Three traders. Same direction. Same expiry day. Only two winners. That's the harsh reality of options trading on the National Stock Exchange (NSE) that most market participants rarely talk about. You can analyze Nifty 50 charts to perfection, get the market direction completely right, and still watch your trading capital evaporate. And the reason isn't bad luck—it's the strike price you chose.
To find out why, we at TickerPulse backtested 1,600+ expiry day moves on NIFTY to see exactly how In-The-Money (ITM), At-The-Money (ATM), and Out-of-The-Money (OTM) options perform when the market moves precisely in your favor. The results are nothing short of eye-opening.
The Setup: Three Trades, One Direction
Let's look at what actually happened during a typical volatile session. NIFTY moved 0.5% in favor of three traders who all bought Call options on weekly expiry day. Same bullish direction, same expiry, same underlying market move. But the portfolio outcomes were wildly different:
- ITM Call: +57% (Profitable)
- ATM Call: +43% (Profitable)
- OTM Call: –51% (Loss)
All three traders got the market direction right. But only two made money. So what went wrong for the OTM trader?
The Delta Difference
The answer lies in Delta—the options greek that measures how much an option's premium changes for every ₹1 move in the underlying index. Think of it as the sensitivity of your option to the broader market's momentum:
- ITM (In The Money): Delta ~0.70
- ATM (At The Money): Delta ~0.50
- OTM (Out of The Money): Delta ~0.30
The OTM option carries the lowest Delta, meaning it only captures a fraction of the index's underlying move. When NIFTY moved 0.5% upward, the ITM and ATM options captured enough intrinsic value to comfortably overcome theta decay (time decay). The OTM option simply couldn't keep up. On expiry day, time decay operates at a blistering pace, and the OTM premium eroded far faster than the directional move could compensate for.
Small Moves Crush OTM Options
The historical data gets even more brutal when you examine small expiry moves. When NIFTY moved less than 0.25% on expiry day, the performance metrics split dramatically:
- ITM: 0% average return, 47% win rate
- ATM: 49% average return, 14% win rate
- OTM: 96% average return, 1% win rate
Wait—a 96% average return for OTM options? That looks incredible on paper. But look closer at the win rate: a dismal 1%. That means 99% of the time, the OTM option expired worthless or bled money. That eye-popping 96% average is heavily skewed by the rare, highly volatile sessions where an explosive move saved the trade. The vast majority of the time, buying cheap OTM lottery tickets meant losing the entire premium.
The conclusion for index traders is clear: OTM options shed almost their entire premium on quiet days, even if your directional thesis was technically correct. Direction alone is never enough; the underlying move has to be large enough to outrun intense expiry-day theta decay.
Big Moves: The OTM Payoff
Of course, every retail options buyer loves OTM strikes for a reason. On expiry days when NIFTY made a massive trend day move of more than 1%, the percentage returns were astronomical:
- ITM: +225%
- ATM: +346%
- OTM: +535%
When the stars align, OTM options deliver the biggest percentage gains by far. But here is the critical catch: our backtest revealed that only 14% of historical expiry sessions saw moves this large. If you blindly buy cheap OTM options on every single weekly expiry hoping for a massive breakout, you are playing a statistical game where you lose roughly 86% of the time.
The Trade-Off: Small Moves vs. Big Moves
So what is the actual takeaway for your trading strategy? It entirely depends on your market expectations and risk tolerance:
- ITM – Smaller Moves: Far more dependable when NIFTY makes modest, range-bound moves. You capture lower percentage returns, but enjoy a significantly higher win rate and better capital preservation.
- ATM – Meaningful Expiry Moves: Strikes a strong balance between explosive returns and consistency. It serves as the ideal middle ground for directional intraday momentum traders.
- OTM – Large, Fast Moves: Offers the highest potential percentage returns, but carries an extreme risk of rapid premium erosion. You need the Nifty 50 to move fast, hard, and without consolidation.
The core insight every options buyer must internalize is this: trading is not just about direction. It is a function of velocity and magnitude—how far and how fast NIFTY moves. You can be completely right about a breakout and still lose money if the move isn't substantial enough to offset the decay of your option's extrinsic value.
The Takeaway
Most retail traders obsess exclusively over market direction. They spend hours staring at technical charts, drawing trendlines, and arguing on forums about whether Nifty is going to test a new high or break support. But your true edge as an options trader lies in understanding the mechanics of the derivative instrument you are using to express that view.
Out-of-the-money options are essentially a high-leverage bet on speed and market magnitude. In contrast, ITM and ATM options function as a directional trade backed by a much safer margin. Before you buy your next option contract on NSE, ask yourself one crucial question: not just "Will NIFTY move?", but "How far will it move, and how fast?" Because getting the direction right is only half the battle. The other half is choosing the right strike price to capture the profit.