Institutions Option Database TradingDatabase Option Trading is a powerful blend of market logic and data science. With structured data, intelligent scanning, and strategic execution, traders gain a massive edge over emotional/manual decisions. This approach is ideal for traders aiming for consistent performance, lower drawdowns, and systematic growth. The more you code, automate, and analyze—the better you trade.
Sample Strategy - PCR + OI Spike
Strategy Logic:
If PCR > 1.3 and Call OI Spike at ATM > 15%, initiate a Put Sell.
Exit when PCR drops below 1.1 or OI unwinds.
Backtest Results (NIFTY Options):
Win Rate: 72%
Avg Profit per Trade: ₹4800
Max Drawdown: ₹9800
HDFCBANK
Database Trading Introduction to Database Option Trading
Database Option Trading is an advanced strategy where traders use massive historical and real-time market data stored in structured databases to identify profitable option trades. Unlike conventional trading, this approach focuses on data-driven decision-making—leveraging algorithms, statistics, and pattern recognition rather than pure technical/fundamental analysis.
2. The Role of Data in Option Trading
Types of Data Used:
Option Chain Data: Strike prices, premiums, LTP, OI, IV, volume.
Historical Data: Past price action, volatility, Greeks, PCR.
Sentiment Data: FII/DII positions, news sentiment.
Real-Time Market Feeds: Tick-by-tick updates.
Macroeconomic Data: Interest rates, inflation, events.
Institutions Option Database Trading Part-4Advanced traders use machine learning to forecast:
Option price movement
Volatility changes
IV spikes before events
Popular Models:
Random Forest → Trend direction.
LSTM (Deep Learning) → Predict future IV.
Logistic Regression → Probability of ITM expiry.
These are trained on millions of past trades using structured databases.
Long Term Database TradingHow Institutions Use Option Databases
🔍 Institutional Insights:
Banks & HFTs (High-Frequency Traders) run option strategies over petabytes of data.
Real-time arbitrage opportunities are found using option databases.
They model Vega, Theta & IV impact per stock and expiry.
Example Institutional Workflow:
Pull 10 years of NIFTY options.
Train ML model to predict next-day IV.
Execute based on high-probability straddles/strangles.
Exit before expiry using trailing delta hedge.
Institutions Option Database Trading Part-5 Risk Management in Option Trading
Even with data, risk control is key:
Max 2% capital risk per trade.
Hedge with opposite option.
Avoid low liquidity options.
Always track IV, PCR, OI live.
Building a Custom Option Scanner
With databases and logic, you can create a personal scanner for:
High IV options
OI breakout zones
PCR + Max Pain alert
Theta-rich expiry trades
Institutions Option Database Trading Part-6Deep Dive into Options Basics (For Data Traders)
Options are contracts giving the right but not the obligation to buy or sell an asset at a certain price before a set date. They are used for hedging, speculation, and generating income.
🛠️ Two Types:
Call Option: Right to buy an asset.
Put Option: Right to sell an asset.
Backtesting means testing a strategy using past data to check performance. Key for data-driven option trading.
Example:
Load 1-year option chain data for BANKNIFTY.
Apply rules: Buy Call when IV drops by 10% & PCR < 0.8.
Check PnL for each trade.
Filter for success rate > 65%.
Option Trading How Institutions Operate:
Use Option Greeks (Delta, Gamma, Theta, Vega) for precise positioning
Follow OI (Open Interest) data for liquidity zones
Monitor FIIs/DII data from NSE reports
Combine options with futures arbitrage or cash segment hedging
🔹 Tools Used by Institutions:
Bloomberg Terminal
Custom-built Quant Models
NSE Option Chain + IV Analysis
Algo-driven trading based on volatility signals
Learn Institution Trading What is Institutional Option Trading?
It refers to large-scale option strategies used by hedge funds, banks, and FIIs to manage risk, hedge portfolios, or create directional bets with high precision.
🔹 Key Institutional Strategies:
Buy-Write (Covered Call):
Holding stocks and selling calls to earn premium.
Protective Put:
Buying puts as insurance to hedge stock positions.
