How To Trade Nifty Options During News Or Events

  • Market Overview

Traders often claim that you can make money buying options and tracking the news at the same time. In today’s article, we shall discuss one parameter which can help retail traders, trade the impact of news, without having any knowledge of the news. We shall also back it with today’s live trade. The function is called Implied Volatility. The important question is why implied volatility? Simply because those who understand the role of implied volatility are champions in trading options.

The Importance Of IV Component

There are several factors that cause option premiums to change. Implied Volatility is the most important amongst them. If you look closely, you will notice, retail traders are mostly focussed on news or events while trading, they hardly ever look into the IV. So how can they change this? We all know that there are different factors that are responsible for the movement in options premium. Most of them are successfully computed by experts. However, Implied Volatility is a component, which can be computed only if we know where the market maker is standing between 9:15 am and 3:30 pm. For this reason, IV plays the most crucial role in determining the price of an option.

Trade Execution With IV

For ease of understanding, let us consider today’s example. What we did was simple and can be replicated by retail clients also, once they have a grip on the IV factor. First, we checked the position of the market maker in the morning and found that they were preparing to buy Nifty. Then we checked the implied volatility of the option strikes the market maker was focusing on. We found that the IV of those strikes was reflecting unnatural change. This is where things got interesting; we evaluated the IV drift and found that the 12200 Call and 11850 Put in the weekly contract was a perfect match. We bought the call option at Rs.16 and the put option was bought at Rs.10 when the IV was conducive. So our total investment was Rs26 (16+10). It is important to note that the market maker was also building long positions in Nifty at the same time. From there, Nifty rallied and broke the 12100 levels and made a high of 12154. If you look closely, you will notice, when the 12200 Call made a high of 43 today, the 11850 Put remained pinned at 10.60 despite 90 points upside move in Nifty future. Surprising isn’t it? This is the beauty of understanding implied volatility. We squared off the position when the sum total of the call and put was @ 46 thus generating a 76% return by buying option even on a day when India Vix was below 14 for the whole day.

Put Option
Call Option

ORIGINAL POST

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  • Sunil Kushwaha @Sunil Kushwaha
    Thanks for writing a informative article but we are expecting some uncommon thing to find out like how know unnatural IVof particular strike. As I have seen that you not answering anyone questions...but I just hope that u will teach/explain for retail traders....
    Like 0
  • Lalit Borole @Lalit Borole
    Good to read and notice your logics in this article.sorry ...for my last comment against your last article. I commented very fast .
    Like 0
  • Sunny Ken @Sunny Ken
    👍great sir you explained me one more way how to use option Chain.
    Like 0
  • Srikanth Nakirtha @Srikanth Nakirtha
    🤔😂
    Like 0
  • Srikanth Nakirtha @Srikanth Nakirtha
    amplify trading academy know what market makers are going to do
    Like 2
  • Ishwar SS @Ishwar SS
    Amazing how you knew market makers were ready to buy nifty and how you manage to see their Position in morning
    Like 2
  • ABDUL HANIF KHAN @ABDUL HANIF KHAN
    It is better to upload a live vdo of trade.So that a layman could understand ur analysis. Thanx
    Like 0
  • Lalit Borole @Lalit Borole
    ha wo market maker aapke bajume to baitha tha
    Like 3
  • Abhijeet Deshpande @Abhijeet Deshpande
    how do we know market maker are preparing to buy nifty and how do we know which strike price they are targetting?
    Like 1
    • Nayan surana @Nayan surana
      For that you have to attend his professional coaching sessions which might be expensive. Guys, they never tell this but just make readers more tempting. Pure business
      Like 4
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  • Ravi Saini @Ravi Saini
    plz
    Like 0
  • maheswara reddy @maheswara reddy
    how do you know I've unnatural of particular strike?
    Like 5
  • Anand Gupta @Anand Gupta
    great
    Like 0

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