say) 60.
    So, as per price movement I would say this is overvalued and chances of sustaining is less and price can reverse from there, so even though closing of the candle was just above reistance, I would stay out of Buy this share. But in case of Algo, even if I use multiple parameters, the trade would be executed above 450 without actually knowing the price movement and then SL will be hit.

    So how can I make my machine to take changing market’s qualitative decisions like price action trader takes ??

    • Karthik Rangappa says:

      Hence you need to define that all actions and initiate trades based on a close basis, Vaishakh.

  351. Chetan says:

    Why isn’t the PCR used keeping the sellers in mind. Like if the PCR is more than 1.5 the markets should actually reverse downward since more puts were short.

  352. Anshul K.S. says:

    Hi, Zerodha education team and particularly Karthik for this excellent platform to educate the retail traders about the Stock market nitty-gritties. I personally gone through the Module 5 & 6 and its so lucidly explained and prepared by the team. Thank You with a warm heart and respect.

  353. Abhishek Garg says:

    I believe explanation on PCR is incorrect.

  354. Abhishek Garg says:

    As per the information above market is bearish when PCR increases i.e. when OI in puts is higher and vice versa but as per the Basics of Option Chain video on zerodha youtube channel they explained that open interest on options give importance to option writers so for ex. If OI in puts increases that means more puts are sold than calls which means market is bullish.

    • Karthik Rangappa says:

      OI is simply an indication of activity level. If the OI is high for a particular strike, that means both buyers and sellers are actively trading that strike.

  355. Azul says:

    Hello Sir

    I have bought a bank nifty future.
    Should I protect it with a Jul 8 expiry or july 29 expiry?

    Can the july 8 expiry put protect me the same way as the july 29, till july 8?

    • Karthik Rangappa says:

      July 29th I’d say. July 8th Put will react slightly differently since the expiry is closer.

  356. Nilesh says:

    I have calculated this with Excel VBA code…testing now…for first week its given proper result.
    Great concept.
    Can u please tell me how to calculate daily expiry?

    • Karthik Rangappa says:

      Daily expiry? I’m not sure what you mean by this, Nilesh. Can you please share more context? Thanks.

  357. Nitin says:

    Dear Karthik, Do you also prefer 15 days buffer for weekly expiry?

  358. Nitin says:

    I mean, if it is for the 22 JUL weekly expiry, would you still prefer placing the order on 9 JUL or something?

  359. Nitin says:

    Thanks, Karthik! 🙂

  360. Hanush says:

    Hello Sir,

    Is it better to trade weekly nifty/bank nifty contracts or to trade monthly contracts.

    Monthly contracts are more expensive.

    Would it be better to implement buying strategies on monthly and selling on weekly??

  361. Hanush says:

    Hello Sir,

    Why do you prefer monthly contracts sir?
    Could you give your reasoning?

  362. Hanush says:

    Hello sir,

    That is good for Option buying strategies. For option selling you don’t have time on your hands how ever correct?

    Also Will a weekly contract move roughly the same a monthly contract for the same movement in price?

    • Karthik Rangappa says:

      Yes, from a selling perspective weekly is good. But for a similar risk, you get a smaller premium, just a thought.

  363. Hanush says:

    Hello Sir,

    So if you initiate sell monthly contract, do you square off when you feel like the position could reverse or do you hold till expiry?

    • Karthik Rangappa says:

      I usually try to hold to expiry, but open to act if required. Point is, don’t have fixed rules, be flexible 🙂

  364. Dipankar Guha says:

    Hi Karthik
    You have explained this difficult topic of Options so well. Thanks!
    Couple of questions – is there a way to have a Stop Loss in mind when trading options like we consider with equity trading? Why or why not?
    On a separate note, the Max Pain excel is not available in the Download link. Could you please check?
    Thanks again for the excellent content that you have uploaded. It is really helpful for novices like me. 🙂

  365. Dipankar Guha says:

    Hi Karthik
    I could download the excel through the app. So if you help with the answer to my Stop Loss question, that would be great.
    Thanks

  366. Dipankar Guha says:

    Thanks Karthik. I could download. I’m using it for the current expiry on the index and multiple stocks to see how it works. Also if you could kindly answer my question on how to plan the stop loss for option trading. Is it based on RRR or should volatility based stop loss be considered for the option strategies?

  367. S Ro says:

    Can you explain bank nifty Max pain 35500 bearish, what does it mean?

  368. suresh says:

    @karthik… its a commendable work by you in presenting us this valuable information in a very detailed yet simple format… Thanks a ton sir

  369. Ritesh Rajwar says:

    How do i set Risk to Reward Ratio in Option Buying? Given that the price of call or put depends on the underlying asset.

    • Karthik Rangappa says:

      The risk to reward can be assessed by looking at the price which you buy and the price at which you intend to sell.

  370. Tejas says:

    Hi,

    I need your help with some things.

    I have written Nifty 16100 PE and hedged it with nifty 15600 PE. for September 9th expiry?
    I have identified ranges around 16150 and 16245 as supports for nifty.
    I have seen the open interest from sensibull showing strong put writing above 16200, 16100 and above. Nifty is currently ~16690.

