Since lot of discussions on ITC, had a simple look at the chart. With each passing day, the probability of a large breakout increases. Watch the behaviour of MFI, but wait for prices to trade above the trendline with volumes

More from Subhadip Nandy

Ok here is the explanation. Grab a cup of coffee and read on. If you have not read/noticed this, you will see intraday options movement in a new light.


Say we have two options, one 50 delta ATM options and another 30 delta OTM option. Normally for a 100 point move, the ATM option will move 50 points and the OTM option will move 30 points. But in a high volatile environment, the OTM option will also move nearly 50 points

To understand why this happens, first understand why an ATM option is 50 delta. An ATM option has the probability of 50% of expiring as ITM. The price just has to close a rupee above the strike for the CE to be ITM and vice versa for PEs

Now think of a highly volatile day like today. If someone is asked where the BNF will close for the day or expiry, no one can answer. BNF can close freakin anywhere, That makes every option of an equal probability of being ITM. So all options have a 50% probability of being ITM

Hence, when a huge volatile move starts, all OTM options behave like ATM options. This phenomenon was first observed in the Black Monday crash of 1987 at Wall Street, which also gave rise to the volatility skew/smirk

More from Itc

#ITC Very low risk setup 👇 https://t.co/N5PhvdfCPs

You May Also Like