Option chain Premium Decay analysis

Option chain Premium Decay analysis

Stock futures June 12, 2019

Option chain Premium Decay analysis





Option chain premium decay analysis is an advance and very critical analysis to find the direction of the stock market. we cannot ignore the decay of options in option chain analysis. Now the question is why it is important to analyze the premium decay of options during option chain analysis?


Few Standard rules of option trading

  1. Options sellers are more intelligent than the buyer of the option.
  2. Option sellers take big risk therefor 99 % of the time they win.
  3. Most options trade-in market is converted to zero after the end of the month.
  4. Option seller pay a large premium to sell options
  5. Option buyer pay only a small amount
  6. The main objective of the option seller is to convert the premium to zero
Considering these above impotent points in mind we can conclude that premium decay of option is directly proportional to the strike price to get hit. Therefore the relative decay in the premium is very important parameters to identify the stock market direction.



Basic rules to calculate the premium decay analysis

  1. Consider only out of the money options
  2. Consider the top 3 strike price that has the highest open interest call side and put aside.
  3. Record the movement of index movement daily
  4. Record the premium of the highest open interest strike price.

Procedure to calculate the premium decay analysis

  1. Visit Nse option chain page
  2. Note the strike price that has the highest open interest both call side and put side.
  3. Record the premium of highest open interest daily
  4. Calculate a minimum of 3 to 5-day data for better accuracy
  5. After that based upon the recorded data find out the average decay in put side and call side.
  6. If the decay is more on-call side market can move down
  7. If the decay more on the put side market can move up
  8. If the decay is equal professional traders closing their positions
  9. The logic is most professional traders are selling the options they only make money if the option price erodes as much as possible.
  10. If call side decay is more professional traders will sell the call options 
  11. If put side decay is more professional traders will sell the put option
  12. If put side decay is less professional traders will sell the call options market will move down
  13. If call side decay is less professional traders will sell the put options market will move up

Conclusion

The reason for less premium decay on either the call side or put side indicates option sellers are not taking a risk in that direction by selling options.



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Reference Nitin Bhatia video



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37 Comments

  1. sagarkolhe77 August 25, 2019 at 9:55 AM

    Option chain Premium Decay analysis
    Stock futuresJune 12, 2019.First you watch on which date you post this blog. If you are really owner of premium decay analysis then share the excal sheet.

    ReplyDelete
    Replies
    1. Stock futuresAugust 25, 2019 at 10:13 AM

      If you need excel sheet i will give you but visit this website https://fnoanalysis.com/oi/option_decay.php to know the premium decay analysis - if you have any other question reply me and also reply the Problem you have with implied volatility excel sheet

      Delete
    2. UnknownAugust 25, 2019 at 3:45 PM

      Excel sheet get error of
      Expression.Error: 2 arguments were passed to a function which expects 1.
      Details:
      Pattern=
      Arguments=List

      Delete
    3. Stock futuresAugust 25, 2019 at 4:28 PM

      Solved follow the updated instruction Must have excel 2013 or upper and analyze the premium decay. If still not working Please reply

      Delete
    4. UnknownAugust 25, 2019 at 8:11 PM

      No sir. Same error. I am using Excel 2016. Please give your mail address so that i can send screenshots.

      Delete
    5. Stock futuresAugust 25, 2019 at 8:27 PM

      We will Update the file daily you can downlad the data

      Delete
    6. UnknownJune 22, 2020 at 7:18 PM

      Today saw the option premium decay it asks to enter for ATM Call, put IV and cmp, but didn't get any update

      Delete
  2. RajAugust 26, 2019 at 11:24 AM

    Bro what if call side decay is 41 and put side -66 .what is conclusion plz tell how to conclude in decay what to see

    ReplyDelete
    Replies
    1. Stock futuresAugust 26, 2019 at 11:35 AM

      Dont make your decisons based upon one day decay - analyze the decay for 3 days and trade- the concept is simple option writer makes the premium to zero use this concept you will find the result

      Delete
    2. RajAugust 26, 2019 at 2:10 PM

      This comment has been removed by the author.

      Delete
  3. RajAugust 26, 2019 at 2:12 PM

    Thanks a lot such a valuable information.
    But sir in dis scenario call decay is -66 and put decay is 41 so it means chances is put decay become zero is fast so put decay is less compare to call so market will go down at this scenario sir my conclusion is right or not ?
    Once again thank you so much for this blog nd reply 🙏

    ReplyDelete
  4. IVAugust 29, 2019 at 9:11 PM

    Sir,
    Can u pls explain how to use IV with premium decay and other parameters like OI, volume to initiate a good trade.
    Thanks!

    ReplyDelete
    Replies
    1. Stock futuresAugust 29, 2019 at 9:16 PM

      Download the excel sheet i have provided the blog pages on open intrest - implied volatility - volume read und understand the logic benind the working of these parameters. If you are still confused relpy me.

