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22 NSE Options Trading Strategies







Options trading strategies is something that you should learn if you are an options traders. Now if it be Index Options like BankNifty Options and Nifty50 or NIFTY Option or stock options of your favourite NSE stock. Option trading is more than buying a Call Option or Put Option.
Here you will learn about different profit making options trading strategies to help you cutting your losses and making good profit.
If you are new to stock options please prefer reading the What Are Stock Options? before moving forward. If you need a good stock broker or broking house to help you trade with minimum brokerage then Open Account with Zerodha because options trading is known for limited loss and unlimited profit but that profit will not be huge if you are going to lose money in brokerage! So Open Account with Zerodha.
Now let’s talk about the strategies we have in this section:
  1. Long Call
  2. Long Put
  3. Short Call
  4. Short Put
  5. Long Combo
  6. Protective Call
  7. Synthetic Long Call
  8. Covered Call
  9. Covered Put 
  10. Collar
  11. Bear Call Spread Strategy
  12. Bear Put Spread Strategy
  13. Bull Call Spread Strategy
  14. Bull Put Spread Strategy
  15. Long Call Butterfly
  16. Short Call Butterfly
  17. Long Call Condor
  18. Short Call Condor
  19. Long Straddle
  20. Short Straddle
  21. Long Strangle
  22. Short Strangle

Long Call:
If you are aggressive or very bullish about the stock/index, buying calls can be an excellent way to capture the upside potential with limited downside risk. This is the most common Call Option trading.
Buying a call is the most basic of all options strategies. It constitutes the first options trade for someone already familiar with buying/selling stocks and would now want to trade options. Buying a call is an easy strategy to understand. When you buy it means you are bullish. Buying a Call means you are very bullish and expect the underlying stock/index to rise in future.
When to Use: Trader is very bullish on the stock/index.
Risk: Limited to the Premium. (Maximum loss if market expires at or below the option strike price).
Reward: Unlimited
Breakeven: Strike Price +Premium

Long Put:
Buying a Put is the opposite of buying a Call. When you buy a Call you are bullish about the stock/index. When you are bearish, you can buy a Put option. A Put Option gives the buyer of the Put a right to sell the stock (to the Put seller) at a pre-specified price and thereby limit his risk.
A long Put is a Bearish strategy. To take advantage of a falling market where you can buy Put options.
When to Use: Trader is bearish about the stock/index.
Risk: Limited to the amount of Premium paid. (Maximum loss if stock/index expires at or above the option strike price).
Reward: Unlimited
Breakeven Point: Stock Price - Premium

Short Call:
When you buy a Call you are hoping that the underlying stock/index would rise. When you expect the underlying stock/index to fall you do the opposite.
When a trader is very bearish about a stock/index and expects the prices to fall, he can sell Call options. This position offers limited profit potential and the possibility of large losses on big advances in underlying prices. Although easy to execute it is a risky strategy since the seller of the Call is exposed to unlimited risk.
A Call option means an Option to buy. Buying a Call option means you expect the underlying price of a stock/index to rise in future. Selling a Call option is just the opposite of buying a Call option. Here the seller of the option feels the underlying price of a stock/index is set to fall in the future.
When to Use: If you are very aggressive bearish about the stock/index.
Risk: Unlimited
Reward: Limited to the amount of premium
Breakeven Point: Strike Price + Premium

Short Put:
Selling a Put is opposite of buying a Put. A trader buys Put when he is bearish on a stock. A trader Sells Put when he is Bullish about the stock – expects the stock price to rise or stay sideways at the minimum.
When you sell a Put, you earn a Premium (from the buyer of the Put). You have sold someone the right to sell you the stock at the strike price. If the stock price increases beyond the strike price, the short put position will make a profit for the seller by the amount of the premium, since the buyer will not exercise the Put option and the Put seller can retain the Premium (which is his maximum profit). But, if the stock price decreases below the strike price, by more than the amount of the premium, the Put seller will lose money.
The potential loss being unlimited (until the stock price fall to zero).
When to Use: Trader is very Bullish on the stock/index. The main idea is to make a short term income.
Risk: Put Strike Price – Put Premium.
Reward: Limited to the amount of Premium received.
Breakeven: Put Strike Price – Premium

