October 5, 2018

NIFTY options open interest analysis

- support 10000 resistance 10800 based on highest OTM options


- note earlier support was 11000, then 10700, then 10500 all of which broke
- but open interest remained roughly the same in the puts... see chart

- so what do you do when you have sold 10500 put and your trade goes in a loss?
- simple... you short in futures and hedge it.

- that is why when a support breaks, markets have a free fall.

- also note the IVs... it is at 20%. A 10300 put is now available at 200 so if you sell a put and short nifty, you can get almost the entire premium as profit on expiry. And at panic bottoms, the IVs will be the highest!

- And if you sell a straddle (say 10300), you have a leeway of 400 points (cost of 10300 call and 10300 put).

- of course, in real life it is not so easy. You must have good knowledge of option greeks, a calm mind and nerves of steel.

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