1. Covered Call Writing. Covered call writing is a strategy where the trader owns shares of a stock and sells a call option on the same stock. This approach allows the trader to generate income from the option premium while holding the underlying asset, effectively reducing the cost basis of the stock.
Some low risk options strategies that we could recommend are selling a put spread, selling a call spread, and relying on a collar strategy. Compared to mere options selling, the collar strategy can further protect against downside risk.
Short Box is one of the most effective options strategies that comes with no risk.
Two of the safest options strategies are selling covered calls and selling cash-covered puts.
The safest options strategy is the covered call where a trader holds a long position in an asset and sells call options on the same asset to generate income.
Short selling options
In the case of a short call options position (see figure below), the trader has the obligation to sell the stock at a set price, known as the strike price, and is taking on unlimited risk because there's no limit to how far a stock can climb.
The Bank Nifty no loss strategy is designed to protect traders from incurring significant losses while participating in the Bank Nifty index. The core principle of this strategy is to use options to hedge against potential downsides.
One strategy that is quite popular among experienced options traders is known as the butterfly spread. This strategy allows a trader to enter into a trade with a high probability of profit, high-profit potential, and limited risk. The basic butterfly can be entered using calls or puts in a ratio of 1 by 2 by 1.
Only 10% of traders make money, and the remaining 90% end up in a loss. There is a 25% chance of losing your investment and a 75% chance of profit.
Buying a Call
Buying (going long) a call is among the most basic option strategies. It is a relatively low-risk strategy since the maximum loss is restricted to the premium paid to buy the call, while the maximum reward is potentially limitless.
You can get started trading options by opening an account, choosing to buy or sell puts or calls, and choosing an appropriate strike price and timeframe. Generally speaking, call buyers and put sellers profit when the underlying stock rises in value. Put buyers and call sellers profit when it falls.
You should invest through the systematic investment plan (SIP) approach. Even these equity mutual funds are not an ABSOLUTLY safe investment, since equities do carry risk. However, when you adopt an SIP approach, you are investing a small sum of money on a periodical basis.
The most common options trading strategies to generate income are covered calls and cash-secured puts. A covered call involves selling a call option on an underlying asset that you own, and the premium collected from the sale of the call option provides income.
Best option strategies for beginners
Single-leg call and put options are generally a great place to start if you're new to options trading. Debit spreads and credit spreads are also good for beginners looking to take the next step and build slightly more complex strategies with defined risk/reward profiles.
The bear butterfly is basically an adjusted butterfly spread (a neutral options trading strategy) that is designed to profit when the outlook on a security is bearish. Traders will typically use this strategy if they expect that a security is going to go down in price and are confident about how much they will drop.
However, the potential theoretical profit of the long call strategy is unlimited. In contrast, the long put strategy has a limited potential profit because the stock price cannot fall below zero.
To become successful, options traders must practice discipline. Doing extensive research, identifying opportunities, setting up the right trade, forming and sticking to a strategy, setting up goals, and forming an exit strategy are all part of the discipline.
The option sellers stand a greater risk of losses when there is heavy movement in the market. So, if you have sold options, then always try to hedge your position to avoid such losses. For example, if you have sold at the money calls/puts, then try to buy far out of the money calls/puts to hedge your position.
Expiry dates for both options are December 08 2022. The drawback of this strategy is that it has a potential of unlimited loss if Bank Nifty moves beyond 43000 or 43200. Unlike the Long Strangle trade, the probability of profit in a Short Strangle trade is 53.24% percent.
The Expiry Day Option Selling Strategy involves selling options on the last trading day before they expire. Traders use this approach to earn premiums from options that are likely to expire worthless, capitalizing on time decay. This strategy carries lower risk compared to buying options.
In the case of call options, there is no limit to how high a stock can climb, meaning that potential losses are limitless.
You may ask yourself, “When should you sell your options at what profit?” As a rule of thumb, if you see a quick appreciation of your option's value, considering that selling options cannot lead you to earn more than the 100% of the premium, it may be wise to sell the option and take profits while you can.
Many believe that options are inherently riskier than stocks, but this isn't always true. In fact, options can be less risky than directly buying or selling stocks if used correctly. In this article, we'll explore why options might be a safer choice and how they can be used effectively.