Options Sanity Check (NIFTY / BANKNIFTY / Stock F&O)

Options are high-gamma, high-theta instruments. This skill forces the user to look at Greeks, liquidity, and margin before clicking. It is NOT a trade recommender.

1. Identify the leg(s)

From the user's prompt, extract each leg:

• Underlying (NIFTY, BANKNIFTY, RELIANCE, etc.)
• Expiry (weekly or monthly — ask if ambiguous)
• Strike
• Option type (CE = call, PE = put)
• Side (BUY or SELL)
• Lots (not shares — NIFTY lot size changes, confirm)

If the user says "sell 24500 PE expiring next Thursday", that's one leg. Multi-leg strategies (straddle, strangle, spread, iron condor, butterfly) are 2-4 legs.

2. Pull the chain + Greeks

1. Call get_option_chain for the underlying + expiry — returns strikes, OI, IV.
2. Call options_greeks for the specific leg(s) — returns delta, gamma, theta, vega, IV using

Black-Scholes.

1. For multi-leg strategies, call options_payoff_builder — returns payoff diagram points,

max profit, max loss, breakevens.

1. Call get_quotes on each leg for bid/ask spread and volume (liquidity check).
2. Call get_order_margins (or get_basket_margins for multi-leg) — options margins differ

wildly between buy and sell.

3. Present the sanity report

## Options Sanity Check: <strategy name or leg summary>

### Legs
1. <BUY|SELL> <lots> <underlying> <expiry> <strike> <CE|PE> @ <current premium>
2. ...

### Greeks (per leg, for 1 lot)
| Leg | Delta | Gamma | Theta | Vega | IV |
|---|---|---|---|---|---|
| 1 | <d> | <g> | <t>/day | <v> | <iv>% |

### Liquidity
- Bid-ask spread: <pct>% of premium — flag if >5%
- Today's volume: <n> contracts — flag if <100
- Open interest: <n>

### Payoff (multi-leg)
- Max profit: <amt> at <underlying price>
- Max loss: <amt> at <underlying price>
- Breakeven(s): <price1>, <price2>
- Net premium: debit <amt> | credit <amt>

### Margin
- Required (SPAN+Exposure): <amt>
- Available: <amt>
- Utilization after: <pct>%

### Risk Flags
<Only include applicable:>
- IV in top quintile — short-vol strategies face mean reversion risk
- IV in bottom quintile — long-vol strategies face decay without catalyst
- Theta > <X>% of premium/day — time decay is significant
- Undefined-risk leg (naked SELL without hedge) — margin locks up, tail risk is infinite
- Expiry within 7 days — gamma acceleration / pin risk
- Wide bid-ask — execution slippage likely

4. Ask before ordering

Options require EXTRA deliberation versus equity. Always ask:

• "Confirm the lot count — this is <n> lots = <n x lot_size> contracts."
• "Confirm expiry — <date>."
• "Is this a defined-risk trade or are you short naked? (We flag if naked.)"

Only call place_order (multiple times for multi-leg) after explicit "place it".

5. Indian options quirks

• Lot sizes change — NIFTY, BANKNIFTY, and stock options each have different lot sizes that

SEBI revises periodically. Always use the lot size from search_instruments metadata, not memory.

• Weekly expiries: NIFTY and BANKNIFTY weeklies expire Thursday (NIFTY) / Wednesday

(BANKNIFTY) — confirm with the chain data.

• Cash-settled: Indian index options are European-style and cash-settled. Stock options

are physically settled — assignment risk at expiry.

• Margin blocking: SELL-side options block SPAN + Exposure margin; BUY-side only the

premium.

• Extrinsic decay accelerates in the last week before expiry. Theta numbers from

options_greeks should dominate the discussion for short-dated trades.

6. Guardrails

• NEVER recommend a direction ("buy CE, NIFTY will rally"). State Greeks and payoff; let the

user decide direction.

• NEVER underplay undefined-risk legs. A naked SELL can blow through the account on a gap.
• NEVER claim IV is "cheap" or "expensive" without showing the IV rank or percentile context

(if available from the chain data).

• If the user is a first-time options trader, point them at Zerodha Varsity / the Varsity

options module before proceeding. Don't refuse to help, but flag the education gap.