Multi-leg Spreads (Iron Condor, Butterfly):
Neutral strategies to profit from range-bound markets.
Put-Call Ratio Analysis (PCR):
Gauging market sentiment from institutional flow.
Advanced Divergence Trading What is Divergence?
Divergence happens when the price moves in the opposite direction of an indicator (like RSI, MACD, or Momentum). It signals a possible trend reversal or trend weakening.
🔹 Types of Divergence:
Regular Divergence (Trend Reversal):
Bullish: Price makes lower lows, but indicator makes higher lows → Reversal up
Bearish: Price makes higher highs, but indicator makes lower highs → Reversal down
Hidden Divergence (Trend Continuation):
Bullish: Price makes higher lows, indicator makes lower lows → Trend continuation up
Bearish: Price makes lower highs, indicator makes higher highs → Trend continuation down
🔹 Advanced Tips:
Use on higher timeframes for accuracy
Confirm with volume, trendlines, or price action
Combine with support/resistance or Fibonacci zones
🔹 Pro Tools to Use:
RSI (Relative Strength Index)
MACD (Moving Average Convergence Divergence)
Stochastic Oscillator
OBV (On Balance Volume)
Advanced Institutions Option Trading - Part 10Option Pricing Models
Institutions rely on theoretical models to value options precisely.
Models Used:
Black-Scholes Model: Most common for European Options
Binomial Model: For American options
Monte Carlo Simulations: For complex path-dependent options
Bachelier Model: For negative rate scenarios
These models help forecast fair value, hedge ratios, and profit probabilities.
🔹 17. Algorithmic and Quant Option Trading
Institutional desks often use automation for efficiency.
Tools & Techniques:
Python, R, C++ for strategy coding
Machine Learning for volatility prediction
Option Flow Analysis (Unusual Orders)
Real-time Gamma Exposure Mapping
Quant desks track Volga, Vanna, Charm, and other second-order Greeks for precise hedging.
Advanced Institutions Option Trading - Part 8Institutional Option Trading Strategies
Let’s dive deeper into how big players operate:
🔶 Volatility Arbitrage:
Take advantage of IV mispricing across strikes/months.
Long low IV, short high IV – Net neutral delta.
🔶 Dispersion Trading:
Buy individual stock options, short index options.
Profit from correlation divergence.
🔶 Box Spread (Synthetic Arbitrage):
Arbitrage between synthetic long/short positions.
Very low risk, used by HFT desks.
Institutions use algorithms to run thousands of such strategies in real time.
Advanced Institutions Option Trading - Part 5Institutional Tools & Platforms
Bloomberg Terminal / Reuters Eikon: Institutional-grade data
FIX Protocols: For high-frequency option order routing
Quant Models: Statistical arbitrage using Python/R
Option Analytics Engines: Measure IV Skew, Smile, Surface modeling
Institutions don’t just trade options—they engineer risk-managed portfolios using AI and predictive analytics.
Option Chain Analysis for Traders
Option Chain provides a list of all available option contracts for a stock/index.
Key Elements:
Strike Prices
Call & Put Prices
Open Interest (OI)
Volume
Implied Volatility (IV)
Change in OI
Interpretation:
High OI + Rising Price = Strong Trend
IV Surge = High Volatility Expectation
PCR (Put-Call Ratio) = Market Sentiment Indicator
PCR > 1: Bearish sentiment
PCR < 1: Bullish sentiment
Advanced Institutions Option Trading - Part 4 Technical and Fundamental Analysis in Option Trading
Fundamental Analysis: Evaluate company value, earnings, sector performance
Technical Analysis: Price action, patterns, indicators like RSI, MACD
IV & HV Tools: Helps in choosing optimal strike prices based on volatility
Understanding market structure is essential for timing entries/exits in options.
Advanced Institutional Options Trading
Institutions like hedge funds, banks, and proprietary desks use options for complex strategies:
Delta Hedging: Maintain a neutral position
Portfolio Insurance: Using puts during economic downturns
Volatility Arbitrage: Capitalizing on volatility mispricing
Structured Products: Combine options with bonds or equities for customized payoff
These strategies require deep understanding of volatility surfaces, risk models, and massive capital.