    1) Now suddenly if nifty starts to drop, what exactly should my stop loss be? When should I decide to adjust my position or completely square off my position at a loss?
    2) If nifty drops, vix will mostly increase and I would be shown a loss on that also despite nifty not dropping in price much, so what could I do?
    3) how do I adjust my position? Do I buy puts? move my puts position to 16000CE or 15900 CE??

    • Karthik Rangappa says:

      1) Tejas, adjusting positions can be an issue because the transaction charges can be quite high. Also, since the position is already hedged, why would you want to tweak it further?
      2) The drop in price should be higher than the drop in volatility (in terms of the impact it has on premium), that’s when the position will turn profitable
      3) YOu will have to sq off the 15600PE and initiate a lower strike. But like said, in most cases option adjustments is not required.

  371. Tejas says:

    Hello Sir,

    A few follow-up questions.

    I have written 16100 PE. Why would I square of my 15600 PE and move lower in the case the price drops.

    When the price drops and volatility increases then my PE option that I have sold would incur a loss as the premium would shoot up correct?

  372. Tejas says:

    Hello Sir,

    But I have written 16100 PE and bought 15600 PE as protection.

    Why would I only shift the 15600 PE, do I not need to shift the 16100 pe to 16000 or 15900 or something like that?

    At what point should I chose to shift my position and what point should I just accept the loss?

    • Karthik Rangappa says:

      Tejas, ideally you need to move the spread, which means you shift both the options. But my only issue is the increasing transaction costs associated, including brokerage. Thats why I suggested only 1 leg.

  373. Yagnesh says:

    Hi Karthik
    You are doing a wonderful job and putting easy to understand method forward! Really enjoying the course.
    Can you please upload the Option Pain computation excel as current uploaded file has no content.

    • Karthik Rangappa says:

      Thanks, Yagnesh. If I’m not wrong, I have put up the excel sheet for download. Please do look for it in the chpater. Else, maybe you should check Sensibull, they may have this already.

  374. Sashikala Talluri says:

    Hi Karthik.
    Have explained all the modules in a easy to understand way. Thanks. Was not able to download the excel sheet of option pain computation.

  375. Rahul says:

    Hi Karthik.
    Firstly, really really appreciate the work you have done with Varsity. Big Kudos to you. You have created very strong foundational resources for anyone to trade in markets. The options modules have helped me to gain confidence and hopefully will (re)start options trading soon, hopefully profitable this time.

    I had a doubt in the modification part(although a minor one, but still needed to be clear)
    is it-“the 5% BUFFER was taking the prices to 1.5 to 2 SD away rather than 1.5-2 % SD????

    • Karthik Rangappa says:

      Thanks for the kind words, Rahul. 5% is not a fixed rule, you can experiment with what you think is reasonable. I know traders who are comfortable with 2.5% buffer.

  376. Rahul says:

    Thank you for the additional input, but what I was actually asking is that isn’t it 1 Standard Deviation(SD) away rather than 1 “%” SD?
    Got a bit confused. Are both of them the same thing?

  377. mohammed hussain says:

    If I go long in the future and buy one PE if my MTM is at a loss, should I pay end of the day?

    As hedge position, should I still be payment MTM losses.

  378. Joshin MC says:

    cant able to download option pain calculation excel

  379. Umer Azam says:

    Hello Karthik,

    Was just going thr PCR section and wondering why you’d say that a higher level of PCR of let’s say 1.3 or 1.5 be considered bullish? You assumed that people have BROUGHT more puts than calls and hence the contrarion signal. I get that but it isn’t it true that the smart money mostly sells calls/puts and doesn’t buy (hence more numbers in the oi indicates selling not buying) hence the interpretation of the PCR is now opposite. Can you help me understand if there is any flaw in my logic. For example Nifty PCR today at this level is around 1.7, you can’t exactly call it an oversold market isn’t it?

    • Karthik Rangappa says:

      The thing is that you cant differentiate between buy and sell OI. So you basically look at the OI and price in conjunction and take a call on where the market is heading or likely to head.

  380. Gaurav says:

    Not able to download Option Pain computation excel. Please help !

  381. Umer Azam says:

    So what would be the correct interpretation of the pcr right now? At 1.7 how would you interpret it? Also, it is the highest number in quite a while.

    • Karthik Rangappa says:

      Umer, its just a ratio. The interpretation of this depends on what story you think is unfolding in the market 🙂

  382. Anup says:

    I failed to find a most suitable word in dictionary to express my gratitude towards you and TEAM ZERODHA, App ko mere Dhyanyawad se hi kam chalana padega dost.

  383. Ameya Shahani says:

    Hi Kartik,
    Any books that you’d like suggest for me to gain an in depth knowledge of the Max pain Theory and the PCR Ratio?

  384. KARTHIK says:

    The interpretation is as follows –

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

    i think the above interpretation is wrong ,pcr below 1 highly oversold and bearish market and there can be a trend reversal ahead and vic for pcr above 1 ,market is highly overbought and bullish and market can take bearish trend ahead

  385. Lohit says:

    PCR definition in sensibull suggests that PCR > 1 is considered bullish and PCR 1 means more puts are being sold than calls. Which definition to follow?

