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​The Mindful Trader Newsletter​
​Issue #5 - May 27, 2023

One of the popular & misunderstood strategies in Options Trading is Zero Hero Strategy.
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There are countless videos on youtube on this, but does this strategy work? Let’s decode it.
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Many traders, especially those with less capital, get attracted to this strategy because it can give 5x or 10x returns if it works and can be deployed with capital less than Rs.1000.
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What is this strategy all about? ​
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You can buy an Index Option on expiry day, preferably afternoon and wait for the price to move in your intended direction by more than your breakeven level.
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Say you purchased a Nifty 18000 CE OTM option for Rs.20 when the current market price (CMP) is 17900. Then the breakeven level is 18000 + 20 = 18020. You will make a profit only if the Nifty expires beyond 18020 by the end of the expiry, which is more than 120 points from CMP. The capital deployed is 20*50 = 1000
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Say Nifty expired at 18100; your profit per lot is (18100 - 18000 - 20) * 50 = 4000, which is four times (400%) your investment, but remember that this will happen only if Nifty moves up by 200 points from CMP (17900 to 18100) in those few hours.
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Many times, Nifty may only go up by 50 to 100 points in the last few hours, so in all those cases, you will end up with a 100% loss of your investment which is 1000 in this case.
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Although this strategy looks too lucrative because of its high reward-to-risk ratio, it has many downsides if deployed blindly without proper analysis;
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Many can go wrong in either of these four factors when deploying the strategy:
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​1. Wrong Selection of Strikes
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2. Possibility of taking huge position size due to greed factor.
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3. Not knowing when to deploy and when to avoid
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4. Identifying Trending Markets Let’s understand them better: ​
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​1. Strike Price Selection: ​
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In the case of Nifty, you can pick 100 points OTM strike. Many pick far OTM strikes, like 200 or 300 points away, because they are much cheaper. The problem with picking far OTM strikes is that you need to have a very big move in the market to become profitable.
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Remember that if you select 300 points OTM strike, Nifty has to move more than 300 points in your direction to at least make a breakeven. So picking far OTMs can lead to a complete loss in sideways or even slightly trending markets.
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However, 100 points OTM strikes might not be at a low price in the mornings on expiry day.
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So we might have to wait until it turns 20 or 30. Depending on our directional view, we can buy CE or PE accordingly.
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For Bank Nifty, the strike can be 200 points OTM and the pricing can be 40 to 60
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We must not blindly buy PE or CE because they cost 20 and 30 Rs. In this section, I am only talking about the strike selection. But when entering a trade, we also must identify if there is a trade opportunity or not.
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Only if all the other conditions are satisfied to take a trade you will enter it. More on those topics we will discuss below.
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​2. Risk Management: ​
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Many traders think they can buy lots as the capital needed is quite less, so they can risk more than they should.
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Generally, it's okay to risk 2% of your total capital for this Zero to Hero Strategy.
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This means: Say your capital is 50K; 2% on that is 1000. Since you can risk only 1000, you can get 1 Lot of Nifty, trading at around 20 Rs (50*20), or 1 Lot of bank Nifty, trading at around 40 Rs. (25*40).
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If your capital is 2 Lakhs, you can go to 4 lots. Sometimes it might be difficult to calculate 2% and decide the risk exactly, so it's okay even if 0.5% is here and there.
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​3. When to Deploy the Strategy and When to Avoid? ​
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The expires broadly three types:
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​A. Trending Expiry ( We will discuss more on this later) ​
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​B. Sideways Expiry: ​
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Deploying the Zero to Hero Strategy is not suggested during sideways expiry days. Some of the techniques to identify a sideways expiry are:
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Flat opening & Market Stuck inside CPR (Central Pivot Range)
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Day high and Day low, created until 10 AM, are not broken even after 12 PM.
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Moving averages ( 8 EMA & 20 EMA almost sideways and overlapping with each other)
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​Reference

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No able to break any key resistance or support levels in higher timeframes till noon.
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Multiple fakeouts at day high or day low. These are some indications of neutral expiry.
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​C. Reversal Expiry: ​
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Here markets go up in the morning and might downside reverse from the afternoon, or they can go down in the morning and reverse upside from the afternoon.
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In such cases, you may have to look for reversal trades, which means if the market is starting to reverse on the downside, you can go for PE, and If the market is reversing on the upside, you can go for CE.
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​Reference​
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To identify the proper reversals, you need some basic price action knowledge of Trends, Trendlines, breakouts and Fakeouts.
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I'll link our 2 Instagram posts to help you understand Trend Reversals and fakeouts. In a few expiries, the Institutional Zones that we use can help us identify the reversal opportunities.
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​https://www.instagram.com/p/CrS9LKlvdvu/ (Fakeouts)
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​https://www.instagram.com/p/Cl3AEsTSiQk/ (Reversal Confirmations)
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​4. Identifying Trending Markets: ​
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Only in good trending expires is there a high possibility to make 5x or 10x of your investment. Trending markets may happen in 3 out of 10 expiries.
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Two main identification techniques for trending expiries are
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​A. Moving Averages: In case of trending expiries, there is a high possibility of markets staying above 20 EMA and constantly creating new swing highs (in case of an uptrend) or trading below 20 EMA and constantly creating new swing lows (in case of a downtrend).
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In most trending expiries, key support or resistance levels, including the Institutional Zones, can be broken easily.
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​B. Change in Open Interest. ​
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In the case of trending expiries, the strikes that got a huge open interest in the morning tend to weaken (decrease in OI) as the price approaches those levels. Say CMP 17900 at 9.30 AM, and as per the Option Chain data, you can see huge call OI at 18000 ( indicates key resistance) & Huge put OI at 17800 (indicate key support)
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Say around 11 or 12; if you notice that the price is reaching any of the key support or resistance areas, the OI at those levels is decreasing. Say Nifty is trying to break 18000, and the OI has decreased from 20 million o 10 million.
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This can indicate that resistance levels are weakening on the top side, and there is a high possibility of price-breaking 18000.
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If it breaks, CE sellers at 18000 levels tend to square off their sell positions which can trigger even further up move.
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So a decrease in Call Side OI indicates a bullish move and a Decrease in Put Side OI indicates a bearish move.
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​To sum it up:​
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Along with your knowledge of expiry trading, if you can apply these four factors and test it out for at least 4 to 6 expiries, there is a better chance of improving the performance of the Zero to Hero Strategy.
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Remember that if you deploy this strategy in every expiry, you tend to lose more as all the expiries will need more momentum.
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As explained above, these expiries work better only in proper reversal or trending markets (highly probable).
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So you must pick your expiries and only trade in those expiries.
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In other cases, the expiries will be sideways, and there are different strategies that we can deploy in such cases. Those are option selling strategies that are complicated and might need adjustments.
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All those are covered on Options for Everyone; you may check it out when interested.
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That’s it for this newsletter; drop a reply to let me know if this was helpful.
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I'll see you next Saturday.
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~ Arun Bau​
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Lanco Hills, Hyderabad, Telengana 500086
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