Advanced Institutions Option Trading - Part 3Why Trade Options?
Hedging against portfolio loss
Leverage with limited capital
Income generation through strategies like covered calls
Directional trading using strategies like long calls or puts
Investment Strategy using Options
LEAPS (Long-Term Equity Anticipation Securities): Investing in long-term call options
Covered Calls: Generate income while holding stocks
Cash-Secured Puts: Earn premium while waiting to buy a stock at lower price
These are often used by investors to add flexibility and income to portfolios.
Advanced Institutions Option TradingFinancial Market is a marketplace where assets such as stocks, bonds, commodities, and derivatives (like options) are bought and sold.
Key components:
Equity Markets – Shares of companies
Debt Markets – Government or corporate bonds
Derivatives Market – Futures, Options
Currency and Commodity Markets
Options are financial contracts giving the buyer the right (not obligation) to buy/sell an asset at a set price before a specific date.
✅ Types of Options:
Call Option: Right to Buy
Put Option: Right to Sell
✅ Key Terminologies:
Strike Price: Agreed price to buy/sell
Premium: Cost of the option
Expiration Date: Validity of the contract
ITM/ATM/OTM: In-the-money / At-the-money / Out-of-the-money
Advanced Put Call Ratio (PCR)Slide 1: Introduction to Advanced Put Call Ratio (PCR)
The Put Call Ratio (PCR) is a widely used sentiment indicator in options trading. It measures the volume or open interest of put options relative to call options. Advanced analysis of PCR helps traders gauge market sentiment—whether fear or greed is dominant—and anticipate potential reversals or continuations.
Slide 2: Basic Formula and Types
PCR Formula:
Volume-based PCR = Total Put Volume / Total Call Volume
Open Interest-based PCR = Total Put OI / Total Call OI
Interpretation:
PCR > 1: Bearish sentiment (more puts)
PCR < 1: Bullish sentiment (more calls)
Key Types:
Index PCR – NIFTY, BANKNIFTY PCR
Stock PCR – For individual stocks
Slide 3: Advanced Interpretation of PCR
1. Contrarian Indicator:
Very high PCR (e.g., >1.5): Indicates excess fear, potential reversal upward
Very low PCR (e.g., <0.6): Indicates extreme optimism, potential market correction
2. Trend Confirmation:
Stable rising PCR in uptrend = Confirmed strength
Falling PCR in downtrend = Confirmed weakness
3. Divergence Signal:
If prices rise but PCR also rises → underlying caution (hidden bearishness)
If prices fall but PCR drops → lack of fear (hidden bullishness)
Slide 4: Using PCR with Other Tools
Combine PCR with:
Volume & OI Data – To confirm trader positions
Implied Volatility (IV) – High PCR + high IV = fear-based overreaction
Support/Resistance Levels – Look for breakout confirmations
Technical Indicators – RSI, MACD, VWAP with PCR for enhanced edge
Option Trading Master class Part -6What is Option Trading?
Definition:
Options are derivative contracts that give the holder the right, but not the obligation, to buy or sell an asset at a pre-decided price within a specific timeframe.
Types of Options:
Call Option: Right to buy
Put Option: Right to sell
Option Participants:
Buyers (Holders): Limited risk, unlimited reward
Sellers (Writers): Limited reward, unlimited risk
How Options Work (With Example)
Imagine Reliance stock is trading at ₹2,500.
