1.
Cover call Strategy
1. View = Buillish / +ve
a. Buy = Fut
b. Sell = OTM CE
1. View = Bearish / -ve
a. Sell = Fut
b. Sell = OTM PE
Advantages:
1. Stable Market Conditions: Execute
covered calls in stable markets to benefit
from premiums without excessive volatility.
2. Enhanced Income: Generate additional
income through premium collection,
boosting overall returns.
3. Risk Mitigation: Acts as a hedge, reducing
the overall risk of holding the underlying
stock.
4. Capital Preservation: Ideal when seeking
to protect capital while still participating in
the market.
5. Flexibility: Offers flexibility in choosing
strike prices and expiration dates based on
market outlook.
6. Time Decay Benefit: Time decay works in
your favor, eroding the option premium over
time.
7. Bullish to Neutral Outlook: Suitable for
mildly bullish or neutral market
expectations.
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2. Cover Put Strategy
1. View = Buillish / +ve
a. Buy = Fut
b. Buy = ATM PE
1. View = Bearish / -ve
a. Sell = Fut
b. BUY = ATM CE
Advantages:
1. Profit from Stock Decline: Generates
income if the underlying stock decreases in
value.
2. Risk Mitigation: Acts as a hedge,
offsetting potential losses in the stock's
value.
3. Flexible Strike Selection: Allows flexibility
in choosing strike prices based on market
analysis.
4. Premium Collection: Similar to covered
calls, covered puts generate income
through premium collection.
5. Bearish Market Participation: Suitable for
investors with a bearish market outlook.
6. Time Decay Advantage: Time decay
works in favor, eroding the option premium
over time.
7. Downside Protection: Offers protection
against declining market conditions.
8. Partial Stock Profit: If the stock declines,
you can buy back the put and retain the
remaining profit in the stock.
9. Versatility: Can be used as part of a
broader risk management strategy.
10. Leverage in a Downtrend: Provides a
degree of leverage in a market
characterized by a downward trend.
WhatsApp "XMA" to +91 8141 8382 44
& lean XMA which can help you find
breakout to execute option trade with
appx 1:3 RR ratio.
3. Call Spread Strategy
1. View = Buillish / +ve
a. Name = Long Call Spread
b. Buy = ATM CE
c. Sell = OTM CE
1. View = Bearish / -ve
a. Name = Short Call Spread
b. Buy = OTM CE
c. Sell = ATM CE
Advantages:
1. Limited Risk: Defined risk as losses are
capped at the initial premium paid for the
spread.
2. Lower Cost: Compared to buying a single
call option, call spreads require less upfront
capital.
3. Profit from Moderate Price Increase:
Generates profit if the stock's price
increases but within a specified range.
4. Reduced Time Decay Impact: Time decay
is less severe compared to buying a single
call option.
5. Flexibility in Strike Selection: Allows for
flexibility in choosing strike prices based on
market expectations.
6. Risk Mitigation: Acts as a risk
management strategy in a bullish market by
limiting potential losses.
7. Versatility: Can be adapted to different
market conditions by adjusting strike prices
and expiration dates.
8. Clear Exit Strategy: The defined risk and
reward structure provides a clear exit
strategy.
9. Combination of Premiums: By selling a
call option against a purchased call, you
offset some of the cost.
10. Partial Profit-Taking: You can close the
position early for a partial profit if your price
target is reached.
4. Put Spread Strategy
1. View = Buillish / +ve
a. Name = Long Put Spread
b. Buy = OTM PE
c. Sell = ATM PE
1. View = Bearish / -ve
a. Name = Short Put Spread
b. Buy = OTM PE
c. Sell = ATM PE
Advantages:
1. Limited Risk: Defined risk as losses are
capped at the initial premium paid for the
spread.
2. Lower Cost: Compared to buying a single
put option, put spreads require less upfront
capital.
3. Profit from Moderate Price Decrease:
Generates profit if the stock's price
decreases but within a specified range.
4. Reduced Time Decay Impact: Time decay
is less severe compared to buying a single
put option.
5. Flexibility in Strike Selection: Allows for
flexibility in choosing strike prices based on
market expectations.
6. Risk Mitigation: Acts as a risk
management strategy in a bearish market
by limiting potential losses.
7. Versatility: Can be adapted to different
market conditions by adjusting strike prices
and expiration dates.
8. Clear Exit Strategy: The defined risk and
reward structure provides a clear exit
strategy.