    • Karthik Rangappa says:

      If you are using Sensibull, I’d suggest you use the same. It will remain consistent with your trade plan.

  386. Yashwanth says:

    Hi Sir , all the while we have been understanding the option charts from sellers perspective, since the sellers have lot to lose than buyer. But, only in this case ( PCR ) we are assuming that put and call OI from buyer’s perspective. ( more put options bought hence extreme bearish and vice-versa ) . If we think from sellers perspective as done in all the other chapters, then more put OI than call OI would be bullishness , and that is what the actual outlook . Isn’t that right sir?

    • Karthik Rangappa says:

      Its originally considered from buyer’s perspective. Did you check the section where I have discussed how to use this as a contra indicator?

  387. Yashwanth says:

    Yes Sir, have read it. Just wanted to discuss about the perspectives here. Thanks for clearing it out.

  388. Rajat Sawal says:

    How to calculate total value.
    Id this call/put current price x cumulative intrest or what?

  389. Rajat Sawal says:

    Yes i checked excel sheet….but didn’t understood from where you got cumulative call and cumulative put data.

    From any source we need to get or we need to multiply call/put price with strike value
    Or what?

  390. Rajat Sawal says:

    Means value of 17000+17100+17200+17300 will give 17300 cumulative value.
    And so on….

  391. Rinkesh Ahuja says:

    Hi Karthik,
    Why PCR is interpreted from the perspective of a ‘buyer’ of options? Isn’t it a norm that writers/sellers are usually well-informed about the markets?
    So, PCR of over 1 or 1.3 may be considered extreme bullish as there are more put writers than call writers?
    Thanks!

    • Karthik Rangappa says:

      Rinkesh, you can consider the OI as the total open position which includes both buys and sells. So that way you don’t restrict your view to buyers or sellers.

  392. Umesh MG says:

    Sir for example this coming weekly expiry BANK NIFTY CLOSES AT 38050 AND BANK NIFTY JAN FUTURES CLOSE AT 38125 which value would be taken for max pain calculation is it the spot price or futures price of BNF ?

  393. Manish Patel says:

    How much strikes price should be consider for calculating max pain? 10 strikes above and 10 strikes below are OK or we need to calculate every strikes?

  394. Sudhir Menon says:

    Crisp and precise explanations. I think you can still improve your narration,with colour graphics.Colours and pics create good impressions in learning..i have seen a chess demo for children,where the pieces come to life.Just like Animal Farm,novel.

  395. Kamal says:

    Hi Karthik, For some reasons, Option Pain computation excel is not available on the mentioned link. Kindly help.

  396. Akshay says:

    Thankyou, Karthik for providing this wonderful material. Also A vote of thanks to Zerodha for spreading financial education study material.

  397. Dhananjay says:

    Is there any simple way by which I can easily calculate cumulative call n put columns while calculating losses for writers in excel? I am having around 60 strikes (As per downloaded from Sensibull option chain) so it’s so time consuming to calculate for each n every strike.

  398. Dhananjay says:

    If I am not wrong on Sensibull they shows max pain in screener tab (https://web.sensibull.com/options-screener?view=table). If there is any another tab for MAX PAIN in Sensibull please let me know (Sensibull is quite big platform!)

    Also-
    Today (15-03-2022) Morning session -Nifty was at around 16850 and Max pain as on Sensibull was 16800 for monthly expiry(31st March). So how should I interpret this?
    Nifty has already crossed Max pain level…

    • Karthik Rangappa says:

      For the same reason, its best if you check with Sensibull. Their support is quite good and they will get back to you quickly.

      What max pain indicates is that upon expiry, 16800 is where Nifty expires although Nifty has crossed the given level now. Do keep an eye on these levels closer to expiry. Most importantly, add a buffer to the max pain level to be on the safer level.

  399. Dhananjay says:

    Thank you!

  400. Dhananjay says:

    Investopedia has given both angles for PCR ratio interpretation- General and Contrarian.

    And here you have given stress on contrarian angle. So what should we use? This is really confusing

  401. Dhananjay says:

    And yes, is there any way I can get access to historical PCR ratios to plot them or is there

  402. Amol MY says:

    Hello Sir, I could not figure out the Max Pain Theory- “If one can identify this price point, then it’s most likely that this is the point at which markets will expire”. Option prices are derived from the underlying (& not vice versa as per my limited understanding). So as per Max Pain Theory, if a group of option writers want a underlying (e.g. Nifty 50) to expire at a particular strike price, they will have to buy/sell the underlying shares of an index so that expiry happens at their desired strike price. 1) How do they make that happen? Do they buy/sell the underlying shares of that index in order to move the index towards their target strike price? 2) How does the movement in call/put options affect the underlying? (i am not able to reverse engineer the process)

    • Karthik Rangappa says:

      Ah no, its not like that. The assumption is that these traders (sellers) would have analyzed the underlying, and basis that established a price at which the market is likely to expire.

  403. Dhananjay says:

    Que 1: You identified max pain level somewhere in half of series (considering monthly expiries). So do you initiate trade 15 day prior to expiry or wait till last Friday before expiry to initiate trade(theta perspective)?

