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Option strategies that work in India

PostPosted: Fri Dec 26, 2008 10:26 pm
by iim_2010
A retail option trader in India has to suffer from relatively high trading costs, security transaction taxes and high margin requirements. A short position in Nifty requires a margin of approx. Rs. 20,000, and a single trade sets you back by Rs. 150 on taxes. Therefore, traders prefer a strategy that lets their position expire, over the one that relies on temporary sharp moves and requires closure of the position. They prefer something steady and 'low risk' (note the quotes).

Nifty is at ~ 2850 as I write this.

If you don't have much investment in stocks, and feel that market will not go down much, use Short Put strategy - http://www.optiontradingtips.com/strate ... ption.html Selling Nifty Jan 2500 Put will give you Rs. 46.95 (~ Rs. 2300, lot size is 50) http://www.nse-india.com/marketinfo/fo/ ... ?key=NIFTY In return, you are exposing yourself to the risk of compensating the other person by 50 X (2500 - NiftyValue), which means that if nifty closes at 2400 anytime before expiry (29th Jan 09) - you have to pay back Rs. 5000 ( 50 X {2500 - 2400} ) If nifty stays above 2500, you can keep the premium - Rs. 2300. This has a good probability as falling to 2500 represents 12% fall in a month, which is unlikely although can't be completely ruled out.

If you have large investment in stocks, and feel that the market will not go up by much, use covered call strategy - http://www.optiontradingtips.com/strate ... -call.html Selling Nifty Jan 3200 Call will give you Rs. 34 (~ Rs. 1700) If market stays below 3200 you can keep the Rs. 1700, but if it reaches 3300 - goes above that strike price by 100 - you loose 50 X 100 = Rs. 5000 However, you will have made a good profit on the stocks you hold.. a pretty good assumption if you hold good stocks.

There are many other strategies that you can try depending on what your view is. Sadly, there's no strategy where you can always make money without risk!