Mastering Option Candlesticks
Unlike stock charts, option charts are alive with time decay (Theta). A "doji" in a stock might mean indecision, but in an option chart near expiry, it means premium erosion. Let's decode the DNA of an option candle.
1. The Anatomy of an Option Candle
Bullish Option Candle
- Open: Price at start of timeframe (e.g., 09:15)
- Close: Price at end. Higher than Open = Green.
- High/Low: Volatility range.
An option candle tells you the story of Fear vs Greed multiplied by Time.
When you see a large green candle in a Call Option (CE):
- Underlying asset (Nifty/BankNifty) moved up aggressively.
- OR Volatility (Vega) spiked, pumping premiums.
Pro Tip: Always compare the Option Candle with the Spot Chart. If Spot is moving up but Call Option is NOT, it indicates Theta Decay or falling IV (Implied Volatility). This is a trap for buyers!
2. The "Time Decay" Factor
This is where options differ from stocks. Imagine holding a stock that doesn't move for 1 hour. The candlestick is flat (Doji). You lose nothing.
Now imagine holding an OTM Call Option that doesn't move for 1 hour. Even if the price ends at the same level, the option price will likely drop due to Theta Decay.
The "Melting Ice Cube" Effect
Option candles have a hidden downward gravity. On expiry days (Tuesdays), you will key see red candles even if the market is flat. This is why Option Selling is high probability—you profit from the red gravity.
3. Power Patterns for Options
There are 3 patterns that provide high probability setups when trading options:
A. The Pinbar (Wick Rejection)
A long wick indicates rejection. In options, a long lower wick at a Support strikes (e.g., VWAP) is a strong buying signal.
B. The Engulfing Candle
A massive green candle completely covering the previous red candle. This shows buyers have overwhelmed sellers. In Scalping, this is your entry signal.
4. Live Application
Don't just read about it. Go to the Live Charts Dashboard. Check the CE and PE charts side-by-side. Notice how sometimes one moves faster than the other? That's Delta and Gamma in action.
*Disclaimer: NSE/BSE frequently revise Lot Sizes and Expiry Days (e.g., SEBI Circulars 2024/2025). Always check the latest circular on nseindia.com before trading.
Standard Disclosure: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. The content provided here is for educational purposes only and does not constitute financial or investment advice. AlgoStraddle Academy is not a SEBI registered investment advisor. Trading options involves high risk and capital can be lost.