How To Calculate An Expected Range For The Market using Options ?

In Continuation in Previous Post How Option Prices are Determined

This Options concept are shared by Mr Raja Mohan an Expert Option Trader. I am thankful to Him for sharing his knowledge to all the Readers.

Voltality Skew:-

If takes equal distance strike price CE and Put Options..

Ex:- When Nifty trades at 11300;

If take 300 Pts away strike options like.

11000 PE& 11600 CE Options. whichever ever side premium higher indicates demand and called Voltality skew.

(Keep in mind Put options have higher premium compared to CE options usually due to Put option have demand due to Institutional secure their portfolio by buy Puts)

But if Call option have premium indicates Bullishness.

India VIX:- (Voltality Index also called Fear Index):-

How Nifty next 1 month target can caluclated using India VIX:-

India VIX derived from Option price and Option price reflect from India VIX.

Take upcoming month expiry ATM Call&Put option premium= (September month 11400 CE+Put=487) divide by 11400. U get 4% So Market is expecting to make a 4% move in coming month based on the Option Prices.

  • Take VIX (Ex-60) and sq root of 12 (12 months)-3.4 and caluculate VIX/3.4= 17%. Next 1 month Nifty is expected move +17% or -17%
  • If VIX is 60% means next 1 year Index is expected to move 60% upmove or 60% downmove.
  • VIX > 30 Indicates high voltatile market and larger swings happend and Intraday voltality also high (Feb- May 2020) (Keep in mind that during central elections. VIX is high)
  • VIX< 16 indicates Balance uptrending marekt and Intraday voltality is low and expect Dull and Boring movement
  • If Nifty is coming down, But Voltality (VIX) Index is not moving up or VIX coming down means not much strength in down move and expect Price reversal soon (Put Option premium will not increase much)
  • If Nifty is movingup or sideways upmovement Voltality (VIX) Index is moving up indicates Uptrend may reverse soon.
  • If VIX and IV is very high.. can go for OTM options (Buying)

Option movement Relative strength comparision to Index movement:-

If you are ATM/ITM Option Buyer.. you should compare option movement to Index movement. If Index moves 100 Pts.. ATM/ITM Option should move alteast 30-50% (Assume Option have Delta of 0.5). But If Option price does not move along with Index movement indicates short buildup of option and can expect option premium erosion.

PCR (Put call Ratio):-

Mkt sentiment= Price weighted Put ratio as % if OI/Price weighted Call ratio as % of OI

Index PCR (Put Call Ratio):- (Market sentiment indicator and should be used with other trade setups)

Price wighted PCR Ratio (tweaked PCR)-

Put vol * Put Price (Highest OI build level)/ Call vol* Call price

Price weighted PCR as % if OI:-

Price weighted Put ratio as % of OI= Put vol/Put OI * Put Mkt price (Highest OI build level)
Price weighted Call ratio as % of OI= Call vol/Call OI * Call Mkt price

PCR >1 Bullish
PCR <1 Bearish to sideways movement

PCR > 1.3 Indicates Overbought market and reversal or sideways movement can be expected
PCR <0.7 Indicates Oversold market and reversal or sideways movement can be expected

In NSE Site, Total Calls and Put OI is mentioned (Both weekly/monthly strike prices) If Total CE OI and Put OI is equal Mkt is in balanced structure of sideways movement is expected.

When the market is in uptrend.. Put OI is higher then Call OI indicates positive movement is expected

When the mareket is in downtrend.. Call OI is higher then Put OI indicates negative movement is expected

https://www1.nseindia.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbolCode=-10000&symbol=NIFTY&symbol=NIFTY&instrument=-&date=-&segmentLink=17&symbolCount=2&segmentLink=17

5 thoughts on “How To Calculate An Expected Range For The Market using Options ?”

  1. Take VIX (Ex-60) and sq root of 12 (12 months)-3.4 and caluculate VIX/3.4= 17%. Next 1 month Nifty is expected move +17% or -17%
    Hi,
    I would like to know the working calculation for the above sentence . Can someone explain (Ex-60) and hpw do you get 3.4 . Please help
    Thnaks
    D.Anand

  2. Dear Bramesh Sir, just 1 doubt, on which date of every month do we need to take the VIX figure into consideration for calculating the monthly and yearly move, bcoz every day the VIX figure changes or we need to take the monthly closing.

    Regards,
    Manish

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