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OPTION DYNAMICS

An OPTION Premium is basically made up of 3 major components: Delta, IVs, Time Decay.

DELTA: This is the main body of the premium which is directly proportional to the movement of NIFTY in this case. The delta of this call is around +14, implying increase of 14/- in premium every 100 pts gain in Nifty here on. We expect Nifty might at least be around 18400-18600 during the event, so that adds to 75/- in the premium (note as the NIFTY rallies the delta of this strike gains from +14 to around +20).

IVs: This is the statistical swing the NIFTY has seen in the same previous event. For example: During UNION BUDGET 2021, NIFTY swing was around 700 points. The VIX usually touches 20-23% during the event and later subsides to 14-16% after the event unfolds. The IVs are currently at 17, which we expect might be around 19 as the event approaches. Since the VEGA, (the amount by which an option premium increases due to 1% increase in IVs) is around 9, we add 18/- to the option premium (17 to 19 will see 9*2=18/- increase). FIIs have sold around 80,000 Cr in the last 8 months and the NIFTY low has been only around 16400. Now we have started seeing some buying in cash as well.

Payoff:

STRATEGY:- BUY NIFTY 3rd FEB, 2022 AT 19000 CE@45-55, TARGET 128.

Time Decay: So this option which has premium now at 50-55, can be at 55+75+18=148/- on or before the event. Since options also have time decay we deduct 20/-, to arise to a target of 128 on this strategy. With a risk rewards of 40:100 we highly recommend this.

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