Index Option Strategies Stock option strategy – Buying calls and puts both and Get fixed profit
Index Option Strategies Stock option strategy – Buying calls and puts both and Get fixed profit
Contents [hide]
- 1 Index Option Strategies – Buying Calls & Puts for Fixed Profit
- 2 1. Long Straddle Strategy (Profit in High Volatility)
- 3 How It Works?
- 4 Profit & Loss
- 5 2. Long Strangle Strategy (Less Cost, Higher Profit)
- 6 How It Works?
- 7 Profit & Loss
- 8 3. Iron Condor Strategy (Limited Profit but High Win Rate)
- 9 How It Works?
- 10 Profit & Loss
- 11 4. Butterfly Spread (Fixed Profit, Low Risk)
- 12 How It Works?
- 13 Profit & Loss
- 14 Conclusion
- 15 Index Option Strategies Stock option strategy – Buying calls and puts both and Get fixed profit
- 16 Analysis of Option Trading Strategies as an Effective …
- 17 Bank Nifty Option Strategies Booklet
- 18 Module 6_Option Strategies.pdf
Index Option Strategies – Buying Calls & Puts for Fixed Profit
Options trading offers various strategies to limit risk and maximize profit. One such approach is using call and put options together to get a fixed profit or reduce risk in volatile markets. Here are some effective strategies:
1. Long Straddle Strategy (Profit in High Volatility)
How It Works?
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Buy one ATM (At-The-Money) Call Option
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Buy one ATM Put Option
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Both options should have the same strike price & expiry
Best When?
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High volatility expected (before earnings, events, budget, elections, etc.)
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No bias on market direction (up or down)
Profit & Loss
Profit = If the index moves significantly (up or down), one option will gain more than the other loses.
Loss = If the index stays near the strike price (low volatility), both premiums decay.
Example:
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Nifty is at 22,000, you buy:
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Call Option (Strike 22,000) @ ₹200
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Put Option (Strike 22,000) @ ₹200
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Total cost = ₹400
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If Nifty moves above 22,400 or below 21,600, you make a profit.
2. Long Strangle Strategy (Less Cost, Higher Profit)
How It Works?
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Buy one OTM (Out-of-The-Money) Call Option
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Buy one OTM Put Option
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Both options have different strike prices but same expiry
Best When?
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Market is expected to become highly volatile, but cheaper than a Straddle.
Profit & Loss
Profit = If the index moves significantly beyond either strike price.
Loss = If the index stays within the strikes, you lose both premiums.
Example:
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Nifty is at 22,000, you buy:
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Call Option (Strike 22,200) @ ₹100
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Put Option (Strike 21,800) @ ₹100
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Total cost = ₹200
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If Nifty moves above 22,500 or below 21,500, you make a profit.
3. Iron Condor Strategy (Limited Profit but High Win Rate)
How It Works?
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Sell one OTM Call Option
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Buy one higher OTM Call Option
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Sell one OTM Put Option
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Buy one lower OTM Put Option
Best When?
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Low volatility expected (Sideways Market)
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Get a fixed profit in a range
Profit & Loss
Profit = If the index stays within a defined range, both sold options’ premiums decay.
Loss = If the index moves beyond the range, but losses are limited.
Example:
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Nifty is at 22,000, you create an Iron Condor:
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Sell Call (22,200) @ ₹100
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Buy Call (22,400) @ ₹50
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Sell Put (21,800) @ ₹100
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Buy Put (21,600) @ ₹50
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Total Credit = ₹100
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If Nifty stays between 21,800 and 22,200, you keep ₹100 profit.
4. Butterfly Spread (Fixed Profit, Low Risk)
How It Works?
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Buy one ITM Call
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Sell two ATM Calls
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Buy one OTM Call
Best When?
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You expect low to moderate movement in the index.
Profit & Loss
Profit = If the index closes near the ATM strike price, you get max profit.
Loss = If the index moves too far in either direction.
Conclusion
| Strategy | When to Use? | Risk | Reward |
|---|---|---|---|
| Straddle | High volatility expected | Medium | High |
| Strangle | High volatility expected (cheaper than Straddle) | Medium | High |
| Iron Condor | Low volatility (sideways market) | Low | Limited Profit |
| Butterfly Spread | Limited movement expected | Low | Moderate Profit |
Which strategy do you want a detailed explanation or live example of?
