Summary:
Different Nifty and Bank Nifty options strategies can help traders amplify their weekly income at a limited risk. They help traders protect their portfolios in a turbulent stock environment and better predict the upsides and downturns. Having the right strategy ensures flexibility and accuracy and helps you minimise losses.
The stock market is skyrocketing with a rapid influx of traders and investors looking for new and innovative strategies. The cutthroat competition to generate surplus income consistently is driving the inclination toward short-term income options. Nifty and Bank Nifty have thus received very promising response from the traders in the recent past. These are basically the underlying assets purchased or sold with the help of options at a specified (strike) price on or prior to a predetermined date (expiration date).
In Options trading, the price movements in these underlying assets, Nifty and Bank Nifty determine the profit earned by a trader. However, you need to understand that options trading is complex, prone to certain risks, and in worst cases, result in the loss of investment. Hence, employing the right strategies is very crucial to generate regular profits and mitigate risks.
In this blog, we will provide valuable insights into the different Nifty and Bank Nifty options strategies that are curated to expand weekly income.
Options strategies for a better weekly income
This part of the blog will discuss different strategies, their objectives, execution, and risks.
Covered call strategy
- The strategy is to sell a covered call option on an owned stock. For Nifty options strategies, it would mean Nifty stocks.
- The objective is to earn surplus income by collecting the premium from selling options while holding the underlying index.
- Executing this strategy will entail selling call options on Nifty or Bank Nifty with a strike price that is slightly more than the current market price.
- The risks involved in this strategy include limited potential profit if the price of the underlying index increases overwhelmingly.
Iron condor
- Here, the idea is the create a neutral strategy while selling an out-of-the-money (OTM) call and put option and buying a further OTM call and put option.
- The objective is to generate income from premiums collected on both the put and call options and parallel betting on a range-bound market.
- You can employ this strategy by selecting strike prices for call and put options that you expect to see the index in.
- There is a risk of limited profit or loss in case the index moves drastically in one direction.
Credit spread
- The strategy entails selling an OTM call/put option and simultaneously buying another OTM call/put option to reduce the risk of potential losses.
- The aim is to generate income from the premium gap between the options while outlining risks.
- To implement credit spread, you need to choose strike prices while keeping your market outlook and risk tolerance in mind.
- Losses are mainly associated with the difference arising between strike prices.
Straddle and strangle
- In a straddle – strangle strategy, you can purchase both a call and a put option which implies straddle or just buy a call or a put option with different strike prices, which refers to strangle.
- The primary goal of these techniques is to generate profit from the tremendous price movements irrespective of the direction.
- You can execute straddle or strangle trades when you anticipate high volatility.
- High costs required to buy both call and put options can be risky as it depends on significant price movement to cover the premium.
Trading Nifty and Bank Nifty options can be highly rewarding considering options strategies are executed well alongside a well thought risk management plan.
Benefits of Nifty & Bank Nifty options strategies
Nifty options strategies offer traders and investors several benefits based on their risk tolerance, market outlook, and objectives. Some of these benefits include:
Hedging – Nifty Bank options allow traders to hedge against potential losses in a bank-heavy investment portfolio. For example, if you hold bank stocks and expect a market downturn, you can protect your portfolio from downside risks by using put options.
Leverage – Options are a leverage allowing traders the complete control over a larger position in the underlying asset with a relatively small upfront investment. This can increase potential gains if the market moves in the expected direction.
Limited risk – Any risks associated with buying call/put options are minimal. The most you can lose is the premium paid for the option, which is a very attractive feature for risk-averse investors. Furthermore, option strategies such as protective puts can be used for risk mitigation and management of a portfolio. They ensure downside protection while welcoming any potential upside gains.
Portfolio customization – Options strategies can be effectively tailored to specific risk-return preferences and market outlook. This flexibility allows you to create a strategy that aligns with your financial goals.
Income tax efficiency - In some jurisdictions, options strategies may offer tax benefits over other forms of trading. However, it is essential to consult with a tax advisor to understand the tax implications in your specific region.
Wrapping up: Nifty options strategies will benefit all market participants
Right from institutional traders to individual retail traders and market makers, Nifty option strategies cater to multiple market participants. Hedgers can benefit by protecting their stock holdings during a market downturn, while risk employers can employ delta hedging as a technique to maintain a desired level of risk exposure. With advancements in technologies, there is a rise in algorithmic traders leveraging automated trading systems to execute strategies based on volatility levels, technical indicators, and market conditions.