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

Summary

The 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.