    Que 2: How do I backtest max pain levels and actual expiry level? Is there any article regarding same? Please elaborate on this.

    • Karthik Rangappa says:

      1) Its always a tradeoff between reward and risk. Early in the series, the reward is higher and risk is also higher. CLoser to expiry, both are lesser. So depends on what you want.

      2) Ah, for this you need historical OI data. Please check with Sensibull if they can help you with this

  404. Dhananjay says:

    Thank you very much!

  405. Dhananjay says:

    Also I request you to create one module about “statistics & financial markets”. I know this is not going to be easy and soon. But I would like to know key statistical concepts which are widely used in financial markets. Till this I know only few which were mentioned by you
    1) Mean
    3) variance
    4) Standard Deviation

    Please let me know just names of statistical concepts which are widely used in financial markets to gauge levels.

    • Karthik Rangappa says:

      Actually, I’ve explained these across different chapters in the options theory module. Please do check that once.

  406. rk says:

    Would this not always give approx. the spot rate when you are performing the analysis? That is, when you are doing it 15 days before expiry, then would the minimum loss point not be spot on that day (ie, on 15 days before expiry). So, basically using this, we say, oh the spot rate 15 days later (on expiry) would be within 5% of the spot on the date of analysis. Not convincing and actually unreliable/misleading?

    • Karthik Rangappa says:

      Its an approximation, pretty much like every other tool/analysis. Hence we add a buffer to the max pain value to ensure there is margin of safety.

  407. rk says:

    or may be I am missing something in the strategy above. could you clarify?

  408. rk says:

    the reason for my first comment is that at strike=spot, both calls and puts writers have zero losses. Hence, that would be the minimum loss point. Accordingly, this looks like a misleading/unconvincing strategy.

  409. bd says:

    could you clarify what you mean by “Strike = spot leads to losses to the buyers and a profit for the buyers.”? And also elaborate on rk comment as to why it is or is not appropriate. There is a merit in that argument in my view and we would approximately get spot?

  410. Dhananjay says:

    I want to share something about historical PCR. There is one platform called Opstra, it gives us last 3 years PCR. We can download it and can run different statistical concepts 😀

    Here’s link for the same: https://opstra.definedge.com/pcr

  411. Ashok says:

    hi,

    Is there data to confirm that the max pain value from 2 or 3 days before expiry actually holds good on expiry day for nifty or bank nifty? I am trying to understand how reliable an indicator it is?

    Thanks!

    • Karthik Rangappa says:

      Nope, there is no data to prove this. YOu will have to backtest and figure if this works for you.

  412. Meet says:

    dear team.

    In the excel attachment, what is the data present in the R column?

    Regards,
    Meet

  413. harsha says:

    Hi,

    can we construct iron condor using max pain for weekly options and what buffer should take for weeklies?

    • Karthik Rangappa says:

      You can. Not sure what exactly you mean by a buffer. Is it the spread? If yes, you can keep about 200-300 points.

  414. Satya Koneti says:

    Hi Karthik,

    Could you please clarify this.

    If the PCR value is above 1, say 1.3 – then it suggests that there are more Puts being bought compared to Calls.
    Why are we consider buyers view here, why can’t we take sellers view and think more Puts being Sold compared to Calls ?

    Thanks
    Satya

    • Karthik Rangappa says:

      It is just that we are using the indicator in a contrarian way, Satya. Buyers = sellers here, so it does not make a difference. Historically PCR is always with respect to buyers, hence for that reason we continue looking at it from the same view.

  415. Mukund says:

    Hello sir!

    I wanted to know a bit more about the max pain theory. I was testing this strategy for weekly options and I found that the max pain keeps changing frequently. Despite having a buffer of around 100-200 points, there is too much fluctuation in the real-time max pain and eventual market expiry. The idea was to execute an iron condor strategy with the max pain point as the mid point of my range. Can you let me know your thoughts on this?

    • Karthik Rangappa says:

      Yes, the MAX pain will change. Hence you need to pick a particular time to calculate the max pain and work with it, of course with a buffer. You can test this for few weeks to see how the results are varying and calibrate it as per the actual data.

  416. Divyesh says:

    “Low PCR values such as 0.5 and below indicate that there are more calls being bought compared to puts. This suggests that the markets have turned extremely bullish, and therefore sort of overbought. One can look for reversals and expect the markets to go down.”
    This is written in the above theory.
    Here as per my thought, we should think from the seller’s perspective. It means more calls have been written compared to puts and thus the market may try to balance. It means the market may go up.
    In key take away points (point no 7) it is written that “Generally a PCR value of over 1.3 is considered bearish and a PCR value of less than 0.5 is considered bullish.” This is suitable according to my thought as i mentioned earlier.

    These two statements are controversial.

    Please clarify if I am wrong.

    • Karthik Rangappa says:

      Divesh, PCR as a concept itself is a bit tricky. The narrative changes based on how you look at it, i.e. seller or buyer’s perspective.

  417. Vignesh J says:

    Hi Karthik,

    For BANK NIFTY weekly expiry, when do you calculate Max Pain. 3rd day?

