Before knowing more about this strategy, let’s understand what is expiry?
In the Indian stock market, “expiry” typically refers to the expiration date of a derivative contract. Derivatives are financial contracts that derive their value from an underlying asset, such as a stock, commodity, or currency.
In India, two of the most commonly traded derivatives are futures and options. Futures contracts are agreements to buy or sell an underlying asset at a specified price and date in the future. Options contracts give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price and date in the future.
Talking further about options, we have Stock options and Index options, popularly- Banknifty and Nifty. The stock options expire on the last Thursday of the month whereas the Banknifty options and Nifty options expire every Thursday (weekly expiry options) as well as on the last Thursday of the month (monthly expiry options)
The strategy we’re going to learn is specifically for the Bank Nifty weekly options.
Bank Nifty option buying strategy
The strategy is based on the popular phenomenon that all the contracts get settled on Thursday and a big move can be expected because of the same.
The rule of the strategy is to buy ATM CE and ATM PE around 2:20 PM with the very important clause that the premiums should be equal or very close to each other.
Since every contract gets settled on Thursday and everyone will be eager to clear their positions at this later hour of the trading day, a one directional move can be expected. This strategy will only work if there is one directional strong movement in the market as one of the options will go to zero whereas the other will bring heavy returns to cover the other option’s loss too.
The SL and target should be managed according to the risk management rule one follows.
Even after knowing this strategy, one should always backtest, modify according to himself/herself, forward test, paper trade, and then execute in the real market with real money.
Conclusion
Now that you have learned about this buying strategy, do consider trying it out for real. Open a Demat account with Angel One if you do not have one already and start building your wealth.
Disclaimer: This article is only for educational purposes. The strategies and securities mentioned are only examples and not recommendations.
