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

 Index Option Strategies – Buying Calls & Puts for Fixed Profit

Options trading offers various strategies to limit ris                                    k 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?

• Buy one ATM (At-The-Money) Call Option

• Buy one ATM Put Option

• Both options should have the same strike price & expiry

 Best When?

• High volatility expected (before earnings, events, budget, elections, etc.)

• 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:

• Nifty is at 22,000, you buy:

  • Call Option (Strike 22,000) @ ₹200

  • Put Option (Strike 22,000) @ ₹200

  • Total cost = ₹400

• 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?

• Buy one OTM (Out-of-The-Money) Call Option

• Buy one OTM Put Option

• Both options have different strike prices but same expiry

 Best When?

• 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:

• Nifty is at 22,000, you buy:

  • Call Option (Strike 22,200) @ ₹100

  • Put Option (Strike 21,800) @ ₹100

  • Total cost = ₹200

• 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?

• Sell one OTM Call Option

• Buy one higher OTM Call Option

• Sell one OTM Put Option

• Buy one lower OTM Put Option

 Best When?

• Low volatility expected (Sideways Market)

• 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:

• Nifty is at 22,000, you create an Iron Condor:

  • Sell Call (22,200) @ ₹100

  • Buy Call (22,400) @ ₹50

  • Sell Put (21,800) @ ₹100

  • Buy Put (21,600) @ ₹50

  • Total Credit = ₹100

• If Nifty stays between 21,800 and 22,200, you keep ₹100 profit.

 4. Butterfly Spread (Fixed Profit, Low Risk)

 How It Works?

• Buy one ITM Call

• Sell two ATM Calls

• Buy one OTM Call

 Best When?

• 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

 Which strategy do you want a detailed explanation or live example of?

Index Option Strategies Stock option strategy – Buying calls and puts both and Get fixed profit

Analysis of Option Trading Strategies as an Effective …

Bank Nifty Option Strategies Booklet

Module 6_Option Strategies.pdf

Using Index Options (like Nifty or S&P 500 options) to earn a fixed profit involves defined-risk strategies that combine call and put options. These strategies work well when you’re expecting certain market conditions like high volatility, range-bound movement, or directional bias.

Here are three effective option strategies involving buying both calls and puts:

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1. Long Straddle Strategy – Profit from Volatility

When to Use:

• Expecting a big move in the index (up or down), but uncertain about the direction (e.g., before Budget, RBI policy, Fed announcement).

How It Works:

• Buy 1 ATM Call

• Buy 1 ATM Put

Example (Nifty at 22,000):

• Buy 22,000 Call at ₹100

• Buy 22,000 Put at ₹90
  Total Cost: ₹190

Profit/Loss:

• Profit if index moves significantly in either direction.

• Loss is limited to ₹190 (total premium paid).

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2. Long Strangle Strategy – Cheaper than Straddle

When to Use:

• Expecting high volatility but want to reduce premium cost compared to straddle.

How It Works:

• Buy 1 OTM Call

• Buy 1 OTM Put

Example (Nifty at 22,000):

• Buy 22,200 Call at ₹60

• Buy 21,800 Put at ₹50
  Total Cost: ₹110

Profit/Loss:

• Profit if index goes beyond either strike by more than premiums.

• Loss is limited to ₹110.

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3. Iron Condor (Credit Strategy with Limited Risk) – Fixed Profit if Market is Range-bound

When to Use:

• When you expect the index to stay within a range.

How It Works:

• Sell 1 OTM Put + Buy lower Put

• Sell 1 OTM Call + Buy higher Call
  (All with same expiry)

Example:

• Nifty at 22,000

• Sell 21,800 Put at ₹70

• Buy 21,700 Put at ₹40

• Sell 22,200 Call at ₹80

• Buy 22,300 Call at ₹50

Net Premium = ₹60 (Credit)
Max Risk = ₹100 (difference between strikes – premium)

Profit/Loss:

• Profit = ₹60 if Nifty stays between 21,800–22,200

• Max Loss = ₹40 if Nifty breaks the range

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Key Tips

• Always use defined-risk strategies (especially for beginners).

• Trade in liquid indexes like Nifty or Bank Nifty (India), or SPX/SPY (USA).

• Use tools like Option Chain + Implied Volatility to decide entry.

• Keep track of Greeks – Delta, Theta, Vega matter!

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Would you like:

• A calculator sheet to test your own scenarios?

• A live example from current option chain?

• A PDF guide with visuals for each strategy?

Just let me know!

Index Option Strategies Stock option strategy – Buying calls and puts both and Get fixed profit