    Thanks,
    Vignesh J

  418. pavithran says:

    Sir,
    Most of the IITs are writers.
    Considering the above statement,
    For example, if the PCR is >1, (put OI is more). Then we can come to the conclusion that more puts are being sold by the IIT. Which also says that PCR >1 is Bullish and <0.5 is bearish.
    Can you please correct me if im wrong.

  419. Ashutosh Ghuley says:

    Dear Sir; you explain max pain and say
    “option sellers tend to make maximum money, then it also means that the price of the option on expiry day should be driven to a point where it would cause least amount of loss to option writers”.
    As I understand, the options writers would try to drive the market to a point where there pain minimized. To days fall show that or seems to show that the call writers are enjoying to days fall and the put writers are run down. Naturally, they would try to push the market to a point where there pain is minimum. Weekly expiry is on June 16th. If my perception is ok, Nifty should go up at least on June 16th?
    Whats your take? Two bits from you would enlighten us.
    Regards. Ashutosh.

  420. Bhavika says:

    Thank you for sharing the knowledge, highly appreciated 🙂
    Just one thing, am unable to download Option Pain computation Excel

  421. SHUBHIKA says:

    Hi,
    If I check Nifty option chain it has almost 50+ strikes.. Do I need to take every strike OI to calculate a Max Pain or I can take 15 above and 15 below from ATM. Will it work ?

    2. Does MAX Pain work on one week expiry ?

    • Karthik Rangappa says:

      Take the ATM and 10 strikes above and below. Maybe even 15 will do. For weekly, backtest before completely relying on it.

  422. kartik says:

    Sir, there is a calculation mistake in 1st case of max pain calculation for 7800 pe i.e at 7800 PE.
    there is one exatra 0 in that calculation- 4864125000 ( right one 486412500)
    If i’m wrong sorry for the inconvinience!!

  423. Manjunath says:

    Thanks Sir your explanation super

  424. Pradeep says:

    Please check PCR ratio.

    On Sensibul the PCR ratio is calculated like they place call and then Put so according to the sensibull PCR = Call Put Ratio
    and as per the your point PCR= Put Call Ratio

    So as per Sensibul:
    PCR>1 or 1.3 is bullish
    and PCR<1 is bearish

    So please clarify this in module sir.

    • Karthik Rangappa says:

      It is a ratio, divide the PUT OI by Call OI. If Sensibull is doing it otherwise, there must be a reason for it. Please do check with them once.

  425. Shailendra Singh says:

    Dear Sir,

    Firstly, thank you so much for your contribution to create such a great tutorial for the society, its’s really a great philanthropy.

    I am unable to download Option Pain computation excel from the hyperlink, may I request you to please re-hyperlink to enable it for downloading.

    Many thanks once again sir !

    • Karthik Rangappa says:

      Thanks, Shailendra. Let me recheck the link. Meanwhile, can you try downloading the link from a different browser?

  426. Shailendra Singh says:

    Thank you so much sir, indeed it worked, able to download from other browser ( Microsoft edge). Just for your information it is not getting down loaded form Chrome.

    Many thanks once again!

  427. Sanket says:

    excellent blog sir…

  428. krishnakumar says:

    Hello Sir.,
    How to check the Historical PCR value from NSE.. can you pls say the name of the reports available in nse to calculate historical PCR..?
    what is your suggestion on taking historical pcr (i.e how many days)for intraday trade….. Will it be good decision to select the spot strike and calculate the pcr value to find extreme bearishness and bullishness of the current strike to identify a reversal or should i take the complete OI calculation. ??
    Your Response would be highly helpful.. Thank You..

  429. krishnakumar.G says:

    They come under premium subscription sir … I am unable to get data as i have crossed the free trail……It would be helpful if you guide me through this.

  430. krishnakumar.G says:

    No problem Sir.,
    If I get it .. I will share it with you., here.
    Thanks.

  431. Shihab V says:

    Generally a PCR value of over 1.3 is considered bearish and a PCR value of less than 0.5 is considered bullish

    I think there is a mistake in above statement.

  432. Prathvi R says:

    Higher put OI compared to call OI means higher put writing compared to call writing. Again assuming writers know better than buyers shouldn’t a PCR of more than 1 be bullish and less than 1 be bearish.

    • Karthik Rangappa says:

      YOu can use it as a trend reversal indicator considering over-bought and over-sold regions. By the way, don’t just look at this one parameter; combine this with other parameters and then take a call.

  433. Sebastine says:

    What is modified Max Pain? How it is different from Max Pain? OPSTRA usually publishes it in their page. Please give the mode of calculation.

  434. awanish singh says:

    Hey Karthik, Can we apply Max Pain theory, with modification as suggested on Weekly expiries(maybe +1SD)? Theta will be working on our favour; isn’t it!?

  435. Saurabh Singh says:

    Had wonderful time learning Varsity
    Just few ques before I start spending time in market
    For predicting direction of nifty or bank nifty, do we have to use TA that we learned in module 2?
    If yes , which time frame you choose for intraday…I guess 15 min ?
    and last ques.. which is better Max pain or PCR ratio?

