On 24-May-2018, BANKNIFTY closed at 26016.18:
But something strange happened. See this image:
What is the problem?
Options on the expiry day after trading is over expire worthless if Out Of Money (OTM), or At The Money (ATM), or just have the intrinsic value left for options that are In The Money (ITM).
If you are trading bank nifty weekly options my bank nifty weekly course will help you a lot to trade bank nifty weekly either intraday or positional. You can use these properly hedged strategies to trade in stocks and nifty also.
What is intrinsic value of options?
Intrinsic value of options is the difference between the index/stock price and the strike price of the option. For example if BankNifty spot is 26100 then 26000 CE on expiry day will be trading near the difference between 26100 and 26000:
26100 – 26000 = 100
But sometime they trade below their intrinsic value. A few points is ok and accepted but yesterday something strange was seen. Check the image above. Look closely the closing price of 25800 CE. It closed at 132.90.
Lets us check its intrinsic value:
26016.18 – 25800 = 216.18. But it closed trading at 132.90.
Difference between actual intrinsic value and closing price:
216.18 – 132.90 = 83.28
I have seen difference up to 10-20 points and its common now a days.
Why this happens?
This happens because liquidity is very low in deep In The Money options when it nears expiry and traders trade at whatever rates they get. You see the system decides a rate but if no one is willing to trade at that rate then option will be trading lower than its intrinsic value. System cannot force them to trade at the proper intrinsic value.
If you are an experienced trader you may be knowing that deep out of the money options on bank nifty weekly expiry are traded at lot. Basically traders sell these options to make a quick buck the same day. Sometimes they succeed, sometimes they do not. But frankly trading deep out of the money options is a very dangerous game. One sudden spike may take out months of profits. And if you go very deep you will get like 2-3 points. What will you do with that 2-3 points which will go anyway in brokerages?
So should you sell In The Money Options on expiry day?
This is even more dangerous. What if this does not happen next week? You sell deep In The Money Option and suddenly BankNifty jumps 100 points – then you will find the In The Money Option also jumping 70-80 points straight away. Do not forget that today more than 20% of options are traded on algorithms. As soon as there is a spike these algorithms will take either a stop-loss or get into a buy position to take benefit of spike and eat 5-10 points that they are supposed to do. Yes algorithmic trading is like that. They get into the trade and get out of trade in seconds as soon as they see a profit.
Retail traders are fighting against the algorithmic trading done a lot and massively on expiry day – that is the reason they make money some days and lose it all on other days.
This is the reason you must trade Nifty and BankNifty with proper hedging else you will lose more than you will make on bad days. Over all your trading account will be a loss making business.
You Can Read More On My Site
Hi, I am Dilip Shaw, owner of this website. I am a trader like you. I have been trading since 2007, but lost a lot of money till 2010. I then stopped trading and studied options like college exams. Started trading again from 2011 and never looked back since. I did a lot of research, read books and did countless paper-trading before being profitable. You can read about me here.
My conservative trading course since 2014 is helping many retail traders just like you who have a job or business make consistent profits like this:
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You can do this course from your home. Some traders make amazing profits like Rs. 16.26 lakhs profit in 5 days though results may differ for all.
This course helps you learn to trade conservative option strategies for monthly income. Once you finish the course you can start trading immediately. You can start trading from any day. No need to wait for expiry. You will make profits consistently.
This course is good if you have a regular job or business. You DO NOT NEED to monitor your trades every second.
What You Get?
Before reading please understand that for all 5 strategies, strike selection will be taught. Strike selection while trading Options is the most essential part to succeed.
You get two conservative non-directional strategies on options, one conservative stock option strategy and two conservative directional strategies on Future & Option combination.
Non directional trades are profitable 80% of the times and make 3-5% per trade (Results may vary).
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Technical knowledge is NOT required. No need to monitor trades every second.
In the course you will learn how to select the strike prices. You learn when to trade, which strikes to sell which to buy, how much profit target you should be looking for, the best place to take stop loss and what to do after taking stop loss – means how to get that money back. The success rate is more than 80%.
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1. TA Knowledge NOT required
2. NO Software Required
3. Regular Monitoring NOT Required
4. Continue with Your Job
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8. Not too much money needed to trade
9. Scaling Possible
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To know more Call/SMS/WhatsApp me on 9051143004 or email me now. I know English and Hindi.
Read the details of the course here.
If you want to enroll for the course you can do so here.
P.S: So many years of trading has thought me one thing - it is always better to make small profits month after month, rather than lose money month after month trying to make too much money. It never happens. But small money accumulated month after month can become very big in only a few years.
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