9. Combination of Premiums: By selling a
put option against a purchased put, you
offset some of the cost.
10. Partial Profit-Taking: You can close the
position early for a partial profit if your price
target is reached.
5. Synthetic Future Strategy
1. View = Buillish / +ve
2. Buy = ATM CE
3. Buy = ATM PE
4. Buy = Fut
1. View = Bearish / -ve
2. Buy = ATM CE
3. Buy = ATM PE
4. Sell = Fut
Advantages:
1. Cost Efficiency: Requires less initial
capital compared to buying the underlying
asset outright.
2. Leverage: Provides significant leverage,
allowing for amplified returns (and losses)
compared to owning the asset.
3. Flexibility: Allows for both bullish and
bearish positions through the use of call and
put options.
4. Reduced Capital Outlay: Lower upfront
cost compared to purchasing the actual
asset.
5. Defined Risk: Limited risk as the
maximum loss is the initial premium paid for
the options.
6. Profit Potential in Both Directions: Can
profit from both upward and downward
price movements.
7. No Margin Requirements: Unlike
traditional futures, synthetic futures don't
usually require margin accounts.
8. Adjustable Leverage: You can adjust the
level of leverage by choosing different strike
prices and expiration dates.
9. Versatility: Can be used as a speculative
tool or as a part of more complex trading
strategies.
10. Mitigates Timing Risk: The use of
options allows for more forgiving timing in
predicting price movements.
WhatsApp "XMA" to +91 8141 8382 44
& lean XMA which can help you find
breakout to execute option trade with
appx 1:3 RR ratio.
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Best Time to Execute:
1. Low Volatility: In a market with relatively
stable prices to maximize premium
collection.
2. Neutral to Slightly Bullish Outlook: When
you expect the underlying stock to maintain
or moderately increase in value.
3. Before Earnings Announcements: To
capitalize on heightened option premiums
before volatility increases.
4. Near Resistance Levels: If the stock is
approaching a resistance level, it might be a
suitable time to execute covered calls.
5. When You're Willing to Sell: If you're
comfortable with the possibility of selling
the underlying stock at the strike price.
Disadvantages:
1. Capped Upside: Profit potential is limited
to the premium received, missing out on
substantial gains.
2. Potential Stock Losses: If the stock
declines significantly, losses on the
underlying position may offset premium
gains.
3. Obligation to Sell: Obligation to sell the
stock at the strike price, limiting future profit
participation.
4. Opportunity Cost: Limits the ability to
fully capitalize on a rapidly rising market.
5. Market Timing Risks: Timing the market
can be challenging, and executing at the
wrong time may lead to losses.
6. Assignment Risk: There's a risk of the
option being exercised, forcing the sale of
the underlying stock.
7. Limited Downside Protection: The
premium received may not fully offset
potential losses in a declining market.
8. Transaction Costs: Commissions and fees
associated with trading options can reduce
overall returns.
9. Emotional Stress: Constant monitoring
and decision-making can be stressful for
some investors.
10. Market Fluctuations: Adverse market
movements can impact the value of both
the underlying stock and the option.
Best Time to Execute:
1. High Volatility Periods: When the market is
experiencing increased volatility, leading to
higher option premiums.
2. Bearish Outlook: During periods when you
anticipate a decline in the value of the
underlying stock.
3. Before Earnings Reports: To capitalize on
potential stock price drops associated with
earnings announcements.
4. Resistance Levels: When the stock
approaches resistance levels, indicating a
potential downturn.
5. Protective Strategy: As a protective
measure against an existing stock position
to hedge against potential losses.
Disadvantages:
1. Limited Profit Potential: Profit is capped at
the premium received, missing out on
potential gains.
2. Obligation to Buy Stock: There's an
obligation to buy the stock if the put option
is exercised.
3. Potential Margin Requirements:
Depending on the broker, executing covered
puts may involve margin requirements.
4. Market Timing Risks: Timing the market
correctly is crucial, and mistimed execution
may lead to losses.
5. Transaction Costs: Commissions and fees
associated with options trading can reduce
overall returns.
6. Opportunity Cost: Limits potential gains if
the stock experiences a significant rally.
7. Emotional Stress: Regular monitoring and
decision-making may cause stress for some
investors.
8. Unlimited Losses in a Stock Rally: If the
stock price rises significantly, losses can
accumulate.
9. Assignment Risk: There's a risk of the
option being exercised, leading to the
obligation to buy the stock.
10. Requires Active Management: This
strategy necessitates ongoing attention and
adjustments based on market conditions.
