Wednesday, June 12, 2024
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HomeFutures & OptionsHero Zero Options Trading Strategy

Hero Zero Options Trading Strategy

Many traders are attracted to options trading because of the exciting possibility of making big profits quickly. Among the different strategies, there’s one called the “Hero Zero” trade, which claims to offer the chance of significant gains from nearly worthless contracts. But before you get excited about this, it’s important to know that there are risks and specific strategies you need to be aware of.

What is a Hero Zero trade? 

Hero Zero refers to buying deeply out-of-the-money (OTM) options near expiry. These contracts are usually trading close to zero due to their low probability of expiring in-the-money. The potential payoff, however, can be immense if the underlying asset makes a sudden and significant move in your favor. Imagine turning a few rupees into a fortune!

The inherent danger of Hero Zero trades lies in the low probability of success. Most of these contracts expire worthless, resulting in a complete loss of the premium paid. Even a small miscalculation in direction or timing can wipe out your investment. Remember, the market is rarely predictable, and chasing quick gains often leads to disappointment.

As suggested by definition we should select deep out of the money option (OTM) but that ends up in a loss here is the proper Hero Zero trade selection method.

Read: Understand Shorting OTM Call Options Strategy

Process to identify Hero Zero option 

Identifying the Hero Zero option involves a strategic approach within the options market, specifically focusing on the expiry day. The myth suggests that the true Hero Zero opportunity unfolds exclusively on the expiry day. To begin, one must navigate the option chain and carefully select the call option strike price that is in-the-money (ITM) and positioned just above the at-the-money (ATM) option. Simultaneously, a put option (ITM) just below the ATM option is chosen. This particular configuration is believed to set the stage for potential Hero Zero trades.

A distinctive characteristic of Hero Zero opportunities is the price range of the premiums. The myth stipulates that Hero Zero trades materialize when the premiums fall within the range of Rs 10 to Rs 20, or at the maximum, Rs 25. This specific premium range is considered essential for identifying the Hero Zero option, emphasizing the importance of monitoring and executing trades within these prescribed limits.

Furthermore, the timing of Hero Zero trades is crucial. According to the myth, these opportunities consistently arise after 2:00 pm and continue until 3:30 pm. This time frame is believed to be the window during which Hero Zero scenarios unfold, adding an element of time sensitivity to the identification and execution of these potentially lucrative options trades. In essence, the Hero Zero option strategy requires a precise combination of strike prices, premium ranges, and a strategic time frame for optimal implementation.

For Example, 

Strike Price  Call Option Premium  Put Option Premium 
Rs 90 (ITM Call) Rs 25 Rs 22
Rs 95 (ITM Call) Rs 20  Rs 18
Rs 100 (ATM) Rs 15 Rs 14
Rs 105 (ITM Put) Rs 12 Rs 16 
Rs 110 (ITM Put) Rs 10 Rs 20

The Hero Zero strategy involves selecting the call option (ITM) with a strike price just above the ATM option and the put option (ITM) with a strike price just below the ATM option.

Considering the premium range of Rs 10 to Rs 25 for Hero Zero trades, the premiums in this example fall within the specified limits, making it a suitable scenario. For instance, the call option at Rs 95 has a premium of Rs 20, and the put option at Rs 105 has a premium of Rs 16, both falling within the recommended range.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.
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