Top 5 Best Options Trading Strategies in India

Being an investor in the stock market, everyone would choose to invest in stocks that have less risk exposure. Here is where, an investor should beware of the various options strategies that help the investor to manage risks and enhance returns. Unlike Futures, options trading is asymmetric and the buyer would enjoy limited risk and unlimited return potential.

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However, in this blog we’ll be discussing the how to do options trading in India. Also, the top five options trading strategies that would be helpful for an investor to reduce the risk exposure and gain exceptional returns for your investment.

 

How to Do Options Trading in India?

What is Option Trading?

The clue really is in the name.  Rather than buying and selling commodities, currency, shares etc on the day itself, buying an Option quite literally secures you the Option of buying or selling a commodity, currency, shares at a specific time in the future for a price which is set at the time the option is purchased.

Let us consider an example; On the 4^th March 2024 you may be able to purchase an OPTION that will secure you the right to purchase a share in a company for Rs.145 (the ‘strike price’) until 8^th April 2024 (the expiration date).  The price to purchase the share outright today on 4^th March 2024 may be Rs.146, so why not buy it outright today?  Careful studying of the markets may give you reason to believe that the share value will have increased substantially by 8^th April.  Maybe you predict that the share price will have risen to Rs.510 in that time.  When the time arrives, you will still have your option that you purchased on 4^th March which allows you to buy the share for the agreed price of Rs.145, thereby making a saving for you.  The most useful part of buying options is the fact that they are by their very nature, optional.  Going back to the same example, imagine that after 4^th March, the share prices take a slide and by 8^th April they are only valued at Rs. 141, you would not be forced to purchase the share at Rs.145.  You can choose to, but it is optional.

Realistically you would seriously consider whether or not you wanted to buy shares in this company at all.  You are at liberty to decide not to make use of your option, buy the shares outright at the going rate on 8^th April, or simply decline to buy at all.  Options to buy currency will state how much currency you can buy with how much of another currency, options to buy commodities will state how much quantity of a commodity you can purchase at what price.  They are always time-bound, meaning that they have a date that is set in the future.  When that date arrives the option can be acted upon, or not.  If not then it will simply expire and cannot be brought back.  If you allow an option to expire you will not be refunded the amount you actually purchased the option for, so that would be a loss.  The example we have described here where the buyer of the option buys the right to buy something is called a “call option”.

In just the same way that we have seen in the first example, Options to sell also exist as the exact opposite.  These kind of options where the buyer of the option buys the right to sell something are called “put options”.  Let’s assume you were holding a share in a company that was currently valued at Rs.111, which you believe to be overpriced (as you anticipate it to be dropping in the future).  You could buy an option to sell the share at Rs.111 with an expiration date set into the future.  Once the expiration date arrives, the value of the share could have gone down, say to Rs.105, but you can exercise your right to sell it at the original agreed strike price of Rs.111.  If the value of the share should have unexpected risen though, you could choose not to exercise your right to sell, choose to keep your share, let the option expire, and live with the fact that you wasted money buying the option.  In this way options can be seen as way of limiting loss, as you only ever really stand to lose the cost of purchasing the option itself.

Now that you have learned the meaning of options trading, you may well be wondering how to do options trading in India.  It is something that is available to everybody providing you have some funds to invest.  However it would not be wise to jump straight into option trading without having learned some options trading strategies.  This may not be the easiest form of trading for beginners.  Even experienced traders should definitely speak to an expert in the field of options trading before deciding if they wish to try it themselves.  There are any number of options trading brokers in India 2023.  How do they differ, and which one is right for you?  You are encouraged to speak to several and use the information they provide to help you make an informed decision as to whether you wish to engage in options trading and who you would like to use as your broker.  A great starting point would be chat to the friendly and helpful staff at GOODWILL INDIA who will be only too pleased to receive your call.

 

Top 5 Options Trading Strategies

1. Protective Put Strategy:

Protective put is an effective risk management strategy using options contract. An investor implementing the protective put strategy guards against the loss in a stock or other assets. Protective put strategy also offers downside protection in the event price of the asset declines.

2. Covered Call Strategy:

The covered call option strategy is used to generate income in the form of options premiums. This options strategy involves selling call options that have the right options to buy against stocks. In covered call options, you can also generate additional income from the shares.

3. Butterfly Strategy:

The butterfly options strategy is a non-directional option strategy with limited risk and has higher potential to earn limited future based on the volatility of future underlying assets. The butterfly strategy combines protective and covered call strategy to reduce the net cost of the put option purchased.

4. Bull Call Spread Strategy:

The bull call spread strategy is used when the investor is moderately bullish on the stock. In this strategy, you can buy the call option of a lower strike and sell the same stock at the higher strike. A bull call spread is designed to benefit from a stocks limited increase in price.

5. Long Strangle Strategy:

In long-strangle strategy, the investor would buy an out of the money call and an out of the money option. The price of the call option is comparatively higher than the put options assets. This option strategy is a high cost strategy and must be used only when you are confident of a large move.

Opt to implement Options Trading:

As an investor you can opt to invest in the options strategies as they possess less risk and higher return potential. Therefore, while choosing the option contracts, an investor must analyze whether the stocks fulfills the requirements to meet the financial goals.

If you’re in need of a market expert, who could guide you wisely in option contract, then it’s time to meet Goodwill. Goodwill is recognized as one of the best brokerage firms in India that offers expert strategies to its valuable investors at the lowest brokerage fee with exceptional customer support and live training sessions. Click here to Open your free DEMAT Account with Goodwill today!

For more info, visit the official website of Goodwill or make a call on +91 80122 78000 to trade your stocks smartly and efficiently. Stay connected with Goodwill’s Facebook Page and get instant live updates on your stocks.