TIDI ACADEMY
OPTIONS
Options are a Game you will understand fully once you start doing practically. Its
works 100% very similar to Casino Business or Lottery Business.
How to understand Options Game:
Open Options Chain of Nifty in Edelweiss Mobile App & Parallelly watch nifty
graph in 5 min candle continuously for next 21 days. Especially don’t miss out on
Expiry day.
Options: two types of Options 1. Call (CE) & 2. Put (PE)
Call Option :
You must buy call option if you think market goes up. You must sell (short Sell)
Call option if you think Market does not raise or stays flat.
Put Option :
You must buy Put Option if you think market goes down. You must Sell (short Sell)
Put Option if you think market will rise or Stays Flat.
For Option Buying: Gamer in Casino or Lottery buyer
Amount Required = Lot Size x Premium Price.
For Option Selling (Short Sell): Casino Owner or Lottery Seller
Amount Required = Future Margin = 1.05 lakhs for Nifty.
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TIDI ACADEMY
Premium Decay Concept:
Dear Students Please understand that in options Premium Decay every day every
hour Premium will melt (reduce).
#for example above mentioned Chart,quarterly options Premium Decay chart.
Premium melting will increase rapidly as we approach the Expiry day.
Month beginning (Monthly Contract) Options Premium Melting will be very less but as
We Approach Expiry day Premium melting will increase very rapidly.
(Month Last Thursday is Expiry).
In case of weekly expiry Contract week beginning there won’t be much premium melting but
as we approach Wednesday and Thursday (Every Thursday is Expiry) premium melting
becomes Very Rapid.
(Note: only Nifty and bank nifty has weekly options Expiry whereas stocks has only
Monthly Expiry).
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TIDI ACADEMY
Options Expiry Day Settlement Process
(Options is like just like Milk it has got a expiry date)
You know that options is like Buying a Strike Price (17000, 17050, 17100 ) to buy any
strike price you need to pay the Premium .
Let’s say you bought one call option
Let’s say Nifty spot price trading at 17200
Case study 1:
Person xyz bought one call option of strike price 17200. Premium he paid is 120. (120 x 50)
Here investment is 6000 rs
Let say on expiry date Nifty expired (Closed) at 17400
Person xyz makes (17400- 17200 = 200 200
– 120 (My investment)
= 80
Total profits
= 80x50
=4000 Rs
(Here investment is 6000 but person xyz made 4000 Rs profit)
Why he made profit?
Because market went above and closed above his strike Price so only he made profit
Case study 2 :
Same example
Person xyz bought one call option of strike price 17200. Premium he paid is 120 (120x50)
here investment is 6000 Rs
Let say on expiry date Nifty expired (Closed) at 17200
Person makes (17200- 17200) =0
=0-120
= -120
Here he makes loss of 120= he lost entire 6000. Entire investment became zero.
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TIDI ACADEMY
SHOCKED?
Take the formula
Apply the Formula to Expiry Day Settlement in Call
Option CALL OPTION EXPIRY DAY SETTLEMENT
FORMULA
Above my Strike price (Strike you bought) ___
How many points above (Minus) My Premium Price Paid
Market expired
Simple formula is Break Even =( Strike Price + Premium Paid)
# In the above example (Case 2 ) market dint expiry (Close ) above the strike
price itself So 17200 – 17200 = 0. i.e. 0 – 120= -120(Loss is 120) = 6000 rs.
This money will go to option seller.
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TIDI ACADEMY
Case Study 3 :
Same example
Person xyz bought one call option of strike price 17200. Premium he paid is 120. (120 x 50)
Here investment is 6000 rs
Let say on expiry date Nifty expired (Closed) at 17300
Here apply the formula as said above
17300 -17200 = 50
= 100 -120
= -20
Here loss is 20x50 = 1000 rs
Even tough market expired above your Strike Price you dint make profits. You lost money
here also.
Case study 4 :
Same example
Person xyz bought one call option of strike price 17200. Premium he paid is 120. (120 x 50)
Here investment is 6000 rs
Let say on expiry date Nifty expired (Closed) at 17320
Here apply the formula
=17320-17200= 120
= 120 - 120
= 0 No Loss or No gain
Here loss is zero and profits is zero = you got back your investment
back (your investment 6000 rs is safe)
Break even Formula
Above case once market close above 17320 only. You got break even (investment is safe)
Strike price + my premium Price paid = Break even
17200 + 120 = 17320
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TIDI ACADEMY
PUT OPTION EXPIRY DAY
SETTLEMENT FORMULA FOR PUT
OPTION SETTLEMENT
Below My Strike Price
How Many points _______ My Premium Price
below (Minus) Paid
Market expired
Break even Formula for Put
My Strike Price – My premium paid = Break even
Case study 1:
Person xyz bought one Put (PE) option of strike price 17200. Premium he paid is 150. (150 x
50) Here investment is 7500 rs
Let say on expiry date Nifty expired (Closed) at 17000
Here you made a profit of
17200- 17000 = 200
= 200 -150
= 50
Here person xyz made profit 50 x 50 = 2500 rs profits
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TIDI ACADEMY
Case study 2:
Person xyz bought one Put (PE) option of strike price 17200. Premium he paid is 150.
(150 x 50).
Here investment is 7500 Rs
# Let’s say Nifty Expires at 16500
Here you made of profit of 16500 -17200
700-150
550x50
=27500 are the profits.
Case Study 3: same example
# Let’s say Nifty Expired at 18200
Here entire investment become zero (7500 /- Rs loss)
Note: All the OTM Calls and OTM puts will become Zero on Expiry day. ITM won’t
become.
Zero, If you understand options you can trade in options if not don’t trade in
Options, in options Entire investment can become zero be carefully.
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