How to trade in option expiry week?

Traders are entering into an option expiry week. Last Thursday of the month will be option expiry day in NSE. Nifty volatility used to be comparatively high because of offloading of positions by fund managers and arbitrageurs. Alpha of the last week of the month return is historically high comparing with other weeks in the month.

I never go for the out of the money options during expiry week. Because most of the time it will close worth less. For example if you are bullish on market will close above 8600 then you can buy 8600CE with a price of Rs.8. Total you will be making an investment of Ra.200 (8*25) for buying 1 lot of Nifty call option. But chance for Nifty reaching 8600 may be a chance.

Now think about buying at the money call with a price of 53. (8450CE). Here you are paying an amount of 1330 for 1 lot. Same time you are buying a 8450 PE. Here you are paying rs.62 and your total payment for buying a call and put will be 2880.

Now my questions is, do u expect a 150 move in Nifty or not? If your answer is “Yes I am expecting such a 150 point change”,  then go for buying ATM options.

Please take Nifty daily data for last few expiry weeks. You will get to know, during expiry Nifty changed more than 100-150  points either up or down.

If nifty go below then the call option price may come down to zero . But you will be making profit in Put option and vice versa. So volatility is the key in expiry week. Many traders go for out of the money options. Going out of the money is a not a good idea in expiry week.

My suggestion is to buy ATM call and ATM put and expect take a big volatility and a small risk.