Please explain this options behaviour.

[p699]

I think I am missing some basics here!
Today was expiry day(30MAR). I have been observing MRF since past week, but did not invest in it(I am still a newbie!). My guess was that the option premiums are going to increase. Because the underlying price was increasing. So I was observing 60000 strike price closely. While the underlying price rose in the end, the premium price declined steadiy since past 2 days. For all other strike prices the premiums rose for past 2 days. Why the difference in behaviour ? Does it have something to do with "in the money" and "out the money" ?
The underlying price closed at 59950.
See option chain:
https://www.nseindia.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbolCode=1310&symbol=MRF&symbol=mrf&instrument=OPTSTK&date=-&segmentLink=17&segmentLink=17
Please explain,Thanks.

 

[travi]

I think I am missing some basics here!
Today was expiry day(30MAR). I have been observing MRF since past week, but did not invest in it(I am still a newbie!). My guess was that the option premiums are going to increase. Because the underlying price was increasing. So I was observing 60000 strike price closely. While the underlying price rose in the end, the premium price declined steadiy since past 2 days. For all other strike prices the premiums rose for past 2 days. Why the difference in behaviour ? Does it have something to do with "in the money" and "out the money" ?
The underlying price closed at 59950.
See option chain:
https://www.nseindia.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbolCode=1310&symbol=MRF&symbol=mrf&instrument=OPTSTK&date=-&segmentLink=17&segmentLink=17
Please explain,Thanks.

Its most likely a liquidity issue, look at the OI, hardly anything.
When there are a good nmber of buyers and sellers, the true value is evaluated more fairly else it just gets skewed like that.

 

[ram2010]

Its most likely a liquidity issue, look at the OI, hardly anything.
When there are a good nmber of buyers and sellers, the true value is evaluated more fairly else it just gets skewed like that.

sorry if iam wrong-

since 60000 is out of the money, it tends to decline

and go to 0,

where is the liquidity issue here-

 

[travi]

sorry if iam wrong-

since 60000 is out of the money, it tends to decline

and go to 0,

where is the liquidity issue here-

Well, you can try explaining your context in details.

What I understood is 60k wasn't rising but say 59700 and 60250 were rising but 60k wasn't, CE or PE.

Technically, all strikes will loose their time value, which is called Theta as expiry approaches.
On expiry, ie. at Eod, OTM options expire worthless, 0.05.

 

[p699]

sorry if iam wrong-

since 60000 is out of the money, it tends to decline

and go to 0,

where is the liquidity issue here-

Sir, Look at ACC, ITM and OTM both are tending towards zero. I am talking about CE only.
https://www.nseindia.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbolCode=209&symbol=ACC&symbol=acc&instrument=OPTSTK&date=-&segmentLink=17&segmentLink=17

 

[.Strategist]

If traders think there is no chance to go above 60000, then the CE price will steadily decline.
Supply and demand, in this case no demand.

 

[Subhadip]

Sir, Look at ACC, ITM and OTM both are tending towards zero. I am talking about CE only.
https://www.nseindia.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbolCode=209&symbol=ACC&symbol=acc&instrument=OPTSTK&date=-&segmentLink=17&segmentLink=17

what is your question basically?

 

[travi]

Bhai, if you are looking at LTP and deciding your view, let us know.

LTP need not be the mathematical or fair value.
so its now written anywhere that OTM needs to be 0.05.
even if a chart shows OTM priced like inr. 5,6...9 etc, in expiry settlement its worthless.

 

[p699]

what is your question basically?

Note: Basically how I plan to profit is, by looking at EQ prices, invest in options by selecting the appropriate strike price. No plans of carrying thru expiry. Simple buy low sell high.No hedging.

I was watching charts of MRF, both OPTIONS(60k CE and 57K CE strike price) and EQ. If EQ price rises, so does premiums. Last two days of trading...the EQ price rose, so did 57k CE(charts correlated well). But 60K CE chart did not correlate with EQ at all! So my question is why did it not correlate with EQ prices ?

In the case of ACC, as EQ price declined, so did all the option premiums across all strike prices.The charts of EQ and Options premiums correlated well in ACC (and NMDC too), but in the case of MRF it did not.


Some more questions:
Is theta decay high at 60k compared to 57k ? The EQ price was closer to 60K.
Or was it liquidity issues that forced 60K to not correlate with EQ charts?

If I had invested money in the last 2 days it would have been in 60k CE, expecting better premium rise than 57k, and I would have lost money even if the EQ price rose. I am talking about simple buy low sell high, not any complex strategies. I hope I was clear in my explanation.

 

[p699]

LTP need not be the mathematical or fair value.
so its now written anywhere that OTM needs to be 0.05.
even if a chart shows OTM priced like inr. 5,6...9 etc, in expiry settlement its worthless.

I understood what you said here. Thank you.
Basically how I plan to profit is, by looking at EQ prices, invest in options by selecting the appropriate strike price. No plans of carrying thru expiry. Simple buy low sell high.No hedging.