Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

What Happens When You Trade in ATM/OTM Options on Expiry Day?

1 min read

If you are a weekly options trader then here is the list of guidelines that helps you need to know and trade the expiry day better. If you are an expiry day trader you might be wondering which strike price to trade.

It is generally perceived that expiry day brings a mega multiplier to option trades though that’s true however timing those trades is typically not so easy to achieve.

Options are at the cheapest on the expiry day as most of the time decay got eroded and hangs out with very little option premium including ATM options.

So what if a Trader Buys ATM CE or ATM PE options in the morning at 9.20 a.m and exits the position at 3.00 p.m in the evening will there be any edge?

We used Quantman to solve such simple queries and the results are an eye-opener to every gambler who is blindly betting on Weekly options on expiry day. Even if you buy an ATM CE or ATM PE options every expiry the odds of losing is 100% in the long run.

Buying ATM CE on Expiry Day (Nifty Weekly Options)

Holding Period Matters

The Longer you are going to hold the higher the probability that one is going to lose the money to option sellers. The faster you exit higher the odds of survival in Weekly Options.

Winning Rate and Sideways Markets

Win Rate is at a mere 34.38% in case ATM CE options and 31.25% in the case of ATM PE options. i.e on average 65-70% of the time market favors the option short-sellers and hence the odds of sideways markets are 70% on a Weekly Expiry Day.

Buying ATM PE on Expiry Day (Nifty Weekly Options)

Gambling with OTM Options?

If your intention is to gamble on OTM Options then think x100 times before investing your hard-earned money as win rates get even lower. Game is won on 1 out of every 10 weekly expires on average

Buying 2 Strike Wide OTM CE on Expiry Day (Nifty Weekly Options)

Buying 2 Strike Wide OTM PE on Expiry Day (Nifty Weekly Options)

Option Sellers Enjoy the Most

So who makes most of the money, most of the time? It is intraday Straddlers and Stranglers who are primarily betting against the option buyers and betting the option buyers premium to erode and the win rate for then is roughly anywhere between 65-80% of the weekly expires.

Intraday Short Straddle on Expiry

Intraday Short Strangle 1 Strike Wide on Expiry Day

Key Learning

1)Those who can manage to scalp the Weekly options should be fast with their fingers (Fast Entry and Faster Exit)
2)Gamblers buying cheap options will be entertained once in a while. Hardly 1-2 times in a year on an average out of 52 weekly expiries.
3)Blindly Avoid Buying OTM Options on Expiry Day
4)Intraday Straddle and Strangle Players are lucky most of the time as the market itself going sideways 70% of the weekly expiry days. And rarely they got into big accidents.
5)If you are a option buyer and from the entry point the options becomes 4x or 5x multiplier intraday then its better to book profits as the odds further favors option sellers mostly. Profit booking is the most ideal choice.

Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

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