    • Karthik Rangappa says:

      Learning TA & FA will help 🙂
      As far as the time frame goes, I use the END of the day for all purposes as my primary chart.
      Both Max pain and PCR serve different purposes, but if I were to pick one, maybe PCR.

  436. Saurabh Singh says:

    At the bottom of NSE option chain, total OI for both call & put side is given…Can we calculate PCR from there?

  437. Vishal says:

    Thanks Karthik sir, this is the best literature on option trading.

    As I understood seller always have upper hand over buyer.

    If seller are writing more put that means they are expecting market not to fall and have a bullish view.

    If there are more Puts than calls then more sellers are on bullish side . Higher puts means higher PCR ratio. Then why high PCR is considered bearish?

    • Karthik Rangappa says:

      Thanks Vishal.

      There is a counter intuitive stance here which I’ve tried to explain in the chapter itself. Do check that 🙂

  438. Saurabh Aggarwal says:

    Hi Kartik,
    Shouldn’t we analyse PCR from the point of view seller? When greater than 1.1, it should mean that more puts are being sold.

  439. shahid says:

    Hi Karthik sir,
    I have some confusion about the PCR ratio. I trade options on Sensibull and their live option chart features indicate PCR above 1 as bullish because according to them, more puts are being sold than calls, which indicates bullishness. What is your take on that? Should we calculate PCR based on how many call/put are bought or sold?

  440. Amit Kale says:

    Hi Karthik,

    Thanks for the great info here as well just like all your modules.

    I have a query, here it goes. Max Pain point keeps changing over the course of the day every day. As per my observation the max pain point for Nifty may shift by 100 or even more points (sometimes even 200 points compared to the day before) on any average day. Given this fact how come one come to the conclusion about the exact max pain point on the day of expiry and adjust their positions accordingly? For retail traders it is very difficult – almost impossible if I can say – to find the max pain point on the day of expiry but wonder how come professional traders find it if they use the max pain point at all for their decisions. Also I don’t see any discussion around max pain point in any of the prominent business news channels. It looks like the analysts there rely more on open interest data to come at the closing point on expiry and that is far more accurate than max pain as I see. Your take on all this please…

    Thanks,
    Amit Kale

    • Karthik Rangappa says:

      Amit, not sure why ppl dont talk about it 🙂

      Do read section 13.4 where I’ve discussed the modification to the standard Max pain theory.

  441. Amit Kale says:

    Hi Karthik,

    I have read through your modified Max Pain theory and have created my own Excel with a bit maintainable formulas myself to find the max pain on daily basis by pulling the latest data (closing bhavcopy) to find the max pain point. The main issue here is – how to reliably find the max pain point during the course if the day because open interest data during live Nifty session may not be reliable. I watch US channels like CNBC and I don’t see any discussion around Max Pain there as well. Even the max pain website link provided by you is non existent though the info is available elsewhere on the web. Do you use the max pain theory yourself in practice and how well does it work for you?

    • Karthik Rangappa says:

      I used to use it, Amit. Now we are not allowed to trade, hence stopped. It gives you a reference to write options. I’m not sure why no one talks about it. Yes, I do get your point that the values change. What I used to do is to calculate the max pain value about 15 days prior to expiry, build a band and write outside that band.

  442. Vijay says:

    I have been trying this logic to current nifty50 for past few days. I’m unable to hit even +/- 1 SD of the actual nifty value. I know that nifty value depends on other factors as you explained in earlier chapters. But Option pain seems to be not helpful atleast for me in arriving at the final nifty numbers. Did you happen to check the calculation with present nifty charts as this module was written long back!!!

    • Karthik Rangappa says:

      The calculation remains the same, irrespective of the values. But if you are not comfortable, then don’t trade on it. Observe it for a while, maybe paper trade it and use it only when you feel comfortable.

  443. Amit Kale says:

    Thanks Karthik for the clarification. I read your response to some other query here saying “writing far options is like picking a dime in front of a road roller” which I completely agree with. I am writing options using max pain calculation from last couple of months but haven’t got any good success. I am able to save my capital only because I do hedging when I feel the risk of losing money or square off my positions in time since I am on the screen all the time during market hours. All this has led me to ask you that question about effectiveness of Max Pain theory because it looks so promising in theory. More importantly – without calculating Max Pain if I just find the average Nifty move on Weekly basis for last few weeks’ expiries then that gives me enough idea about what far options I should be writting on either side and that comes pretty accurate. Given this I am yet to realise the potential of Max Pain in practical situations. I will still be doing it for some time until I am convinced to use it or not use it for my trading decisions..

    • Karthik Rangappa says:

      Absolutely Amit. Market is full of such theories…be it Max Pain or PCR or OI analysis. These are theories developed by traders and it probably worked/will work under a specific market condition. We can adopt these strategies only after thorough testing. Testing leads us to develop a higher conviction, and that’s the most important aspect of trading. So I guess you are on the right track 🙂

  444. Amit Kale says:

    Thanks Karthik for the explanation and sharing your take on this

    Your write-ups and responses to the queries are rare gems in the crowd of overloaded information coming in from all corners of the world without anything specific whatsoever

    Waiting for many more from your side..👍

  445. Krishna says:

    The 7th key take away “Generally a PCR value of over 1.3 is considered bearish and a PCR value of less than 0.5 is considered bullish.” is contradictory to what I see in sensibull.com i.e., “Put Call Ratio: A high number (above 1) indicates bullishness and a low number (below 0.5) indicates bearishness. PCR is computed using 2 nearest monthly expiries for stocks and 2 nearest monthly and weekly expiries for Indices.”

