TRADING

BOOTCAMP

BOOTCAMP
 GROUND RULES
Note:
1. Have a pen and paper to note down important concepts
2. Message your questions in the chat and Arvind will ask during the QnA session.
3. Study Material will be shared in the WhatsApp group.
PUT RATIO
BACK
SPREAD
 PUT RATIO BACK SPREAD

What is PRBS ? When will we use it?

Sell a ITM PUT &

In Bearish View
Buy two OTM PUT

Unlimited profit if the market goes down,

Limited profit if market goes up,
Predefined loss if the market stay within a range
 Suppose NIFTY current market price is
9000 and someone has bearish view on
NIFTY.

EXAMPLE A Person can :

Sell ITM PUT 9100 strike price @ 150
Buy two lot OTM PUT 8950 strike price
@ 50
PAY OFF
CHART
 Spread = Higher Strike – Lower Strike =
9050-8900 = 150
Max Risk = Spread - net premium= 150 -
50 = 100
FORMULAE Max Reward = Unlimited
Upper Breakeven Point (UBEP) = Lower
Strike + Max Loss = 8950 + 100 = 9050
Lower Breakeven Point (LBEP) = Lower
Strike - Max Loss = 8950 - 100 = 8850
CALL RATIO
BACK
SPREAD
 CALL RATIO BACK SPREAD

What is CRBS ? When will we use it?

Sell a ITM CALL &

In Bullish View
Buy two OTM CALL

Unlimited profit if the market goes up,

Limited profit if market goes down,
Predefined loss if the market stay within a range
 Suppose NIFTY current market price is
9000 and someone has bullish view on
NIFTY.

EXAMPLE A Person can :

Sell ITM CALL 8900 strike price @ 150
Buy two lot OTM CALL 9050 strike price
@ 50
PAY OFF
CHART
 Spread = Higher Strike – Lower Strike =
9050-8900 = 150
Max Risk = Spread - net premium= 150 -
50 = 100
FORMULAE Max Reward = Unlimited
Upper Breakeven Point (UBEP) = Higher
Strike + Max Loss = 9050 + 100 = 9150
Lower Breakeven Point (LBEP) = Lower
Strike + Net Premium = 8900 + 50 = 8950
PUT CALL
RATIO
 PUT CALL RATIO
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.
 PUT CALL RATIO = Total
FORMULAE open interest of Puts / Total
open interest of the Calls.

It is a Contrarian Indicator
 PUT CALL RATIO
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.

All values between 0.5 and 1 can be attributed to regular trading

activity and can be ignored.
MAX PAIN
THEORY
 MAX PAIN THEORY
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.
 List down the various strikes on the
exchange and note down the open
interest of both calls and puts for these
strikes.

For each of the strike price that you have

PROCESS noted, assume that the market expires at
FLOWCHART that strike.

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

Identify the strike at which the money lost

by option writers is least.
PROCESS
FLOWCHART 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.
EXAMPLE
BEAR CALL
LADDER
 BEAR CALL LADDER

What is BCL ? When will we use it?

Sell a ITM CALL, Buy a ATM

In Bullish View
CALL & Buy a OTM CALL

Unlimited profit if the market goes up,

Limited profit if market goes down,
Predefined loss if the market stay within a range
 Suppose NIFTY current market price is
9000 and someone has BULLISH view
on NIFTY.

EXAMPLE A Person can :

Sell ITM CALL 8900 strike price @ 150
Buy ATM CALL 9000 strike price @ 75
Buy OTM CALL 9050 strike price @ 50
PAY OFF
CHART
 Spread = Higher Strike – Lower Strike =
9050-8900 = 150
Max Risk = Spread between ATM and ITM
- net premium= 100 - 25 = 75
FORMULAE Max Reward = Unlimited
Upper Breakeven Point (UBEP) = Sum of
Long strike - short strike - net premium =
( 9050 + 9000 ) - 8900 - 25 = 9125
Lower Breakeven Point (LBEP) = Lower
Strike + Net Credit= 8900 + 25 = 8925
BULL PUT
LADDER
 BULL PUT LADDER

What is BPL ? When will we use it?

Sell a ITM CALL, Buy a ATM

In Bearish View
CALL & Buy a OTM CALL

Unlimited profit if the market down,

Limited profit if market goes up,
Predefined loss if the market stay within a range
 Suppose NIFTY current market price is
9000 and someone has BEARISH view
on NIFTY.

EXAMPLE A Person can :

Sell ITM PUT 9100 strike price @ 150
Buy ATM PUT 9000 strike price @ 75
Buy OTM PUT 8950 strike price @ 50
PAY OFF
CHART
 Spread = Higher Strike – Lower Strike =
9050-8900 = 150
Max Risk = Spread between ATM and ITM
- net premium= 100 - 25 = 75
FORMULAE Max Reward = Unlimited
Upper Breakeven Point (UBEP) = Upper
Strike - Net Premium = 9100 - 25 = 9075
Lower Breakeven Point (LBEP) = Sum of
Long strike - short strike - net premium =
( 9000 + 8950 ) - 9100 + 25 = 8875
COVERED
CALL
 COVERED CALL
Used to generate extra income
from existing holdings in the cash
What is cc?
market. If an investor has bought
Buy In CASH & shares and intends to hold them
Sell a OTM CALL for some time, then he would like
to earn some income on that
asset, with out selling it, thereby
reducing his cost of acquisition.
 Suppose ABC current market price
is 1590 and investor is bullish on
this stock for long term.

EXAMPLE A Person can :

Buy a stock in the cash market at Rs.
1590
Sell a CALL of 1600 strike price @ 10
Buy a PUT of 1580 strike price @ 7
PAY OFF
CHART
 Total Risk = Unlimited

Total Reward= Call strike - Cash

Price + Call Premium = 1600 -
FORMULAE 1590 + 10 = 20

Breakeven Point ( BEP )= Cash

Price - Call Premium = 1590 - 10 =
1580
COLLAR
 COLLAR
A collar strategy is an extension of
covered call strat egy. In case of
What is Collar? covered call, the downside risk
remains for falling prices; i.e. if the
Buy In CASH,
stock price moves down, losses keep
Sell a OTM CALL &
increasing (covered call is similar to
Buy a OTM PUT
short put).To put a floor to this
downside, we long a put option.
 Suppose ABC current market price is
1590 and investor is bullish on this
stock for long term.

EXAMPLE A Person can :

Buys a stock in the cash market at Rs.
1590.
Sell a CALL of 1600 strike price @ 10.
PAY OFF
CHART
 Total Risk = Cash Price - Put Strike
price - Call Premium + Put Premium
= 1590 - 1580 + - 10 + 7 = 7

Total Reward= Call strike - Cash Price

FORMULAE + Call Premium - Put Premium =
1600 - 1590 + 10 - 7 = 13

Breakeven Point ( BEP )= Cash Price -

Call Premium + Put Premium = 1590
- 10 + 7 = 1587
THANK
YOU