LONG COMBO:
A Long Combo is a Bullish strategy. If a trader is expecting the price of a stock to move up he can do a Long Combo strategy. It involves selling an OTM (lower strike) Put and buying an OTM (higher strike) Call. This strategy simulates the action of buying a stock (or a futures) but at a fraction of the stock price. It is an inexpensive trade, similar in pay-off to Long Stock, except there is a gap between the strikes. As the stock price rises the strategy starts making profits.
When to Use: Trader is Bullish on the stock.
Risk: Unlimited (Lower Strike + net debit)
Reward: Unlimited
Breakeven: Higher strike + net debit

PROTECTIVE CALL:
This is a strategy wherein a trader has gone short on a stock and buys a call to hedge. A trader shorts a stock and buys an ATM or slightly OTM Call. The net effect of this is that the trader creates a pay-off like a Long Put, but instead of having a net debit (paying premium) for a Long Put, he creates a net credit (receives money on shorting the stock).
In case the stock price falls the trader gains in the downward fall in the price. However, incase there is an unexpected rise in the price of the stock the loss is limited. The pay-off from the Long Call will increase thereby compensating for the loss in value of the short stock position. This strategy hedges the upside in the stock position while retaining downside profit potential.

SYNTHETIC LONG CALL:
In this strategy, we purchase a stock since we feel bullish about it. But what if the price of the stock went down. You wish you had some insurance against the price fall. So buy a Put on the stock. This gives you the right to sell the stock at a certain price which is the strike price. The strike price can be the price at which you bought the stock (ATM strike price) or slightly below (OTM strike price).
In case the price of the stock rises you get the full benefit of the price rise. In case the price of the stock falls, exercise the Put Option (remember Put is a right to sell). You have capped your loss in this manner because the Put option stops your further losses. It is a strategy with a limited loss and (after subtracting the Put premium) unlimited profit (from the stock price rise).
The result of this strategy looks like a Call Option Buy strategy and therefore is called a Synthetic Call! But the strategy is not Buy Call Option. Here you have taken an exposure to an underlying stock with the aim of holding it and reaping the benefits of price rise, dividends, bonus rights etc. and at the same time insuring against an adverse price movement. In simple buying of a Call Option, there is no underlying position in the stock but is entered into only to take advantage of price movement in the underlying stock.
When to Use: When ownership is desired of stock yet trader is concerned about near-term downside risk. The outlook is conservatively bullish.
Risk: Losses limited to Stock price + Put Premium – Put Strike price
Reward: Profit potential is unlimited.
Breakeven Point: Put Strike Price + Put Premium + Stock Price – Put Strike Price

