I have come across many posts in Facebook and other trading forums about a specific strategy

that many people are attracted to, which they call it as

Hero or Zero

Buying huge quantities of OTM options just before the expiry day, expecting for massive gain if
the markets moved exponentially on expiry day.

7000% returns in Bank Nifty weekly option.

Example:

Date: 04–04–2018

Spot: 24129

Strike: 2% * spot = 24611 — round off = 24600 CE

So the strike price we need to buy is 24600 CE April 5th 2018 expiry.

Index:
Option data:

So we would have bought the 24600 CE around 3.8 Rs. But the next day, the price went up as
high as 3600%.

That’s a stellar returns in just one day. Very low investment and huge reward, and people get
interested towards such option buying strategy and they tend to repeat it for next couple of expiry
expecting to make such huge returns but the options end up expiring worthless. Becomes Zero,
not a Hero.

But is it really possible to make such returns if you buy OTM options a day before every expiry ?
I did the research on it with Historical data, checked the data from inception of Bank Nifty
weekly options.

For testing purpose, I considered OTM options which are 2% away from Spot price.

If some has bought OTM CE (strikes that 2% from spot) Bank Nifty weekly option, every
Wednesday (day before expiry) from June 2016 to April 5th 2018.

Returns in %:
You just see 3 big spikes right? Yeah, those are the stellar returns that you get in buying OTM
options. Just 3 out of 95 trades.

These are three dates where the huge returns happened.

10–11–2016 1411%

25–05–2017 8992%

05–04–2018 2126%

All other trades ended up with loss. Full deployed capital wipes out. But still whats the total sum
of all returns? Its is 4283%, so even though 97% of all your trades are failure, you still end up
making positive returns.

You cannot put all your capital in one trade and expect to make 1000% returns, if it goes against,
you end up losing al. so what I considered was, say I put in 10k in this kind of trade for every
expiry, the this how cumulative Profit & Loss looks like!

My Total Investment: 10k every expiry — in total 95 expiry. So total investment was 9.5 Lakhs.

Returns: Rs. 428325

That’s almost 45% returns. That’s all.

Crazy! Isn’t it. But that’s how this Hero or Zero strategy works! Losing 97% of the time to make
just one big profit. Even though its over all a profitable strategy, very hard to follow.

Edit: Many readers have asked me, what would have been the result, if only PE was chosen or if
both CE & PE (Long Strangle) was chosen.

I have calculated that as well. When only PE options is considered, instead of CE, the P&L
distribution is like the below.

Only one trade resulted in huge profit which was the day surgical strike happened i.e. 29–9–
2016, all other trades resulted in loss. Total sum of returns was -5113%.

Both CE & PE: — Long Strangle on the day before expiry. If we consider buying both CE & PE,
still only 3 or 4 trades resulted in good profits and all other trades ended up in full loss. Total
sum of returns was -3900%.
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Ok, let me introduce you to Maxpain pyramid strategy.

The reason I like this strategy is for its extremely good Reward to Risk ratio.

This strategy should be entered in the last hour, a day before the expiry day(on Wednesday), on
weekly expiring nifty options. Nifty is preferred over Banknifty because of low volatility.

You can construct this strategy, if the below two condition are satisfied -
1. Market should not be highly directional.
2. Nifty spot should trading within range +or -200 points of maxpain.

Check for the maxpain of Nifty at around 2.30 pm. Let us say maxpain is 12000.
Sell 12000 CE and 12000 PE and hedge this by buying 12050 CE and 11950 PE.
Next is, just sell call and puts at a distance of 100 points on both sides and hedge them.
Proceeding with our example,
Sell 12100 ce and pe on top side and hedge it by buying 12150 ce and 12050 pe.
Sell 11900 ce and pe on bottom side and hedge it by buying 11950 ce and 11850 pe.

The payoff graph of the set up would look like below-

The range above the base line is the profit making range.

This will give a max profit, if Nifty closes at 12000 , 12100, 11900 on expiry and profit
decreases as it closes away from the peaks.
Usually max profit will be around 3000 and max loss will be limit to around 800 for 1 lot.
Increase number of lots based on your risk appetite.

This strategy has a win probability of 50% if constructed on non-trending days but has a very
good Reward to risk ratio. So even if two wins out of four in a month, would keep you floated in
profit at the month end.
No need to worry about the loss as it is limited, since it is fully hedged strategy.
You can enter this strategy tension free and make a handsome money every week.
That’s all for today. Bye!

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

What is expiry day in stock market?

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.

Can I trade options on expiration 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.
What happens when calls 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.

What happens if I don’t sell my options?

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.