Understanding Higher Straddle and Lower Straddle Premiums Using ITM and OTM Options in NIFTY

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When analyzing the NIFTY for your next big move, one of the simplest yet most powerful methods is studying option premiums on straddles. But many traders get confused about what exactly “higher straddle” and “lower straddle” mean, and how to understand them using the structure of ITM (In The Money) and OTM (Out Of The Money) options.

Here is a clean, detailed guide.

What is a Straddle in Simplicity?
A straddle means taking both a Call option and a Put option at the same strike price, same expiry to capture movement in either direction.

Example:
If NIFTY is at 25,500:

A 25,500 straddle = 25,500 Call + 25,500 Put.

What is a Higher Straddle?
Higher Straddle = Straddle at a strike above the current NIFTY level.

If NIFTY is 25,500:

The 26,000 straddle is the higher straddle because 26,000 > 25,500.

Inside this higher straddle:
The Put (26,000 PE) is In The Money (ITM) because the current price (25,500) is below 26,000.

The Call (26,000 CE) is Out Of The Money (OTM) because the current price is below 26,000.

Thus:

Higher Straddle = ITM Put + OTM Call at a higher strike.

What is a Lower Straddle?
Lower Straddle = Straddle at a strike below the current NIFTY level.

If NIFTY is 25,500:

The 25,000 straddle is the lower straddle because 25,000 < 25,500.

Inside this lower straddle:
The Put (25,000 PE) is Out Of The Money (OTM) because the current price is above 25,000.

The Call (25,000 CE) is In The Money (ITM) because the current price is above 25,000.

Thus:

Lower Straddle = ITM Call + OTM Put at a lower strike.

Why Does This Matter?
The structure of ITM and OTM within these straddles impacts how premiums behave and what they signal about the market’s potential direction.

How to Read Premiums for Market Direction
1️⃣ Lower Straddle Premium Increasing (Bullish Bias)
If you see the 25,000 straddle premium increasing while NIFTY is around 25,500, it indicates:

Sellers are quoting higher premiums for the ITM Call (as it has real value).

There is demand for protection on the downside (Put), but the OTM Put is still cheap.

When overall premium is rising without price dropping, it often hints that the downside is getting protected while the market prepares for an upward move.

This means:
The market may be getting ready to break upwards.

2️⃣ Higher Straddle Premium Increasing (Bearish Bias)
If you see the 26,000 straddle premium increasing while NIFTY is around 25,500, it indicates:

Sellers are quoting higher premiums for the ITM Put (as it has real value).

There is demand for protection on the upside (Call), but the OTM Call is still cheap.

When overall premium is rising without price moving up, it suggests the upside is getting capped, and protection is increasing against a fall, indicating a potential downward move.

This means:
The market may be preparing to break downwards.

3️⃣ Both Straddle Premiums Falling (Range-Bound, No Trade)
If both the lower and higher straddle premiums are falling steadily, the market is in a volatility compression phase. It signals:

Traders are not expecting a big move.

Premiums decay as price remains stuck within a range.

This is a no-trade directional zone but ideal for option premium sellers capturing systematic decay.

4️⃣ Both Straddle Premiums Rising (Volatility Expansion Imminent)
If both straddle premiums start rising simultaneously, the market is preparing for a big trending move, but the direction is not clear yet.

This is the tension coil before the storm. Wait for your Renko, P&F, or VWAP breakout confirmation before entering, as it often precedes a significant move.

The Power of This Method
No need for complicated Greeks.
Uses only premium behavior, which reflects real-time fear and greed of the market.
Cleanly aligns with the monthly expiry structure, which is where the largest positioning takes place in NIFTY.

By observing the higher straddle (ITM Put + OTM Call) and lower straddle (ITM Call + OTM Put) premiums, you will be able to sense the next big directional move in NIFTY without overcomplication, making your analysis accessible, systematic, and actionable.

In Summary:
Higher Straddle (above price): ITM Put + OTM Call → Premium rising = potential bearish bias.

Lower Straddle (below price): ITM Call + OTM Put → Premium rising = potential bullish bias.

Both premiums falling = range-bound decay, no direction.

Both premiums rising = volatility expansion is near; prepare for a big trend.

This is a pure price and premium study, letting the market reveal its plans through the language of premium movement, aligned perfectly for practical traders and systematic thinkers.

Disclaimer
The information provided in this article is for educational and informational purposes only and should not be construed as financial, investment, or trading advice. Trading in the stock and derivatives markets involves significant risk and may not be suitable for all investors. Past performance does not guarantee future results. You are solely responsible for your investment decisions, and it is strongly recommended that you consult with a qualified financial advisor before making any trading or investment decisions. The author and publisher are not liable for any losses or damages arising from the use of the information provided in this article.