Covered Call:
You own shares in a company which you feel may rise but not much in the near term (or at best stay sideways). You would still like to earn an income from the shares. The covered call is a strategy in which an trader Sells a Call option on a stock he owns (netting him a premium). The Call Option which is sold in usually an OTM Call. The Call would not get exercised unless the stock price increases above the strike price. Till then the trader in the stock (Call seller) can retain the Premium with him. This becomes his income from the stock. This strategy is usually adopted by a stock owner who is Neutral to moderately Bullish about the stock.
An trader buys a stock or owns a stock which he feels is good for medium to long term but is neutral or bearish for the near term. At the same time, the trader does not mind exiting the stock at a certain price (target price). The trader can sell a Call Option at the strike price at which he would be fine exiting the stock (OTM strike). By selling the Call Option the trader earns a Premium. Now the position of the trader is that of a Call Seller who owns the underlying stock. If the stock price stays at or below the strike price, the Call Buyer (refer to Strategy 1) will not exercise the Call. The Premium is retained by the trader.
In case the stock price goes above the strike price, the Call buyer who has the right to buy the stock at the strike price will exercise the Call option. The Call seller (the trader) who has to sell the stock to the Call buyer will sell the stock at the strike price. This was the price which the Call seller (the trader) was anyway interested in exiting the stock and now exits at that price. So besides the strike price which was the target price for selling the stock, the Call seller (trader) also earns the Premium which becomes an additional gain for him. This strategy is called as a Covered Call strategy because the Call sold is backed by a stock owned by the Call Seller (trader). The income increases as the stock rises, but gets capped after the stock reaches the strike price.
When to Use: This is often employed when an trader has a short-term neutral to moderately bullish view on the stock he holds. He takes a short position on the Call option to generate income from the option premium. Since the stock is purchased simultaneously with writing (selling) the Call, the strategy is commonly referred to as “buy-write”.
Risk: If the Stock Price falls to zero, the trader loses the entire value of the Stock but retains the premium, since the Call will not be exercised against him. So maximum risk = Stock Price Paid – Call Premium Upside capped at the Strike price plus the Premium received. So if the Stock rises beyond the Strike price the trader (Call seller) gives up all the gains on the stock.
Reward: Limited to (Call Strike Price – Stock Price paid) + Premium received Breakeven: Stock Price paid -Premium Received.

COVERED PUT:
This strategy is opposite to a Covered Call. A Covered Call is a neutral to bullish strategy, whereas a Covered Put is a neutral to Bearish strategy.
You do this strategy when you feel the price of a stock/index is going to remain range bound or move down. Covered Put writing involves a short in a stock/index along with a short Put on the options on the stock/index. The Put that is sold is generally an OTM Put. The trader shorts a stock because he is bearish about it, but does not mind buying it back once the price reaches (falls to) a target price. This target price is the price at which the trader shorts the Put (Put strike price). Selling a Put means, buying the stock at the strike price if exercised.
If the stock falls below the Put strike, the trader will be exercised and will have to buy the stock at the strike price (which is anyway his target price to repurchase the stock). The trader makes a profit because he has shorted the stock and purchasing it at the strike price simply closes the short stock position at a profit. And the trader keeps the Premium on the Put sold. The trader is covered here because he shorted the stock in the first place. If the stock price does not change, the trader gets to keep the Premium. He can use this strategy as an income in a neutral market.
When to Use: If the trader is of the view that the markets are moderately bearish.
Risk: Unlimited if the price of the stock rises substantially
Reward: Maximum is (Sale Price of the Stock – Strike Price) + Put Premium
Breakeven: Sale Price of Stock + Put Premium

Collar:
A Collar is similar to Covered Call but involves another leg – buying a Put to insure against the fall in the price of the stock. It is a Covered Call with a limited risk. So a Collar is buying a stock, insuring against the downside by buying a Put and then financing (partly) the Put by selling a Call.
The put generally is ATM and the call is OTM having the same expiration month and must be equal in number of shares. This is a low risk strategy since the Put prevents downside risk. However, do not expect unlimited rewards since the Call prevents that. It is a strategy to be adopted when the trader is conservatively bullish.
When to Use: The collar is a good strategy to use if the trader is writing covered calls to earn premiums but wishes to protect himself from an unexpected sharp drop in the price of the underlying security.
Risk: Limited
Reward: Limited
Breakeven: Purchase Price of Underlying – Call Premium + Put Premium

BEAR CALL SPREAD STRATEGY:
The Bear Call Spread strategy can be adopted when the trader feels that the stock/index is either range bound or falling.
The concept is to protect the downside of a Call Sold by buying a Call of a higher strike price to insure the Call sold. In this strategy the trader receives a net credit because the Call he buys is of a higher strike price than the Call sold.
The strategy requires the trader to buy out-of-the-money (OTM) call options while simultaneously selling in-the-money (ITM) call options on the same underlying stock index. This strategy can also be done with both OTM calls with the Call purchased being higher OTM strike than the Call sold.
If the stock/index falls both Calls will expire worthless and the trader can retain the net credit. If the stock/index rises then the breakeven is the lower strike plus the net credit. Provided the stock remains below that level, the trader makes a profit. Otherwise he could make a loss. The maximum loss is the difference in strikes less the net credit received.
When to Use: When the trader is mildly bearish on market.
Risk: Limited to the difference between the two strikes minus the net premium.
Reward: Limited to the net premium received for the position i.e., premium received for the short call minus the premium paid for the long call.
Breakeven: Lower Strike + Net credit