  446. danny leibovich says:

    You wrote: the 5% buffer was essentially taking to strikes which were approximately 1.5 to 2% standard deviations away, which meant the probability of markets moving beyond the expected expiry level was about 34%.
    It doesn’t make sence. Did you mean 1.5 to 2 standard deviations away instead of 1.5 to 2% standard deviations away? Above 1 standard deviations away the propability is 32% so how have you got 34%?

  447. Anupam says:

    Hello Sir,
    Can you please explain how can we identify pain to option seller or writer.
    Suppose At a particular strike price maximum put option writing happens on Monday. How do we understand that till expiry what should be the price of underlying asset at which it will cause pain to the put option writers, In case of weekly expiry and in case of monthly expiry as well?
    Regards

    • Karthik Rangappa says:

      So option pain concept is with respect to writers. Once you identify the least option pain, I’d suggest you add a buffer to that and identify a range within which Nifty is like to expire.

  448. Divyansh says:

    Hi Karthik,
    Is the PCR calculated based on the current expiry OI or the OI for all the expiries are taken into consideration?

  449. Ramanathan says:

    Hello, Sir
    I would like to thank you for this topic which is great but it is more helpful for the option seller, yes as an option is depreciating and because of theta the value depreciates more for OTM which I have learned practically and from your module. If, people like me (new bees) can’t enter the option selling, as it makes margins very high. I like you discuss more topics about option buying where we can minimize the loss.

    • Karthik Rangappa says:

      Then you should be checking spreads, Ramanathan. I’ve discussed these in the next module, please do check.

  450. Sunny says:

    Hey Karthik,
    Why OI on sensibull, nse website, upstox or other platform doesn’t match,
    all have different values which to trust?
    I am checking it after market close.

  451. Rahul Patel says:

    not able to download excel sheet

  452. Anwit Mehendale says:

    hello Karthik

    In max pain theory you used 5% buffer to determine the range and planned your strategy accordingly but now nifty is at 18600 and if we assume 18600 strike price has less combined lost than other strike prices then 5% of 18600 is 930 which gives us a huge range of 18600-19500 so do you think this range is sensible for planning strategy in nifty ?

    • Karthik Rangappa says:

      Yeah, since its 5% of a value, irrespective of the value of Nifty the price band stays relevant.

  453. Sadatharani D says:

    Hi Karthik,
    PCR above 1 suggests market turned bearish if looked from the buy angle, the same value suggests bullish if looked from the sell angle. How to interpret it, from buy or sell angle? I’m literally confused, kindly clarify.

    • Karthik Rangappa says:

      We have discussed this in depth in the chapter and comments. I’d suggest you check this once 🙂

  454. Anirban Basak says:

    Sir,

    In your content, you have mentioned one paragraph as below:

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

    I would like to know that to calculate the PCR we have to depend on values of Call OI & Put OI and we can get the OI values only for the current only. Then how can we plot historically? I am confused. May be I am missing somewhere. Please guide.

    • Karthik Rangappa says:

      Anirban, PCR calculation, I’ve explained the chapter itself, right? For historical, you can check with Sensibull if they have.

  455. Anirban Basak says:

    Sir,

    Regarding Max pain, where can I get data to calculate the Max pain for a particular day and accordingly to look for the expiry data to understand it more better?

  456. Anirban Basak says:

    Sir,

    I am in the verge of completing the Module-6. I started the stock market learning 4 months ago. As a novice, I would require your suggestion on the below to move ahead:

    I have started the swing trades for the last 1.5 months and is successful for 70%-80 %. I have started building some positions for long term investment (25-30 yrs). I am a daily reader of chart for the Nifty 100 companies. Now, as I go through your entire 3 modules covering Futures, Option & its startegies, I find this area bit tender and which would require knowledge of 360 degree to feel convinced to put the trade. Thus, I would require your suggestion on the below:

    (i) Should I start trading F&O right from now or wait to cover all the modules in Zerodha and then start trading? I have literally no knowledge on macro.
    (ii) I am a highly failure in intraday who basically tried to go scalping (based on price movements). I know this should not be the strategy. I would require your suggestion here if I should position myself with target & stoploss while playing intraday (Like the ones suggested from many brokers). Or should I take more time to focus on intraday.

    • Karthik Rangappa says:

      1) One good way is to start and learn on the job. You can use the content on Varsity to supplement your learning. But this also comes with risk. I’d suggest you start small (like currency derivatives) and ramp up as you gain more confidence
      2) Avoid scalping if possible. There is very little scope to apply logic and trade based on the thesis 🙂

  457. Pravesh says:

    Hi Sir. Here you are calculating the loss for the Option writers by taking the difference between the closed price and the price at which they have written the options(consider market was against the seller so non-zero loss is there) and multiplying directly with OI. However, sellers have received some premium at front so why aren’t you including that as total loss for call option seller in that case would be = (Closed price – strike price – premium)*(open interest)

    • Karthik Rangappa says:

      That would be not easy to estimate as its not the same price at which all the writers would have written. Its better to take the activity at the strike level.

