4 Counter-Intuitive Options Trading Secrets from a Market Pro

 

For many new and intermediate options traders, the daily routine feels like a frustrating guessing game. You might struggle to pinpoint the market's direction, get knocked out of a good trade by a sudden spike in volatility, or watch a profitable position slowly bleed out from the relentless pressure of time decay. These challenges are universal, but the solutions are often hidden in plain sight, employed by professionals who have learned to see the market differently.

In a recent discussion with seasoned trader Nitin Murarka on Sagar Sinha's channel, a series of powerful, battle-tested strategies were revealed. These weren't the standard textbook rules; they were often counter-intuitive principles forged through years of live trading and research.

This article distills the four most actionable takeaways from that conversation. These secrets challenge conventional trading wisdom and provide a practical framework to help you stop guessing and start thinking like a professional.

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1. Find the Market's Trend by Betting Against the Crowd's Weight

The Core Concept

To identify the intraday trend, professionals use a method called "Option Imbalance," visualizing the market like a traditional weighing scale, or taraju. The process involves looking at the option chain and summing the "Change in Open Interest" for the at-the-money (ATM) strike price, along with two strikes above it and two strikes below it. This calculation is done for both the Call side and the Put side.

The Counter-Intuitive Rule

The secret lies in how you interpret the "weight" on the scale. Conventional wisdom might suggest following the money, but this strategy does the opposite:

• If the Put side has significantly more weight (e.g., 73% of the total change in open interest), it indicates immense downward pressure from option writers. This creates a strong upward force on the market. The trend is UP, and you should look for Call trades.
• If the Call side is heavier, it means writers are betting against an upward move, creating downward pressure. The trend is DOWN, and you should look for Put trades.

The Signal Strength

For this signal to be reliable, the imbalance must be significant. A difference of over 20% between the Call and Put sides is the minimum threshold for a valid signal. However, a difference closer to 30-35% indicates a much stronger, higher-conviction trend. If the weights are nearly balanced, the market is likely to be sideways.

The Rationale

This works because a heavy build-up of open interest primarily reflects the positions of option writers (sellers). These market participants create pressure, and the goal is to trade in the direction the market is likely to move to cause maximum financial pain to that large pool of writers. You are trading against the pressure they have created.

Actionable Entry Trigger

Identifying the trend is only half the battle. To enter the trade, the strategy uses the Volume Weighted Average Price (VWAP) line on a 15-minute chart. Once the trend is identified as UP, the entry signal is when the price moves above the VWAP line. The goal is to enter the trade as close to the VWAP line as possible to minimize risk.

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2. The Volatility Paradox: Use Weaker Options When the Market is Wild

The Common Problem

High market volatility is a double-edged sword. It creates opportunity, but it can also prematurely trigger your stop-loss on a perfectly good trade. A sudden, temporary price swing against your position can knock you out, only for the market to reverse and move in your predicted direction.

Introduce the Tools

To navigate this, the strategy employs two key indicators:

• Average True Range (ATR): Measures the market's current volatility. A higher ATR value means the price is making larger swings.
• Delta: Measures how much an option's price will change for every one-point move in the underlying asset. A Delta of 0.6 means the option's premium will move by 0.60 points for every 1-point move in the index.

The Surprising Strategy

Here is the paradox: when market volatility is high (as indicated by a high ATR value), the expert advises choosing an out-of-the-money (OTM) strike price with a low Delta (0.3 or slightly higher).

Conversely, when the market is less volatile and the ATR is low, a trader can confidently choose an at-the-money option with a higher Delta (e.g., 0.5 or 0.6), as the risk of being stopped out by random noise is significantly lower.

Explain with a Simple Example

Imagine the market has an ATR of 51 points (the actual value on the day discussed in the source), and your standard stop-loss is 30 points on the option's premium.

• If you choose a high Delta (0.6) option and the market temporarily moves 51 points against you, your option's value will fall by over 30 points (51 points * 0.6 Delta), triggering your stop-loss.
• If you choose a low Delta (0.3) option, that same 51-point adverse move only causes a 15-point loss (51 points * 0.3 Delta), keeping you in the trade to potentially profit when the market reverses.