BEAR PUT SPREAD STRATEGY:
This strategy requires the trader to buy an in-the-money (higher) put option and sell an out-of-the-money (lower) put option on the same stock with the same expiration date. This strategy creates a net debit for the trader.
The net effect of the strategy is to bring down the cost and raise the breakeven on buying a Put (Long Put).
The strategy needs a Bearish outlook since the trader will make money only when the stock price/index falls. The bought Puts will have the effect of capping the trader’s downside. While the Puts sold will reduce the traders costs, risk and raise breakeven point (from Put exercise point of view).
If the stock price closes below the out-of-the-money (lower) put option strike price on the expiration date, then the trader reaches maximum profits. If the stock price increases above the in-the-money (higher) put option strike price at the expiration date, then the trader has a maximum loss potential of the net debit.
When to Use: When you are moderately bearish on market direction
Risk: Limited to the net amount paid for the spread. i.e. the premium paid for long position less premium received for short position.
Reward: Limited to the difference between the two strike prices minus the net premium paid for the position.
Breakeven: Strike Price of Long Put – Net Premium Paid

BULL CALL SPREAD STRATEGY:
A bull call spread is constructed by buying an in-the-money (ITM) call option, and selling another out-of-the-money (OTM) call option.
Often the call with the lower strike price will be in-the-money while the Call with the higher strike price is out-of-the-money. Both calls must have the same underlying security and expiration month.
The net effect of the strategy is to bring down the cost and breakeven on a Buy Call (Long Call) Strategy. This strategy is exercised when trader is moderately bullish to bullish, because the trader will make a profit only when the stock price/index rises. If the stock price falls to the lower (bought) strike, the trader makes the maximum loss (cost of the trade) and if the stock price rises to the higher (sold) strike, the trader makes the maximum profit.
When to Use: Trader is moderately bullish.
Risk: Limited to any initial premium paid in establishing the position. Maximum loss occurs where the underlying falls to the level of the lower strike or below.
Reward: Limited to the difference between the two strikes minus net premium cost. Maximum profit occurs where the underlying rises to the level of the higher strike or above.
Breakeven: Strike Price of Purchased call + Net Debit Paid

BULL PUT SPREAD STRATEGY:
A bull put spread can be profitable when the stock/index is either range bound or rising. The concept is to protect the downside of a Put sold by buying a lower strike Put, which acts as an insurance for the Put sold. The lower strike Put purchased is further OTM than the higher strike Put sold ensuring that the trader receives a net credit, because the Put purchased (further OTM) is cheaper than the Put sold.
This strategy is equivalent to the Bull Call Spread but is done to earn a net credit (premium) and collect an income. If the stock/index rises, both Puts expire worthless and the trader can retain the Premium. If the stock/index falls, then the trader’s breakeven is the higher strike less the net credit received. Provided the stock remains above that level, the trader makes a profit. Otherwise he could make a loss. The maximum loss is the difference in strikes less the net credit received. This strategy should be adopted when the stock/index trend is upward or range bound.
When to Use: When the trader is moderately bullish.
Risk: Limited. Maximum loss occurs where the underlying falls to the level of the lower strike or below.
Reward: Limited to the net premium credit. Maximum profit occurs where underlying rises to the level of the higher strike or above.
Breakeven: Strike Price of Short Put - Net Premium Received.

