Stock market across the world work in almost similar manner. In India we have a rule to settle the future and option in physical form , that is in the form of shares.
For the index there will be cash settlement. Due to this we Indians can use this settlement way to try different option selling strategies.
Stock market is one of the best place where you can invest your money to gain some returns , it has the potential to give more returns than the fixed deposits or any other safe investment. But there are some investment risks involved, do asses your own risks and study before making any investments.
In this post I would like to share how I being an option seller try to get some returns out of my investment. Below are some of my strategies that I follow and I will share more in the upcoming posts.
Selling a naked call option :- Many of the times I try to sell the naked call option , this way the premiums I get are the maximum and I prefer to sell the deep out of the money call option for this. I prefer to sell options for the index and out of which I prefer banknifty for the same.
Bank nifty has a lot of 25 units.
Whenever I sell a call option I prefer it for the weekly expiry this way I get the one week time and if the market is up trending it still take time to reach the value for which I have sold the option and giving me profit , but if my strike becomes in the money I am ready to take the losses as well.
However , selling a naked call is best when the market is either in the downtrend or in the sideways and is riskier when the market is uptrend.
Selling a covered call option :- Recently when the market fell due to the corona virus issue , I planned to create a portfolio. I purchased the sbi banknifty etf worth four Lakh rupees , now I wanted to make more out of it hence I decided to sell the call option for the upper price. This is known as the covered call. I have a portfolio and I will sell it at a decided price , I sells a call for that price. Now let us consider how the price behavior makes me profit/loss.
case 1 : If price of banknifty remains side ways :- If the market remains side ways my call becomes out of the money and on expiry I get the premium amount, I uses that amount to buy more units of the banknifty etf.
case 2: If the price of banknifty goes down :- If the price of the banknifty goes down in that case, my portfolio amount also goes down and causes me loss, whereas the call option I sold gets out of the money and I get the premium for the same, I further uses that premium to buy more units of the banknifty and hence average out my buying price.
case 3: If the price goes up :- If the price move up from the strike price for which I sold the call , my portfolio value also increase but the call will start giving me loss. I can square off both at the expiry and still be in the profit , but this way I will have to sell my portfolio.
well , in this post that is all for now , but do remember this blog is just for the educational purpose , do not make any investment decisions based on my experiences , do study and analyze on your own and consult your financial advisor before making any decision.
On the upcoming posts I would like to share my recent trades and my learning and thoughts about the reason I chose that strategy.
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