Gamma Blast Strategy | Expiry Jackpot Strategy | Zero - Hero Trade

The Brain Titans

6 Aug 202409:01

Summary

TLDRThe video discusses the 'zero hero trade' strategy in options trading, particularly during expiration days. It explains the role of gamma blasts, which can cause significant price movements in option premiums. The script educates viewers on how to identify and capitalize on these gamma bursts for profit, while warning against the risks of trading on inflated premiums. It also covers the Greeks, specifically delta and gamma, and their impact on option pricing. The presenter advises against buying options with inflated premiums and suggests strategies for safer trading.

Takeaways

💡 Expiry day trades in options often result in 'zero-hero' situations, where options can rapidly increase or decrease in value.
📈 'Gamma Blast' plays a major role in the rapid rise of option premiums during expiry, particularly for at-the-money options.
🗓️ Currently, there are expiries happening almost every day in the market, but SEBI might reduce them to twice a week in the future.
📊 Many retail traders with limited capital try to capture 'zero-hero' trades to make significant profits, but most end up making losses.
⚡ Option premiums can spike from ₹10 to ₹100 in a short time on expiry day, due to the interaction between Delta and Gamma.
📉 Delta values vary for different types of options: out-of-the-money options have Delta between 0.00 and 0.50, while at-the-money options have a Delta near 0.50.
🎯 Gamma increases significantly when options move closer to being at-the-money, leading to sharp increases in Delta and option premiums.
🚀 On expiry day, a phenomenon known as the 'Gamma Blast' occurs when Gamma spikes, causing rapid changes in option prices.
⚠️ Traders should avoid entering positions when premiums are high due to Gamma Blast, as prices can quickly fall, leading to losses.
🔍 To capture 'Gamma Blast' effectively, it’s important to carefully analyze the price levels and time your entry, but the win rate of this strategy is low.

Q & A

What is a 'zero to hero' trade in the context of options trading?
-A 'zero to hero' trade refers to an options trade where a low-priced option suddenly skyrockets in value on expiration day, often due to significant price movements and gamma effects. These trades are highly risky, with the potential for either massive gains or total losses.
How does gamma influence option premiums on expiry day?
-Gamma influences how much delta changes in response to price movements. On expiry day, as options approach the at-the-money point, gamma spikes, causing rapid changes in delta and, as a result, sharp increases in option premiums, often referred to as a 'gamma blast.'
What is the relationship between delta and gamma in options trading?
-Delta represents how much an option's premium changes with respect to price changes in the underlying asset, while gamma measures the rate of change of delta. As the price of the underlying asset moves closer to the strike price (at-the-money), gamma increases, causing delta to change more rapidly.
Why do many retail traders suffer losses in 'zero to hero' trades?
-Many retail traders suffer losses in 'zero to hero' trades because they misunderstand or fail to account for how gamma and delta fluctuations can drastically alter option premiums, leading to sudden and significant price reversals. Additionally, they may enter trades when premiums are highly inflated, only to see prices collapse.
What is the role of delta in determining an option's premium?
-Delta indicates how much an option's premium will change with a corresponding price movement in the underlying asset. For example, if an option's delta is 0.50, a 100-point increase in the underlying asset will result in a 50-point increase in the option's premium.
What is the typical delta value for at-the-money, in-the-money, and out-of-the-money options?
-At-the-money options usually have a delta around 0.50. In-the-money options have a delta ranging from 0.50 to 1.0, and out-of-the-money options have a delta below 0.50, often approaching 0.00.
What happens to gamma as an option moves in-the-money or out-of-the-money?
-As an option moves in-the-money, gamma decreases because delta is already nearing its maximum value. Similarly, as an option moves out-of-the-money, gamma also decreases, reducing the rate of change in delta.
How can traders identify and capitalize on a gamma blast during expiry day?
-Traders can capitalize on a gamma blast by carefully watching the price movements of at-the-money options and recognizing when gamma is about to spike. Entering the trade just before this spike can allow them to benefit from rapid premium increases.
What risks do traders face when buying deep out-of-the-money options near expiry?
-When buying deep out-of-the-money options near expiry, traders face the risk that time decay (theta) will erode the premium, especially if the market moves sideways or remains relatively stable. This can lead to a total loss of the premium paid.
Why is it advised not to enter trades with inflated premiums during gamma blasts?
-It is advised not to enter trades with inflated premiums during gamma blasts because premiums can quickly collapse as gamma decreases, leading to potential losses. Waiting for the premium to normalize before entering can reduce the risk of such losses.

Outlines

00:00

📈 Understanding Zero Hero Trades and Gamma Blast

In this video, we explore why traders often refer to expiry day trades as 'Zero Hero Trades' and the role of Gamma Blast in this process. As retail traders with limited capital attempt to make big profits on expiry days, many end up losing money, though some make significant gains. The video explains the sudden surge in an option's premium, often going from ₹10 to ₹100 in a short time, as well as the lack of understanding among many traders regarding this phenomenon. To understand these shifts in option premiums, it's essential to grasp the Greek concepts of Delta and Gamma. Delta measures how much the option price changes with the underlying asset's price, while Gamma measures the rate of change of Delta. The video simplifies these calculations and discusses how an increase in the Nifty index by 100 points affects the Delta and option premium through Gamma's influence.

