This guide explains Option Greeks, Option Premium, ITM ATM OTM options, and how to select the best strike price for trading Nifty and Bank Nifty.
1. Option Greeks Explained (Delta, Gamma, Theta, Vega & Rho)
Option Greeks tell you how the option price will change when market conditions change. Every Indian trader must understand Greeks before trading.
Delta (Direction Sensitivity)
Delta shows how much the option price will move if the underlying index moves by 1 point.
- Call Option Delta: 0 to 1
- Put Option Delta: -1 to 0
Example: If Nifty moves +1 and your Call option has Delta 0.50, the premium increases by Rs 0.50.
Gamma (Change in Delta)
Gamma tells how fast Delta will change when Nifty or Bank Nifty moves.
Higher Gamma = faster movement in premium. Gamma is highest near ATM options.
Theta (Time Decay)
Theta shows how much premium will fall each day due to time decay.
Sellers benefit from Theta.
Buyers lose premium every day, especially near expiry.
Vega (Volatility Sensitivity)
Vega shows how much the premium will change when volatility (IV) changes.
High IV = costly options
Low IV = cheap options
Rho (Interest Rate Sensitivity)
Rho shows impact of interest rate changes. Not very important for short-term index traders.
3. ITM, ATM & OTM Options (With Nifty & Bank Nifty Examples)
ATM (At The Money)
Strike price closest to current market price.
Example: Nifty 22,000 → ATM: 22,000 CE/PE
ITM (In The Money)
- Call: Strike below spot price
- Put: Strike above spot price
Example: Nifty 22,000 → ITM Calls: 21,900 / 21,800
OTM (Out of The Money)
- Call: Strike above spot price
- Put: Strike below spot price
Example: Nifty 22,000 → OTM Calls: 22,100 / 22,200
Bank Nifty Example
Bank Nifty Spot: 49,500
- ATM: 49,500 CE/PE
- ITM Calls: 49,400 / 49,300
- OTM Calls: 49,600 / 49,700
4. What Is Strike Price? How to Select the Right Strike Price
A strike price is the price at which you can buy or sell the index or stock using your option contract.
How to Select Strike Price for Intraday Trading
- For Quick Scalping: Use ATM or slightly ITM for fast movement.
- For Trending Market: Choose OTM options with higher Delta movement.
- For Option Selling: Choose OTM strikes with low IV and high Theta decay.
Safe Strike Selection for Beginners
- Prefer ATM for balanced movement.
- Pick strikes nearest to major support/resistance.
- Avoid very far OTM options – they lose value quickly.
Example (Nifty)
If Nifty is at 22,000 and rising:
- Best for buyers: 22,000 CE (ATM) or 21,900 CE (ITM)
- Best for sellers: 22,400 CE or 22,500 CE
Final Summary
- Greeks help traders understand movement, volatility and time decay.
- Premium = intrinsic value + time value.
- ITM, ATM, OTM classify strikes based on Nifty/Bank Nifty spot price.
- Strike Selection depends on trend, risk and time horizon.
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