LONG CALL BUTTERFLY:
A Long Call Butterfly is to be adopted when the trader is expecting very little movement in the stock price/index. The trader is looking to gain from low volatility at a low cost. The strategy offers a good risk/reward ratio, together with low cost.
The strategy can be done by selling 2 ATM Calls, buying 1 ITM Call, and buying 1 OTM Call options (there should be equidistance between the strike prices). The result is positive in case the stock/index remains range bound. The maximum reward in this strategy is however restricted and takes place when the stock/index is at the middle strike at expiration. The maximum losses are also limited.
When to Use: When the trader is neutral on market direction and bearish on volatility.
Risk: Net debit paid.
Reward: Difference between adjacent strikes minus net debit
Breakeven:
Upper Breakeven Point = Strike Price of Higher Strike Long Call – Net Premium Paid
Lower Breakeven Point = Strike Price of Lower Strike Long Call + Net Premium Paid

SHORT CALL BUTTERFLY:
A Short Call Butterfly is a strategy for volatile markets. It is the opposite of Long Call Butterfly, which is a range bound strategy. The Short Call Butterfly can be constructed by Selling one lower striking in-the-money Call, buying two at-the-money Calls and selling another higher strike out-of-the-money Call, giving the trader a net credit (therefore it is an income strategy).
There should be equal distance between each strike. The resulting position will be profitable in case there is a big move in the stock/index. The maximum risk occurs if the stock/index is at the middle strike at expiration. The maximum profit occurs if the stock finishes on either side of the upper and lower strike prices at expiration.
When to Use: You are neutral on market direction and bullish on volatility. Neutral means that you expect the market to move in either direction - i.e. bullish and bearish.
Risk: Limited to the net difference between the adjacent strikes less the premium received for the position.
Reward: Limited to the net premium received for the option spread.
Breakeven:
Upper Breakeven Point = Strike Price of Highest Strike Short Call - Net Premium Received
Lower Breakeven Point = Strike Price of Lowest Strike Short Call + Net Premium Received

LONG CALL CONDOR:
A Long Call Condor is very similar to a long butterfly strategy. The difference is that the two middle sold options have different strikes. The profitable area of the payoff profile is wider than that of the Long Butterfly.
The strategy is suitable in a range bound market. The Long Call Condor involves buying 1 ITM Call (lower strike), selling 1 ITM Call (lower middle), selling 1 OTM call (higher middle) and buying 1 OTM Call (higher strike).
The long options at the outside strikes ensure that the risk is capped on both the sides. The resulting position is profitable if the stock/index remains range bound and shows very little volatility. The maximum profits occur if the stock finishes between the middle strike prices at expiration.
When to Use: When an trader believes that the underlying market will trade in a range with low volatility until the options expire.
Risk: Limited to the minimum of the difference between the lower strike call spread less the higher call spread less the total premium paid for the condor.
Reward: Limited. The maximum profit of a long condor will be realized when the stock is trading between the two middle strike prices.
Breakeven:
Upper Breakeven Point = Highest Strike – Net Debit
Lower Breakeven Point = Lowest Strike + Net Debit

SHORT CALL CONDOR:
A Short Call Condor is very similar to a short butterfly strategy. The difference is that the two middle bought options have different strikes. The strategy is suitable in a volatile market.
The Short Call Condor involves selling 1 ITM Call (lower strike), buying 1 ITM Call (lower middle), buying 1 OTM call (higher middle) and selling 1 OTM Call (higher strike). The resulting position is profitable if the stock/index shows very high volatility and there is a big move in the stock/index.
The maximum profits occur if the stock/index finishes on either side of the upper or lower strike prices at expiration.
When to Use: When an trader believes that the underlying market will break out of a trading range but is not sure in which direction.
Risk: Limited. The maximum loss of a short condor occurs at the center of the option spread.
Reward: Limited. The maximum profit of a short condor occurs when the underlying stock/index is trading past the upper or lower strike prices.
Breakeven:
Upper Breakeven Point = Highest Strike – Net Credit
Lower Breakeven Point = Lowest Strike + Net Credit

