Premium decay analysis - Daily premium decay calculation excel sheet

Premium decay analysis - Daily premium decay calculation excel sheet


 Daily premium decay calculation excel sheet


Few Standard rules of option trading

  1. Options sellers are more intelligent than the buyer of the option.
  2. Option sellers take big risk therefor 99 % of the times they win.
  3. Most options trade-in market is converted to zero after the end of the month.
  4. Option seller pay a large premium to sell options
  5. Option buyer pay only a small amount
  6. The main objective of the option seller is to convert the premium to zero
Considering these above impotent points in mind we can conclude that premium decay of option is directly proportional to the strike price to get hit. Therefore the relative decay in the premium is very important parameters to identify the stock market direction.

Basic rules to calculate the premium decay analysis

  1. Consider only out of the money options
  2. Consider the top 3 strike price that has the highest open interest call side and put aside.
  3. Record the movement of index movement daily
  4. Record the premium of the highest open interest strike price.

Procedure to calculate the premium decay analysis

  1. Visit Nse option chain page
  2. Note the strike price that has the highest open interest both call side and put aside.
  3. Record the premium of highest open interest daily
  4. Calculate a minimum of 3 to 5-day data for better accuracy
  5. After that based upon the recorded data find out the average decay in put side and call side.
  6. If the decay is more on-call side market can move down
  7. If the decay more on the put side market can move up
  8. If the decay is equal professional traders closing their positions
  9. The logic is most professional traders are selling the options they only make money if the option price erodes as much as possible.
  10. If call side decay is more professional traders will sell the call options 
  11. If put side decay is more professional traders will sell the put option
  12. If put side decay is less professional traders will sell the call options market will move down
  13. If call side decay is less professional traders will sell the put options market will move up

Conclusion

The reason for less premium decay on either the call side or put side indicates option sellers are not taking a risk in that direction by selling options.

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Post a Comment

11 Comments

  1. Hi, is this method based on Nitin Bhatia Video

    ReplyDelete
    Replies
    1. Yes we developed the excel sheet after watching his video. Because lot of retail investors are finding it difficult to made excel sheet. After several requests no body is sharing the excel sheet of premium decay therefore we decided to share excel sheet. Download the excel and record the data in your own format.

      Delete
    2. Hi, you have done a great job by making and Publishing it. It would great help if you provide the full excel workbook with all the macros and connections.

      Delete
    3. what if today the nifty closed at the same strike price as yesterday? Do we have to change the premuim which we noted yesterday?

      Delete
  2. the excel sheet does not update automatically...
    please provide the full excel workbook with all the macros and connections.

    ReplyDelete
  3. Without auto updating data of no use.Pl provide fully working excel sheets Bro.

    ReplyDelete
  4. Its a great job, thank you so much for sharing..

    ReplyDelete
  5. PL PROVIDE SHEET WITH MACROS AND CONNECTION TO UPDATE OUR SELF
    THANKS

    ReplyDelete
  6. i have downloaded the sheet but cant edit it

    ReplyDelete
    Replies
    1. can you please provide the link?(download link)

      Delete

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