Call Buyer: Buys a ₹2,500 Call Option by paying ₹50 premium
Scenario A (Stock goes to ₹2,600):
Intrinsic value = ₹100
Profit = ₹100 – ₹50 = ₹50 per share
Scenario B (Stock goes to ₹2,400):
Option expires worthless
Loss = ₹50 (premium paid)
Option Trading Master class Part -7Fundamentals of Stock Investing
Types of Investors:
Value Investors: Focus on undervalued companies
Growth Investors: Target high-growth potential stocks
Dividend Investors: Prefer regular income from dividends
Research Parameters:
Earnings per Share (EPS)
Price-to-Earnings Ratio (P/E)
Return on Equity (ROE)
Debt-to-Equity Ratio
Industry Trends
Tools for Investing:
Demat and Trading Account
Research Platforms (e.g., TradingView, Screener.in)
Portfolio Tracker (e.g., Zerodha Console)
Option Trading Master classIntroduction to Investing and Option Trading
Investing and option trading are two pillars of wealth creation and risk management in modern finance. Investing focuses on long-term growth by acquiring assets that appreciate over time, while option trading involves strategic bets on price movements within a defined period using derivative contracts. Together, they offer investors a combination of growth, income, and hedging capabilities.
What is Investing?
Definition:
Investing is the process of allocating money into financial instruments (like stocks, bonds, ETFs, or real estate) with the expectation of generating a return over time.
Key Objectives:
Wealth accumulation
Passive income generation
Capital preservation
Beating inflation
Common Asset Classes:
Equity (Stocks): Ownership in companies
Fixed Income (Bonds): Lending capital to earn interest
Real Estate: Physical properties generating rental income
Mutual Funds/ETFs: Pooled investments
Commodities and Gold: Inflation hedges
Master class 9. Introduction to Option Trading
Options are powerful derivative instruments that give buyers the right (not obligation) to buy or sell an underlying asset at a predetermined price within a specific time. They are commonly used for hedging, speculation, and income strategies.
There are two basic types:
Call Options: Right to buy
Put Options: Right to sell
Options derive value from stocks, indices (Nifty, Bank Nifty), commodities, or currencies and are traded on platforms like NSE in India.
2. Key Terminology in Option Trading
Strike Price: Price at which the option can be exercised
Premium: Cost of buying the option
Expiry: Last day the option is valid
Lot Size: Fixed number of underlying units (e.g., 50 for Nifty)
Intrinsic Value: Real value of an option if exercised now
Time Value: Portion of premium linked to time left before expiry
ATM/ITM/OTM: At The Money, In The Money, Out of The Money – defines moneyness of options
Institution Master class Welcome to the Institution Trading Master Class, an advanced educational module crafted for serious traders and investors who want to understand how big institutions trade, move markets, and manage risk at scale. This course blends practical market experience with strategic tools and institutional concepts.
📘 Page 1: Understanding Institutional Trading
🔹 What is Institutional Trading?
Institutional trading refers to market activities performed by large entities like:
Mutual Funds
Pension Funds
Hedge Funds
Insurance Companies
Foreign Institutional Investors (FIIs)
Institution Option Trading Part-7Regulatory & Risk Considerations
SEBI (India) & SEC (US) regulations limit speculative exposure.
Institutions must report Open Interest, Position Limits, Margin Usage.
Must adhere to VaR (Value at Risk) frameworks and internal risk policies.
Institutional Trading during Events
Earnings Seasons: Institutions use straddles/strangles for earnings plays.
Budget or RBI Policy: Protective collars/volatility trades.
Global Crisis (e.g. COVID): Use of massive protective puts (SPX, NIFTY).
VIX & Institutional Behavior
India VIX plays a vital role in determining institutional option strategies.
High VIX = buying protection, long gamma strategies.
Low VIX = selling premium, income strategies.
Institution Option Trading Part-5Popular Strategies Tested via Option Database
IV Crush Earnings Strategy
Buy/sell options before earnings when IV is high, expecting post-earnings IV drop.
High OI Breakouts
Trade breakouts from strikes with high OI using price+OI correlation.
Skew Arbitrage
Analyze IV skew and trade underpriced/overpriced strikes accordingly.
Time Decay Capture (Theta)
Sell options with high Theta before expiry using historical decay rates.
💡 Advantages of Option Database Trading
Quantitative Edge: Allows logic-based decisions over emotion-driven trades.
Backtesting Confidence: Know the probability of success before risking capital.
Scalability: Can analyze hundreds of symbols and expiry combinations.
Automation Ready: Can link with brokers to run fully algorithmic systems.