  458. Gyanendra says:

    sir i am not agree with your conclusion about pcr, because if it is more than 1 that means more put option are being sold by the writers which indicates market should be bullish not bearish. if i am wrong then please suggest me what is right.

    • Karthik Rangappa says:

      It is a counterintuitive proposition, Gyanendra. I think I’ve explained this stance in the chapter itself. Can you double check again please?

  459. Anirban Basak says:

    Sir,

    With technical understanding we place SL in normal swing. Similarly, is there any technical/ fundamental way to place SL (on premium) on trading options?

    • Karthik Rangappa says:

      SL has to be more from your view on the spot. Also, since options are short-term trades, there is no point in having fundamental based SL 🙂

  460. Anirban Basak says:

    Sir,

    You have cited for writing options based on Max pain theory in the chapter. Similarly, can we also look to buy options based on the Max pain?

    • Karthik Rangappa says:

      Yes, you can. But there are far better ways to identify buying opportunities compared to Max Pain 🙂

  461. Anirban Basak says:

    Sir,

    You have replied “SL has to be more from your view on the spot.” Can I estimate the SL based on the below?

    1. Judge the underlying movement with Technicals and accordingly calculate the premium movement through delta.
    2. Look for the time remaining for the expiry and accordingly calculate the premium movement through theta.
    3. Look if there is any reason for volatility change and accordingly calculate the premium movement through vega.

    Lastly, calculate the probable premium movement though the above three taking into consideration.

    Am I missing somewhere else to finally give the SL on premium?

    • Karthik Rangappa says:

      1) You wont get the exact premium movement as the premium is a function of many other variables and not just direction (TA).

      2) Yup

      3) Yes

      You can do this.

  462. Yogendra says:

    Hi Sir,

    I couldn’t download the “You can download the Option Pain computation excel.” excel sheet from here, looks it nned attention.

  463. Ashok says:

    This article really great technique if can apply in your daily trading cycle.
    Would say the way has been explained, I never found anywhere, thx lot such effort and time.

  464. Milind Raut says:

    Very nicely written all these chapters. It has cleared my many doubts, and yes most important thing is that it is written in very simple English language 🙂

  465. Arya patel says:

    dear sir,

    the all module videos please dubbed in Hindi language for all the people to better understand please do it sir

  466. Mohit says:

    hi Karthik, thanks for the module.

    Quick question… why are we interpreting PCR from the perspective of buyer rather than from the perspective of seller. As we know the sellers put in more money and considered to have the right view and more resources. Additionally, it has also been pointed out in previous modules ,I believe, that option buyers are usually retail investors where is option sellers are institutions. shouldn’t the interpretation be then a PCR greater than one means bullish view and a PCR lower than one means bearish view?

    Additionally, we know that we also utilise the option chain to interpret support and resistance in the same manner.

    • Karthik Rangappa says:

      PCR was designed from buyer’s perspective, but you can look at Max pain, which is from the sellers perspective.

  467. Manas says:

    The download link for Option Pain computation excel is not working for me.

    Please rectify that or share the excel.

    Regards,
    Manas

  468. Manas says:

    Thank you Karthik.

    I could download the file using MS edge.

  469. Yogita says:

    Hello Sir,

    Than you so much for providing such valuable information.
    I have doubt in Option Pain calculation table which you shown for many strike prices i.e. 10th May 2016 excel calculations.
    Here what will happen for strike prices below 7000?

    Thank you once again!

  470. Akshat parwani says:

    Hello , can anyone help me with Max pain Calculation PDF as iam facing trouble in excel . if any one here who can help me please drop your communication network so that i can solve my query with supported SS.

  471. Swarnava Addya says:

    Sir,

    I have a question regarding freak trades in intraday index options, if I place a iron condor spread order from sensibull , the position is hedged itself , but my question is in worst case scenario , like NSE shuts down or a massive freak trade happens on the strike price that I sold , How can I handle that ? What are the precautions I can take before taking that iron condor trade with having a fear of freak trade? Because in trading , there is no compensation for losses even if it is a mistake 🙂

    • Karthik Rangappa says:

      The circumstances you are refering to are extreme and the likelyhood of that happening is really low 🙂

      But if it were to happen, the prices are expected to recover quickly as arbitrageurs will quickly kick in to fill the trades.

  472. Swarnava Addya says:

    In finnifty , sensex and midcpnifty options, injection candles are taking place (the option prices are jumping 10x within seconds and coming out back to their levels) in expiry , as you said it will recover quickly. So if I have placed a 4 leg spread order in the system and this injection candles occurs , it will not affect my trade right ? Because the 4 leg spread order will have a total exposure value of approx 40 lacs and margin require is just 60k.🙂

    • Karthik Rangappa says:

      Injection candle is a new term for me 🙂

      While thats the general expected outcome i.e. quick recovery, each individual experience is different based on how exactly you react to prices 🙂

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