LONG STRADDLE:
A Straddle is a volatility strategy and is used when the stock price/index is expected to show large movements.
This strategy involves buying a call as well as put on the same stock/index for the same maturity and strike price, to take advantage of a movement in either direction, a soaring or plummeting value of the stock/index. If the price of the stock/index increases, the call is exercised while the put expires worthless and if the price of the stock/index decreases, the put is exercised, the call expires worthless.
Either way if the stock/index shows volatility to cover the cost of the trade, profits are to be made. With Straddles, the trader is direction neutral. All that he is looking out for is the stock/index to break out exponentially in either direction.
When to Use: The trader thinks that the underlying stock/index will experience significant volatility in the near term.
Risk: Limited to the initial premium paid.
Reward: Unlimited
Breakeven:
Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid

SHORT STRANGLE:
This strategy involves the simultaneous selling of a slightly out-of-the-money (OTM) put and a slightly out-of-the-money (OTM) call of the same underlying stock and expiration date. This typically means that since OTM call and put are sold, the net credit received by the seller is less as compared to a Short Straddle, but the break even points are also widened.
The underlying stock has to move significantly for the Call and the Put to be worth exercising. If the underlying stock does not show much of a movement, the seller of the Strangle gets to keep the Premium.
It tries to improve the profitability of the trade for the Seller of the options by widening the breakeven points so that there is a much greater movement required in the underlying stock/index, for the Call and Put option to be worth exercising.
When to Use: This options trading strategy is taken when the options trader thinks that the underlying stock will experience little volatility in the near term.
Risk: Unlimited
Reward: Limited to the premium received
Breakeven:
Upper Breakeven Point = Strike Price of Short Call + Net Premium Received
Lower Breakeven Point = Strike Price of Short Put - Net Premium Received

LONG STRANGLE:
A Strangle is a slight modification to the Straddle to make it cheaper to execute. This strategy involves the simultaneous buying of a slightly out-of-the-money (OTM) put and a slightly out-of-the-money (OTM) call of the same underlying stock/index and expiration date. Here again the trader is directional neutral but is looking for an increased volatility in the stock/index and the prices moving significantly in either direction.
Since OTM options are purchased for both Calls and Puts it makes the cost of executing a Strangle cheaper as compared to a Straddle, where generally ATM strikes are purchased. Since the initial cost of a Strangle is cheaper than a Straddle, the returns could potentially be higher.
However, for a Strangle to make money it would require greater movement on the upside or downside for the stock/index than it would for a Straddle. As with a Straddle, the strategy has a limited downside (i.e. the Call and the Put premium) and unlimited upside potential.
When to Use: The trader thinks that the underlying stock/index will experience very high levels of volatility in the near term.
Risk: Limited to the initial premium paid
Reward: Unlimited
Breakeven:
Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid

SHORT STRADDLE:
A Short Straddle is the opposite of Long Straddle. It is a strategy to be adopted when the trader feels the market will not show much movement. He sells a Call and a Put on the same stock/index for the same maturity and strike price. It creates a net income for the trader.
If the stock/index does not move much in either direction, the trader retains the Premium as neither the Call nor the Put will be exercised. However, in case the stock/index moves in either direction, up or down significantly, the trader’s losses can be significant.
So this is a risky strategy and should be carefully adopted and only when the expected volatility in the market is limited. If the stock/index value stays close to the strike price on expiry of the contracts, maximum gain, which is the Premium received is made.
When to Use: The trader thinks that the underlying stock/index will experience very little volatility in the near term.
Risk: Unlimited
Reward: Limited to the premium received
Breakeven:
Upper Breakeven Point = Strike Price of Short Call + Net Premium Received
Lower Breakeven Point = Strike Price of Short Put - Net Premium Received

Hope these strategies help you with money making! Happy trading and if you need a good stock broker or broking house to help you trade with minimum brokerage then Open Account with Zerodha because options trading is known for limited loss and unlimited profit but that profit will not be huge if you are going to lose money in brokerage! So Open Account with Zerodha.

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