Here in trading world traders wants quick money & use various tools/forms like intraday/positional/future/options trading etc, problem become more painful for those who try their luck with small capital.
Normally …..This is over advertised by various groups/traders……the options can be traded with less capital……., they are less risky…….but this is the half truth only.
The fact is for perfect play…. options require equal money else they are more dangerous if played naked ……trader can lose 100% of his investment. Reason being……option is a wasting asset.
In my personal opinion……….stay away from options……..and use them for heading purpose only.
On the other part ……a handsome gain of 5 to 20-30% can be made in days if the trader use them in well understood method. Well I am giving few option plays here with my personal opinion…...
Naked Option:
It could be a Zin of Aladdin’s Chirag …….can turn a small amount in double in a day or two……..but for that…you require to become an astrologer……who know today/tomorrow…..the market will turn one side…….(you know the side……)
But problem is……..if I become astrologers who know where market will go……why I need option……..and why not future………..?
Straddles / Strangles
Straddle is buying or selling of one pair of calls/put of same strikes, same months……..normally useful in uncertain situations that market can turn either side…….….the trader earn on one side and lose the premium paid on other side…….
For example………Nifty is trading at 4500…….., buy/sell one call/put of 4400……….now if nifty turn to 4600 a long straddle buyer (call+put) will earn on call and lose on put and visa versa if nifty goes at 4400.To maximize profit ……trader can use butterfly……..
Strangles………buying/selling of calls/put of different strikes……..other features are same……….
In my personal view…….both the strategies are super idiotic……if traded from long side…….the reason being……..if market remain same for 5 days……the trader will lose approx 50% of premium on both side…….
A short straddle/strangle is normally useful for seller …….as if market play in a range……the option lose it’s value and seller enjoy premium……..but if the market turn one side the seller lose big amount……..
Spreads
The best strategy that I ever seen in options……….
Bull spread with Calls
Useful in up-trend. Buy a call say 4400 sell a call say 4500 the risk is the difference of premium paid – premium receive. If Index rise…….the 4400 call will rise @ .5 to .6 approx. and 4500call will rise @.3 to .4 approx, at expiry the difference of the market price of calls will be credited to account.
Visa-versa if index fall……..the trader lose the difference of the calls.
Bear Spread with Calls
Useful when the market is trading range bound or expected to fall…….Buy an OTM call say 4700 sell an ITM call say 4500. If market remain same…….or fall……..trader lose what he has paid as premium and enjoy premium received But if market take a sharp rise…….the trader will has to pay the market price of call he sold and will receive the price of what he bought.
Bull spread with Puts
Useful in down-trend. As bull spread with calls………, buy an ITM put say……4600 sell and ATM/OTM put say 4500-4400. In a sharp fall the ITM put will rise @ .5-.6 and ATM/OTM put will rise @ .3 -.4. If market goes in wrong direction……traders lose the difference of the premium paid.
Bear Spread with Puts
Useful when the market is trading range bound or expected to rise…….Buy an OTM put say 4200 sell an ITM put say 4500. If market remain same…….or rise ……..trader lose what he has paid as premium and enjoy premium received. If market start falling……..the trader has to pay the market price of strike price he sold and will receive on what he bought.
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