Directional Options Strategy
You're referring to a directional options strategy used in Indian markets (e.g., Nifty, Bank Nifty on NSE), based on a combination of options ratios, Greeks (like delta/vega), volatility (especially high IV), and positional/carry trades—but not based on put-call parity, which is an arbitrage condition, not a trading strategy.
The strategy you're describing is closely aligned with what's known as a "Ratio Spread with Directional Bias" or a "Directional Vega-Delta Play"—often implemented during high volatility using only Call or Put Options (not both sides). Here’s a breakdown of what it is and how it works:
🔍 Strategy Name (Informal but Descriptive):
Directional Ratio Product Strategy using High IV & Greeks (Carry-Forward)
(Sometimes referred to by traders as a form of "Volatility Skew Exploitation" or "Directional Ratio Play")
⚙️ What is This Strategy?
This is a non-neutral, directional options strategy where you take positions only on one side (Call or Put) based on:
High Implied Volatility (IV): You exploit overpriced options.
Greek Analysis: Especially Delta (directional exposure), Vega (volatility exposure), and sometimes Theta (decay).
Ratio-Based Positioning: You sell more OTM options than you buy ATM/ITM options in a ratio spread (like 1:2 or 2:3).
F&O Segment (Nifty/BankNifty): Positions are typically in Index options, sometimes on weekly expiry with 1–2 days holding period.
No Put-Call Parity Usage: This is not about arbitrage or parity pricing.
🧠 How the Strategy Works
Let’s go through the logic step-by-step:
1. Identify Market Bias
Use technical, flow-based, or open interest (OI) analysis to determine bullish or bearish bias.
For example:
If expecting upside, use Call Ratio Spread.
If expecting downside, use Put Ratio Spread.
2. Check Volatility
Look for high IV, especially in OTM options.
This inflates the premium of short legs (which you're selling).
3. Choose the Option Side
Call Side if you’re bullish.
Put Side if you’re bearish.
No neutral straddles or strangles here — you take a view.
4. Construct the Ratio Spread (Directional Bias)
Example: Bullish Bias → Call Ratio Spread
Buy 1 ATM CE
Sell 2 OTM CEs
Example: Nifty at 24,500Buy 1 lot 24,500 CE
Sell 2 lots 24,800 CE
Key Rule:
Maintain favorable Greeks:
Net Positive Delta (if bullish)
Net Positive Vega (to benefit from IV crush after entry)
Ideally, your breakeven should be wide due to IV premium.
5. Carry Overnight if Conditions Allow
Hold positions for 1 or 2 days if:
IV is expected to drop
Theta is in your favor
Momentum continues in your direction
✅ Entry Conditions
Strong directional bias from technical or flow.
High IV on the OTM legs.
Skew between ATM and OTM premiums is favorable.
Greeks are aligned with your bias (e.g., +delta in bull case).
Event risk (like news/expiry/earnings) already priced in or fading.
🚪 Exit Strategy
Profit booking when:
IV drops significantly (premium decay on short OTM legs)
Delta reaches saturation (price nears short strike)
Stop-loss if price goes against your directional view.
🧮 Example in Practice
Say Nifty is at 24,500:
You expect a rise to 24,800 next day.
IV is 22%, unusually high.
You take:
Buy 1x 24,500 CE @ ₹120
Sell 2x 24,800 CE @ ₹60
Net debit = ₹0 (breakeven structure)
If Nifty expires at 24,800:
24,500 CE = ₹300
2 x 24,800 CE = 2 x ₹0 = ₹0
Net profit = ₹300
If Nifty goes above 24,800:
You may enter loss due to unlimited risk beyond breakeven (watch delta exposure).
You can tweak ratios or hedge with futures/other options if needed.
📊 Tools Often Used
Option Chain + OI Analysis
IV Rank or IV Percentile
Greeks analysis via tools (Sensibull, Opstra, etc.)
Volume/OI shifts
VIX positioning
⚠️ Risks
Unlimited risk beyond short strike.
Requires precise directional judgment.
Not suitable in range-bound markets.
Margin usage can spike due to naked short positions.
🧠 In Summary
This strategy is:
Not arbitrage like put-call parity.
Based on directional conviction, volatility premium selling, and Greek balance.
Works well in high IV, momentum conditions, especially in index options (BankNifty/Nifty).
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