All about NSE options strategies
It should be made clear at the outset that NSE options strategies are not for the novice in share market trading. A trader should first know the ups and downs of simple trading on the National Stock Exchange before attempting to trade in options. It would be tantamount to taking to deep sea diving without knowing how to swim.
NSE options strategies are great for people who have been trading in shares for a long time with a good knowledge in reading market and stock trends from technical charts. It is a professional and knowledge based job requiring as much learning as any other profession like engineering or architecture. In option trading a person sells or buys by just paying a premium for the stock under consideration. The option trade lasts for a set period when settlement has to be made depending on the future price of a stock. This results in a profit or a loss.
The first thing to learn about NSE options strategies is that basically it involves the call option and the put option.
The Call Option
A call option is a bullish stand. A trader feels that a certain stock ABC will go up significantly in the future. The trader buys an option to buy the option at a little premium. If ABC is trading at Rs.200 right now then the trader will have to pay a premium of Rs.10 for the option to buy it within the next 30 days at a strike price of Rs.210. In this case the trader does not actually have to buy the shares right now. The trader gives Rs. 1000 premium right now for this call option on a 100 shares.
If the trader is right in judging the upward movement of the share and ABC rises to Rs.250 then the trader can exercise his option and buy the shares at Rs.210 and sell them at Rs.250 thus making a clean profit of Rs.50-10= Rs.40 X 100= Rs. 4000. The trader need not actually buy the shares; he can simply take the profit.
The Put Option
In the case of a put option the trader is in a bearish mood. The trader feels that the stock will plummet in the opposite direction in the next 30 days. In this case he buys a right to sell at the strike price of Rs. 190 giving Rs. 1000 (10X100) for 100 shares. In this if the share falls to Rs.150 the trader will buy 100 shares at Rs.150 and sell exercising his put option those 100 shares at Rs.190. In this way the trader makes a good profit of Rs. 4000 (50-10=40X100=4000).
Having learned the basic two strategies we can move our attention to other NSE options strategies.
Long Put
Long Put reveals that the trader is confident that the concerned share will fall before expiry days. The trader buys a long put which is an option to sell the share at a pre-determined price within the next remaining days till expiry. As explained above if the share falls tremendously the trader has the right to buy shares from the open market and sell the long put shares at the pre-determined price thus making a good profit.
Long Combo
This is one of the NSE options strategies which is employed by traders when they are bullish. This is a risky move although it involves only a little initial investment. The trader sells and buys at the same time. The trader basically feels that a share ABC which is priced at Rs.250 right now will go up to Rs. 550 till expiry dates. He goes for a put option in a hundred shares at the price of Rs. 200 and a call option for Rs.350. The premiums are 5 and 10 for both transactions.
Thus the trader has virtually made the entire Long Combo for 100 shares by spending Rs10-5=Rs 5. The total cost to the trader will be 100X5= Rs 500. The trader stands to gain tremendously but his losses will be limited.
It should be realized here that NSE options strategies are many and very complicated in actual performance. The markets have many factors which are not predictable. Global events like Tsunamis and wars have an effect on our share market. All predictions go wrong in the face of natural calamities. Anyone planning to use NSE options strategies should first trade in shares for at least a few years to gain insights into the practical aspects of the business.