The Reflection

This is a powerful mental shift. By selecting a "weaker," less sensitive option during volatile periods, you give your trade more breathing room. It increases your staying power and raises the probability of surviving temporary market noise to capture the larger, intended move.

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3. Why "Overvalued" Options Are an Opportunity, Not a Red Flag

Defining the Terms

To understand this secret, you first need to know two types of volatility:

• India VIX: The volatility index that indicates the market's current level of fear or volatility.
• Implied Volatility (IV): The market's forecast for the future volatility of a specific option.

The Identification Method

The rule for determining if an option is cheap or expensive is a simple comparison:

• If an option's IV is higher than the VIX, it is considered overvalued.
• If an option's IV is lower than the VIX, it is considered undervalued.

The Counter-Intuitive Insight

A beginner might see an "overvalued" option and think it's a bad deal to be avoided. A professional sees it as a signal. An overvalued option indicates that fear is high and market participants are willing to pay a premium because they are expecting a large price swing.

This insight leads to clear, actionable advice:

• Overvalued Options (IV > VIX): Signal high expected volatility. This is a favorable environment for option buyers, who profit from large price moves.
• Undervalued Options (IV < VIX): Signal low expected volatility or a sideways market. This creates a better environment for option sellers, who profit from time decay when the market doesn't move much.

The Pro's Proof: Validating with a Calculator

You can verify whether an option is truly overvalued using a free online Black-Scholes calculator. The process is simple:

1. Enter the current Spot Price of the index (e.g., 24768).
2. Enter the Strike Price of the option you are analyzing (e.g., 24800).
3. Set the Expiry Date and Interest Rate (use 10%, as per the standard calculation method).
4. For the Volatility input, enter the current India VIX value (e.g., 13).
5. The calculator will output the "fair value" of the option. If the live market price is significantly higher than this calculated value, it confirms the option is overvalued.

As Nitin Murarka directly stated, the logic is simple:

"Overvalued means the market is about to get volatile... so you should play as an option buyer."

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4. The Pro's Entry Signal: Using VWAP as Your Decisive Trigger

Identifying the trend and selecting the right strike are crucial, but a professional's edge often comes down to precise entry. Instead of guessing or jumping in impulsively, pros use a specific trigger: the Volume Weighted Average Price (VWAP).

Why VWAP is a Pro's Tool

Unlike a simple moving average that gives equal weight to every price point, VWAP is weighted by volume. It represents the average price where the most significant trading activity has occurred, often reflecting the positions of institutional players. Trading around this line means you're aligning your entry with the market's center of gravity for the day.

The Rule for Entry

The strategy is a one-two punch:

1. Confirm the Trend: Use the Option Imbalance method from the first secret to determine if the trend is UP or DOWN.
2. Wait for the Trigger: If the trend is UP, you only look to enter a Call trade when the price is trading above the VWAP line on your chart. The same logic applies in reverse for a DOWN trend (price below VWAP for a Put trade).

The Secret of Patience

The key is not just to enter when the price crosses above VWAP, but to wait for the price to pull back and touch, or get very close to, the VWAP line. This provides a lower-risk entry with a tighter stop-loss.

During the session, Murarka highlighted two real-world examples from that trading day:

• The 12:49 PM Trade: He initiated a Call option on live television precisely as the market pulled back to the VWAP line, demonstrating a high-conviction entry at a key institutional level.
• The 2:15 PM Trade: A second trade was given, but the price was slightly above VWAP. The market then dipped to VWAP around 3:00 PM, offering an even better, lower-risk entry point for traders who were patiently waiting for the perfect moment. This illustrates how patience to enter near VWAP can prevent unnecessary drawdown and improve results.

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Conclusion: A New Way to See the Market

These four strategies—betting against the crowd's weight, using weaker options in volatile markets, seeking overvalued options as a buying signal, and using VWAP as a decisive entry trigger—represent a fundamental shift in thinking. They move a trader away from simple predictions and toward a more strategic, probability-based approach used by professionals.

By understanding the "why" behind these counter-intuitive rules, you can begin to interpret market data with greater clarity and confidence. Now that you've seen how pros challenge common assumptions, which 'rule' in your own trading will you question first?