In this article, I am going to explain best nifty option selling strategy. This is a weekly strategy and this will give 5% range which is really huge for a week so its safe strategy. As all you know nifty is the main index of india and lots of people trade in nifty. To trade in nifty we have to use future and options we can not trade index. So to become a profitable in any business we have to consider probability. In trading, every segment has a 50% chance of success, but option selling stands out with a 66% chance of being profitable. As traders, we understand that a stock or index can only move in three directions: up, down, or sideways. To illustrate, consider starting any business you have a 50% chance of making a profit. If you’re unable to sell your product, you’ll face a loss, which is true for all types of businesses. However, by focusing on high-probability strategies, your chances of success increase compared to a 50-50 approach. Now, come to main point when you enter in any stock, you’ll either make profit or loss, but with option selling you have a 66% chance of being profitable. This is one of the few businesses in the world where you can have such favorable odds.
What is Option Selling
In share market there are two types of people one is buyer and another one is seller. Buyer will buy underlying asset or premium from seller and seller will receive the premium. Once seller sell that particular premium, seller is having maximum profit of premium received, but buyers can get unlimited profit because he pays only premium to seller and buyer can loose only premium amount, That profit for buyer becomes loss of seller. But here comes probability concept as buyer has to consider so many factors while trading and can not make mistake because theta, delta, volatility, movement and many more factors are against to buyers so the winning probability is 33% only. Buying the option means option buying and writing/selling the particular option meaning option selling.
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Nifty Option Selling Strategy
This strategy gives 8-10% monthly return by giving max to max 20 minutes in a month. Any working or non-working people can deploy this strategy and can generate 8-10% profit on deployed capital by giving less screen time. for this you required atleast 75000 Rs on your demat account. The key point of this strategy is range, this provides total 5% range, 2.5% from up and same for down side from current market price.
Things to consider while deploying strategy:
- Capital Required: 75000
- Holding time: 1 week
- No adjustment required
- Always use in nifty
Strategy:
On every thursday nifty has weekly expiry so we are going to build this strategy on every friday for next week expiry. for example today is friday and date is 13 then current expiry will be on coming thursday i.e. 19 but we are going to sell option for next expiry i.e. on 26. To choose strike price always pick 2.5% above and 2.5% below from current market price. lets assume nifty is at 26000 then choose strike price of 26650 call and 25350 put, you have to sell both call and put. To sell it you require 75000 margin, and you will get around 2.5% to 3% profit on utilized capital. Remember whenever you will see 1.5% net loss in position then we are going square off this position. you are getting total 5% range and I have backtested the nifty in last 3 years it has moved more than 5% only once that too because of election news. One important point you should know, whenever major event is coming in particular week don’t deploy this strategy because of volatility your stoploss will get hit so better to stay away when major event is ahead like election results, RBI Policy, news of war or any sensitive news which impacts on market. you have to exit from strategy when next monday comes i.e. on 23. So we are actually eating theta decay of two weekends and then exiting the position when stoploss has not hit.
On every friday you deploy this strategy and every monday exit from strategy to do this you should have 150,000 capital, otherwise you have to wait for next friday to come so instead of making 10% per month you will make 5% from 75000. So keep 150000 amount in your trading account and you can make 15000 per month by taking very low risk. Probability of profit is more than 75% in this strategy. To know current market price of nifty click here. This is the best nifty option selling strategy.
Point to Remember
- Always follow strict stoploss
- Don’t hold trade till the expiry, always square off on monday
- Deploy only on friday
- Range should be atleast 5%
- Avoid event weeks
- Once you achieve 2 to 2.5% in a week then exit
FAQ’S
Option Buying vs Option Selling
Call options and put options are two different strategies with different risk characteristics. In a call option, the buyer pays a premium in exchange for the right to buy (call) or sell (put) the asset at a specified price within a specified time period, with the potential to make no profit but to lose (at that price). In contrast, a put option will receive an upfront premium in exchange for the assumption that the contract will be fulfilled upon exercise. While option sellers have a greater chance of making a profit due to the break-even period and the fact that many options expire worthless, they also face unlimited risk and lower fees. Options tend to have lower risk and more potential, while put options have more equity but more risk.
What is option selling?
Option selling is a strategy in which the seller gives the buyer the right but not the obligation to buy (call) or sell at a certain price during a certain period of time. In return, the seller receives an upfront payment. The goal is for the option to expire without being charged, allowing the seller to lock in the price relative to the proceeds. However, put options carry significant risk because if the buyer exercises the option, the seller may be forced to buy or sell the asset, which could result in a loss, especially if the market moves against the seller.
How much margin required for option selling?
The margin required to sell an option depends on many factors, including the broker, the type of option (call or put), whether the option is covered or naked, and the volatility of the asset. Generally speaking, the margin for selling unsecured (naked) options should be higher because the downside is unlimited. Operators typically calculate interest based on the difference between the realized value and the current value of the asset, as well as a percentage of the asset’s value. For example, margin requirements can range from 10% to 20% of the contract value. Additionally, regulators (such as exchanges or government agencies) may set minimum requirements to ensure that there is enough capital to cover capital losses.
How option selling works?
Option selling works by way of permitting the seller, or writer, to provide the buyer the right to buy or promote an underlying asset at a distinct charge before a hard and fast expiration date. In return, the vendor collects a premium from the customer upfront. The seller income if the option expires worthless, that means the market fee of the asset would not attain a degree in which the buyer could exercise the choice. However, if the purchaser exercises the choice because of favorable fee actions, the vendor must fulfill the settlement, doubtlessly incurring giant losses if the marketplace moves sharply against their position. Time decay and the natural expiration of options often paintings in choose of the vendor.
Why option selling is better than option buying?
Option selling is often taken into consideration better than option buying for because it gives a better possibility of earnings due to the effect of time decay (theta). When selling an option, the seller blessings as the choice loses value over time, particularly if the market moves in direction or stays sideways. Additionally, most options expire worthless, allowing the seller to keep the premium. While option buying offers the potential for unlimited profits, it requires the market to move significantly in the buyer's favor, which happens less frequently. Option selling, on the other hand, provides consistent, albeit smaller, returns with the potential for higher win rates, though it does come with the risk of larger losses if the market moves drastically against the position.
How to reduce margin in option selling?
To reduce margin requirements in option selling, traders can use several strategies. One effective method is to sell covered options, where the seller owns the underlying asset, which typically lowers the margin since the risk is reduced. Another approach is to use spreads, such as bull call spreads or bear put spreads, where traders simultaneously buy and sell options at different strike prices.
Disclaimer
The information provided in this article is for educational purpose only and does not constitute financial advice. Investors should research and consult with a financial advisor before making investment decisions. In this article we are just providing the expected result on the basis of past returns, so don’t consider it as a advise just learn from this article. To know more about investment and finances, Click here. To know more nifty option selling strategy follow us.