      Delete
    2. IVAugust 30, 2019 at 9:53 AM

      Sir,
      I am little confused how to read/correlate this data, pls explain

      Delete
    3. Stock futuresAugust 30, 2019 at 10:12 AM

      To find the correlation download the correlation excel sheet.

      Delete
    4. Stock futuresSeptember 3, 2019 at 5:36 PM

      In the direction of premium decay When open intrest increases with low volume take a trade in that direction

      Delete
    5. UnknownOctober 9, 2019 at 8:22 AM

      Dear FNO ANALYSIS,

      kindly provide details of premium decay analysis on live market basis as Nitin Bhatia sir is using premium decay analysis for market reversal.

      Delete
    6. GauravSeptember 2, 2020 at 11:25 AM

      Where we can find that correlation Excel sheet and your blog also to read about logic behind correlation

      Delete
  5. Stock futuresSeptember 6, 2019 at 9:11 AM

    We shared premium decay excel sheet data daily. Download the excel sheet and analyze on daily basis.

    ReplyDelete
  6. Stock futuresSeptember 8, 2019 at 8:45 AM

    We wil share you the code of automated excel sheet on website. Visit the website for updates

    ReplyDelete
  7. AnonymousSeptember 12, 2019 at 9:18 PM

    sir, please give idea on how to automate excel sheets
    .

    ReplyDelete
  8. UnknownOctober 20, 2019 at 12:36 AM

    sir,how to nulify premium change due to stock price movement while calculating premium decay calculation

    ReplyDelete
  9. UnknownNovember 7, 2019 at 7:31 PM

    fnoanalysis.com is This site is temporarily unavailable. Sorry for the inconvenience. Plz help to find option decay analysis....

    ReplyDelete
    Replies
    1. Stock futuresNovember 10, 2019 at 8:29 PM

      We updated the excel sheet with data points and premium decay analysis Download the excel sheet from the link. Share the post for our hardwork https://stockfuturesnse.blogspot.com/2019/09/option-chain-historical-data-excel.html

      Delete
    2. UnknownApril 10, 2020 at 11:13 PM

      can we macke this sheet automated for intraday plz reply

      Delete
  10. SahasranshuMarch 18, 2020 at 6:01 PM

    Good information. Thanks for sharing. Here we also provide some useful topics related to investors. If you are interested then check below links
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    ReplyDelete
  11. chetan solankiMay 17, 2020 at 4:49 PM

    nse most active call and put. how they calculate national turnover and premium turnover?

    ReplyDelete
    Replies
    1. GauravSeptember 2, 2020 at 12:44 PM

      For notional turnover no of lots multiply by value plus premium of that option . For premium turnover number of lots multiply by only premium amount

      Delete
  12. AnuragMay 26, 2020 at 1:07 AM

    Hi,

    Can you please assist me in understanding the terms - coivr, poivr and 3 other columns? Also, how the premium decay table is calculated and comprehended?

    ReplyDelete
    Replies
    1. Stock futuresMay 26, 2020 at 10:32 AM

      COIVR repesent change open interest volume ration call side similarly put side

      Delete
    2. Stock futuresMay 26, 2020 at 11:39 AM

      The process of calculating premium decay is 1. Find top 4 open interest strike price from option chain 2. Find the increase or decrease value in options called decay . 3. Find Last trading price of strike prices. 4. Find put call ration of top 4 strike. To understand this fully check the fii dii pro client data points.
      Link both file . From fii dii pro client data points files you will find who shorted call or bought out or bought call. Fii and pro usually dont lose money if market moves against them they will reverse it . ultimately retail client will lose at the end. If you need more help write us back

      Delete
    3. GauravSeptember 2, 2020 at 12:51 PM

      I don't know about premium decay analysis but your data analysis calculation way is wrong kindly watch nitin bhatia sir all videos hope u will able to find the correct way of doing data analysis

      Delete
  13. UnknownJune 13, 2020 at 8:01 PM

    Hi Sir, do you save the premium decay data on a daily basis. Is it available for the us to view daily and historic.

    ReplyDelete
  14. Stock futuresJune 14, 2020 at 10:14 AM

    We save option chain data on daily basis.It includes max pain point, support resistance, premium decay in one excel sheet. You can download the excel sheet and back test the data to build your own trading system.

    ReplyDelete
  15. DariyaSeptember 17, 2020 at 5:22 PM

    Nice information thanks for sharing
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  16. Universal NewsJanuary 18, 2021 at 2:15 PM

    I saw your post. it has very good information keep it up. we are also World wide news we provide News, Politics,Travel,fashions...etc

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  17. sanJuly 11, 2021 at 11:13 AM

    please inform the SUBSCRIBER that you ar not updating the daily sheets.

    ReplyDelete

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