Best Time to Execute:
1. Low Volatility Periods: During times of
relatively low market volatility to benefit
from lower option premiums.
2. Bullish Outlook: When you expect a
moderate increase in the value of the
underlying stock.
3. Before Expected Price Surges: Prior to
anticipated events or news that could lead
to a bullish market movement.
4. Support Levels: When the stock is
approaching support levels, suggesting
potential upward momentum.
5. Options Expiry Optimization: Executing
with a timeframe that aligns with your
outlook and objectives.
Disadvantages:
1. Limited Profit Potential: Profit is capped at
the difference between the strike prices,
minus the premium paid.
2. Possible Loss of Entire Premium: If the
stock price doesn't move favorably, the
premium paid could be lost entirely.
3. Underperformance in Strong Rally: May
underperform in a significant stock price
rally as gains are capped.
4. Potential for Assignment: There's a risk of
being assigned the short call, obligating you
to sell the stock.
5. Transaction Costs: Commissions and fees
associated with options trading can impact
overall returns.
6. Market Timing Risks: Timing the market
correctly is crucial for the strategy's
success.
7. Requires Active Management: Monitoring
and adjusting the position may be
necessary based on market conditions.
8. Not Ideal in High Volatility: In highly
volatile markets, the strategy may be less
effective due to increased option premiums.
9. Rolling Costs: Rolling the position to a
later expiration may incur additional costs.
10. Potential for Early Assignment: The short
call option may be exercised early, leading
to an obligation to sell the stock.
Best Time to Execute:
1. High Volatility Periods: During times of
increased market volatility to benefit from
higher option premiums.
2. Bearish Outlook: When you expect a
moderate decline in the value of the
underlying stock.
3. Before Expected Negative Events: Prior to
anticipated events or news that could lead
to a bearish market movement.
4. Resistance Levels: When the stock is
approaching resistance levels, suggesting
potential downward momentum.
5. Options Expiry Optimization: Executing
with a timeframe that aligns with your
outlook and risk tolerance.
Disadvantages:
1. Limited Profit Potential: Profit is capped at
the difference between the strike prices,
minus the premium paid.
2. Possible Loss of Entire Premium: If the
stock price doesn't move favorably, the
premium paid could be lost entirely.
3. Underperformance in Strong Decline: May
underperform in a significant stock price
decline as gains are capped.
4. Potential for Assignment: There's a risk of
being assigned the short put, obligating you
to buy the stock.
5. Transaction Costs: Commissions and fees
associated with options trading can impact
overall returns.
6. Market Timing Risks: Timing the market
correctly is crucial for the strategy's
success.
7. Requires Active Management: Monitoring
and adjusting the position may be
necessary based on market conditions.
8. Not Ideal in Low Volatility: In low-volatility
markets, the strategy may be less effective
due to lower option premiums.
9. Rolling Costs: Rolling the position to a
later expiration may incur additional costs.
10. Potential for Early Assignment: The short
put option may be exercised early, leading
to an obligation to buy the stock.
Best Time to Execute:
1. Strong Market Trend: During periods of a
clear and strong market trend for better
directional accuracy.
2. Anticipated Price Movement: Before
expected significant price movements to
capitalize on the expected trend.
3. Volatility Expansion: In times of increased
market volatility for enhanced option
premiums.
4. Economic Events: Prior to anticipated
economic events that could impact the
underlying asset's price.
5. Options Expiry Optimization: Executing
with a timeframe that aligns with your
market outlook and objectives
Disadvantages:
1. Time Decay Impact: Options experience
time decay, which can erode the value of
the position over time.
2. Limited Upside in Strong Trends: Profits
are capped, limiting gains in a strong and
sustained market trend.
3. Potential for Loss of Premium: If the
anticipated price movement doesn't occur,
the premium paid could be lost.
4. Complexity: Requires a good
understanding of options and their pricing
dynamics.
5. Transaction Costs: Commissions and fees
associated with options trading can impact
overall returns.
6. Risk of Early Assignment: The short
option may be exercised early, leading to an
obligation to buy or sell the asset.
7. Market Timing Risks: Timing the market is
crucial for success, and mistimed execution
may lead to losses.
8. Limited Dividend Capture: Does not
capture dividends, unlike owning the actual
asset.
9. Rolling Costs: Rolling the position to a
later expiration may incur additional costs.
10. Not Suitable for All Investors: Requires
careful risk management and may not be
suitable for all investors.
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