05:01

⚡ Gamma Blast on Expiry Day: A Closer Look

The video continues by diving deeper into how Gamma behaves on expiry days, creating massive spikes in option premiums. As the market approaches key levels, such as 25,000 for Nifty, the option becomes 'At the Money,' leading to a sharp rise in Gamma, which in turn increases Delta and causes the option premium to surge. This sudden rise in Gamma, referred to as 'Gamma Blast,' results in premiums skyrocketing, causing a major spike in the price. However, as soon as the price moves slightly in-the-money, Gamma decreases, leading to a sharp fall in premiums. The video advises caution when trading during such volatile moments, as entering after a premium spike can quickly lead to losses. Traders should wait for the Gamma effect to subside before making their moves to avoid buying at inflated prices.

Mindmap

Keywords

💡Zero to Hero Trade

A 'Zero to Hero Trade' refers to a high-risk options trading strategy where traders attempt to turn a small investment into significant profits in a short time, especially on expiry days. In the video, the speaker explains how retail traders with limited capital engage in this strategy to seek big returns, often leading to high losses due to sudden price fluctuations in options premiums.

💡Expiry Day

Expiry day is the final trading day for an options contract, after which the contract either settles in cash or the trader must exercise the options. The video emphasizes how expiry days cause high volatility in options prices, with traders trying to capitalize on the last-minute price swings, often leading to 'Zero to Hero' trades.

💡Gamma Blast

Gamma Blast refers to a sudden and sharp increase in the gamma value of an options contract near expiry, leading to a rapid increase in the options premium. The video discusses how this phenomenon occurs when the price approaches the 'At the Money' strike price, causing significant jumps in premiums that are difficult for traders to predict.

💡Option Premium

Option Premium is the price a trader pays to buy an options contract. The video explains how option premiums fluctuate, especially on expiry days, when factors like gamma and delta cause sudden spikes. Retail traders often misjudge these movements, resulting in losses when premiums rise or fall sharply.

💡Delta

Delta measures the sensitivity of an options price to changes in the underlying asset's price. In the video, delta is explained as a key factor in understanding how much an options premium will change with a given price movement in the underlying asset. Delta is higher for 'In the Money' options and lower for 'Out of the Money' options.

💡Gamma

Gamma is the rate of change of delta in relation to the underlying asset’s price. The video focuses on how gamma increases rapidly near 'At the Money' options on expiry day, causing significant changes in delta and, consequently, the option premium. This is referred to as a 'Gamma Blast,' which can lead to volatile trading.

💡At the Money (ATM)

At the Money (ATM) refers to an options contract where the strike price is close to the current price of the underlying asset. The video explains that on expiry days, ATM options have the highest gamma, which leads to rapid price movements and unpredictable premium changes, making it a key focus for 'Zero to Hero' trades.

💡In the Money (ITM)

In the Money (ITM) refers to an options contract where the strike price is favorable compared to the current price of the underlying asset. In the video, ITM options are discussed as having higher delta and lower gamma compared to ATM options, making their premium movements more predictable but less dramatic.

💡Out of the Money (OTM)

Out of the Money (OTM) refers to an options contract where the strike price is not favorable compared to the current price of the underlying asset. The video explains how OTM options have low delta and gamma, meaning their premiums are more affordable but also less likely to result in profitable trades, especially on expiry day.

💡Theta

Theta represents the time decay of an options contract, indicating how much the price of the option decreases as the expiry date approaches. The video explains that deep Out of the Money options mainly consist of time value, and if the market does not move quickly in the trader's favor, these options are likely to expire worthless due to theta decay.

Highlights

Explanation of why zero-to-hero trades happen on options expiry day.

The role of gamma blast in price fluctuations during options expiry.

Retail traders with small capital often seek zero-to-hero trades, but most lose money.

Out-of-the-money options have a delta value between 0 and 0.50, while at-the-money options have a delta value near 0.50.

Delta changes with time, influenced by the gamma value.

Explaining how delta and gamma changes impact option premiums.

On expiry day, gamma increases sharply when options become at-the-money, causing rapid premium changes.

The sharp increase in gamma on expiry day is known as a gamma blast, leading to significant price spikes.

Traders should avoid buying options at inflated premiums on expiry day, as they can quickly lose value.

Gamma decreases after a short time when options go in the money, which causes a premium drop.

How to recognize and capture gamma blast to make profits in options trading.

The importance of not risking full capital on zero-to-hero trades due to low win rates.

Warning against buying deep out-of-the-money options with only time value left, as they can quickly lose value.

Some traders complicate the gamma blast strategy and sell it in paid courses.

Recommendation to only trade options after understanding gamma and delta movements for safer trading decisions.