I have received requests from many traders to teach them a strategy to trade the expiry day. I will discuss a very simple expiry day nifty option strategy that can safely fetch you 20 times to 50 times even 100 times returns. This strategy can be implemented on Nifty OR Bank Nifty options.
Some Common FAQ on Expiry Day Trading
In the Indian stock market, monthly futures and options for stocks and indices expire every last Thursday of the month. So traders need to settle their positions before the expiry of the contracts. Nowadays, the Nifty and Bank Nifty index has a weekly expiry. So the weekly contracts of the indices expiry every Thursday. This provides a trading opportunity for active traders every week. In case Thursday remains a holiday the expiry takes place on the previous trading day.
Yes, you can safely trade options on the expiration day. The only things you need to know is how to execute options trades correctly and the correct range in between which the market will expire.
When the calls expire they are no longer in the system. If they expire above the strike price that you purchased, it will be sold and you will get the last premium multiplied by lot size minus any brokerage and taxes paid. On the other hand, if the call option expires below the strike price that you have purchased you will lose the entire premium multiplied by the lot size and any brokerage and taxes paid.
In case you hold the options and they expire worthlessly you just lose the entire premium multiplied by the lot size plus any brokerage and taxes paid. But in case these options expire in the money you need to pay more taxes and STT and that will hamper your profits. Hence, it is advisable to always square off any in the money options before expiry.
Points to Remember on Expiry Day
Remember expiry day is a critical day to trade where actually the market remains very noisy. If you trade with a chart, you can face many whipsaw on an expiry day. You can often see that trend-following indicators are generating a buy signal and the market is falling down on the next bar. The same can be true for a sell signal also.
Many traders lose money on expiry day. But there can be an immense profit if you can trade expiry effectively. In fact, the stock market is like a sword. You need to know how to handle it properly.
Yes, this strategy can make your 1 rupee to grow to 20-50 OR even 100 rupee in no time. This is the power of the expiry day nifty option strategy. You need not be a big technical analyst to trade Nifty on the expiry. The only knowledge you know is where actually Nifty is expiring.
Collect Correct Options Data For Expiry Day Nifty Option Strategy
You first need to collect options data to understand exactly where Nifty is going to expire. You may not get the exact level, but you will get a band within which the Nifty is going to expire. For that login to the Open Interest page for the Nifty index on our website.
Just open this page on expiry day morning. Concentrate on the first image. Locate the point when the last time the red bar is longer than the blue bar and the first time the blue bar is longer than the red bar. The red bars are put open interest and blue bars are call open interest. See the image below:
Here 9400 is last when put open interest is greater than call open interest. So the expiry will be above 9400. And 9500 is first when to call open interest is greater than put open interest. So the expiry will be below 9500.
The Expiry Day Trading Game
Now, keep 9400CE and 9500PE of same month expiry in your terminal. The real game starts after 1:30 PM. If you get Nifty below 9400 simply buy a 9400CE. You will get it at 1-5 rupees. Nifty will 100% rise above 9400 and you can get 10/20/50 even 100 rupees of your call option.
Similarly in the expiry day nifty option strategy if you get Nifty above 9500, you know Nifty will not expire above 9500. So simply buy a 9500PE. You will again get it within 1-5 rupees. Nifty will 100% fall below 9500 and you will get big gains.
Money Management for Expiry Day Nifty Option Strategy
Do not trade more than 2% of your capital in this strategy. Because there will be no stop loss. Your maximum loss in this expiry day nifty option strategy will be limited to the premium you are paying for the option. You can also refine Nifty expiry levels using the 50 point open interest values like 9450. In that case, you need to trade 9450 calls OR put.
Expiry Day Trading in Bank Nifty
If you want to trade Bank Nifty in this strategy please visit the Bank Nifty Open Interest page. The same kind of expiry play is possible in the Bank Nifty index as well. Moreover, due to a higher volatility Bank Nifty offers a better trading opportunity to active traders. We recommend you to bookmark our Nifty and Bank Nifty open interest pages. We are now offering full interactive charts on these pages.
Using Options Max Pain in Expiry Day Trading
We can also use Options Max Pain in predicting the expiry value. There is a Max Pain calculator on our website. This page will update the Nifty and Bank Nifty options Max Pain in real-time.
Now, what this Max Pain indicates. This indicates the level where if the market expires, the options buyers will have maximum pain. In other words, this indicates the expiration levels. Suppose on 28th November 2019 expiry morning we have seen that the May Pain is around 12100 level. So we understood that the expiry will happen near 12100. So in the early trades when the market was trading at higher levels we could enter short sell for a target of 12100.
I suggest reading the following book: Trading Options at Expiration: Strategies and Models for Winning the Endgame (paperback). This is a complete guide on how to trade options on the expiry day.
Trading in the expiry can be a really profitable business if you can predict the expiry level correctly. Many traders lose money on the expiry day. But this day is a money-making opportunity for the options traders. Money can be made both by buying and selling options on this day.