One thing I’ve seen in all the conversations I’ve had with options traders, both seasoned and new, is that most view trading options as a hit-or-miss proposition.
When one begins an options trade, there is usually a sense of amusement, yet, many people are unaware of how detrimental this can be.
There are close to 475 option strategies, but in this chapter, we will discuss only some strategies you should know to understand the markets or stocks and map them with the right option strategy.
Here are the strategies that we will discuss:
Along with the above points, we will also discuss Max Pain for option writing, i.e. some key observations and practical aspects, and Volatility Arbitrage employing Dynamic Delta hedging.
One options strategy will be covered in each chapter so there is clarity and understanding over the strategy. This indicates that this module will consist of around 20 chapters. However, each chapter will be brief. I’ll go over each strategy’s history, execution, payoff, breakeven point, and potentially the best strikes to make.
Please bear in mind that while I will describe all of these methods using the Nifty Index as a benchmark, you can apply the same principles to any stock option.
The most crucial thing I want you to know is that this module cannot be considered as a Holy Grail. Nothing in the markets, including none of the tactics we discuss in this module, is a guaranteed way to make money. This lesson aims to examine a few straightforward but crucial tactics that, when used properly, can generate income.
Consider it this way: if you drive your car safely and well, you can utilise it to commute and ensure your family’s comfort. However, if you drive rashly, it could be dangerous for both you and anyone around you.
Similarly, these tactics generate income when used properly, if not, they might damage your P&L (Profit & Loss). I am responsible for ensuring you comprehend these techniques (help you learn how to drive a car). I will also explain the ideal circumstances in which you should apply these techniques.
But you have the power to make it work for you; this depends on your discipline and how much you understand the market. Having said that, I feel that as you spend more ‘quality’ time in the markets, your application of methods will improve.
Let’s now get started!