Options trading is now one of the most popular things to do in the Indian stock market. This is especially true since weekly index options like Nifty and Bank Nifty were added. Options have become the most popular tool for both retail and institutional traders because they require less capital than futures and can be used to create strategies that work in any market condition.
But options are hard to understand. Not only does the direction of the underlying index or stock affect them, but so do time decay, volatility, and option Greeks. Indian traders who want to be successful in options trading need to do more than just buy calls or puts; they need to use strategies that have worked in the past.
This article looks at the five best options trading strategies for Indian traders, including how to use them, their pros and cons, and examples from the Indian markets.
Why strategies are important in options trading
Options trading has risk-reward profiles that are not straight lines, unlike futures trading. A buyer of options can have limited risk but unlimited profit potential. A seller of options, on the other hand, may make steady premiums but face unlimited risk.
This structure makes strategies useful for traders:
Make sure your trades match the market's outlook (bullish, bearish, or neutral).
Limit risk while maximising possible reward.
Make money in sideways markets where trades that go in one direction might not work.
Hedge your current equity or futures positions.
Indian traders can better handle risk and adapt to changing conditions by learning how to use strategies.
First strategy: Long Straddle
What It Is
To do a Long Straddle, you buy one ATM call option and one ATM put option on the same underlying asset, with the same strike price and expiration date.
This is a volatility strategy that makes money when prices move sharply in either direction.
When to Use
Before big events like the Union Budget, RBI policy announcements, election results, or big corporate earnings.
When implied volatility is low but likely to go up.
Example (Nifty)
Let's say Nifty is worth 22,000. A trader buys:
22,000 calls at 150
22,000 put at 140. Total cost is 290 points.
The call is worth 500 if Nifty goes to 22,500, and the put is worth 0. Nett profit = 500 – 290 = 210.
The put goes up to 500 and the call goes down to 0 if Nifty drops to 21,500. Nett profit = 210.
If Nifty stays around 22,000, both premiums will go down, which means a loss.
Pros
There is no limit to how much money can be made on either side.
Easy to put into action.
Cons
Costs a lot because of the double premium.
Time decay hurts if the underlying stays in a range.
Strategy 2: Call with a Cover
What It Is
A Covered Call means buying a call option on the same asset while also holding a long position in the underlying stock or futures.
This is a way to make money if you think the market will stay the same or go up a little.
When to Use
When you have a stock or futures position for a while.
When you think the stock or index will stay in a certain range.
Example: Reliance Industries
A trader has Reliance shares worth ₹3,000. He sells a 3,100 Call for ₹50.
If Reliance stays below 3,100, the option is no longer valid and the trader keeps the premium.
If Reliance goes above 3,100, he makes money on the stock but loses money on the call, which means he can't make more than 3,150 (3,100 + 50).
Pros
Makes money on a regular basis through premiums.
Lowers the cost of owning the stock.
Disadvantages
There is a limit on how much upside there is.
If the stock price drops a lot, the premium doesn't fully make up for the losses.
Strategy 3: Bull Call Spread
What It Is
When you do a Bull Call Spread, you buy one call option with a lower strike price and sell another call option with a higher strike price, both of which expire at the same time.
This is a moderately bullish strategy with a low risk and a high reward.
When to Use
When you think the underlying will slowly go up.
When option premiums are high and traders want to save money.
Bank Nifty is an example.
The Bank Nifty is at 48,000. Trader:
Purchases 48,000 Call at 400.
Sells 48,500 Call at 200.
The total cost is 200.
If Bank Nifty goes up to 48,500, the payoff is 500 – 200 = 300.
If Bank Nifty stays below 48,000, the loss is only 200.
Pros
Less expensive than buying a naked call.
Low risk.
Cons
There is a limit on how much profit can be made.
Needs a correct call on direction.
Strategy 4: Bear Put Spread
What it is
A bear put spread is the opposite of a bull call spread. It means buying a put option with a higher strike price and selling another put option with a lower strike price, but the same expiration date.
This is a moderately bearish strategy with little risk and little reward.
When to Use
When you think the underlying will slowly go down.
When premiums are high and traders want to lower the cost of outright put buying.
Example (Futures for Infosys)
Infosys is worth ₹1,600. Trader:
Buys 1,600 Put for ₹40.
Sells 1,550 Put for ₹20.
The nett cost is ₹20.
If Infosys drops to ₹1,550, the payoff is 50 – 20 = ₹30.
If Infosys stays above 1,600, you lose ₹20 (the premium you paid).
Pros
Less expensive than buying outright.
There is a limit on risk.
Cons
Not much profit.
Not useful in sharp crashes where bigger gains are possible.
Strategy 5: The Iron Condor
What It Is
An Iron Condor is a strategy that doesn't depend on the direction of the market. It involves selling one out-of-the-money (OTM) call, buying another OTM call, selling one OTM put, and buying another OTM put.
It makes money in range-bound markets where time decay helps the seller.
When to Use
When you think the market will be stable and not move much.
Often used on indices like Nifty or Bank Nifty when they are in a period of consolidation.
For example, Nifty
Nifty is at 22,000. The trader does:
Sell 22,200 Call for 100
Buy 40 Call at 22,400
Put 21,800 on sale at 90
Buy 21,600 Put for 30
The nett premium collected is 120.
If Nifty stays between 21,800 and 22,200, all options will be worthless, and the trader will keep ₹120 in profit. If Nifty breaks out of the hedged range, you will lose money.
Pros
Makes money in markets that are stable.
Hedges lower the risk.
Disadvantages
Needs to be carefully adjusted if the market gets unstable.
There isn't much room for profit.
A Comparison of the Five Strategies
Straddle is the best option for high-volatility expectations, but it costs a lot.
Covered Call is good for people who own stocks and want to make money.
Bull Call Spread is best for people who are somewhat bullish.
Bear Put Spread works when you think the market will go down a little.
Iron Condor is great for markets that are going sideways because it gives you steady income.
No one strategy is better than all the others. The secret is to make sure that the strategy fits with how the market sees things, how volatile things are, and how much risk you can handle.
Things to think about when it comes to risks
These strategies help you deal with risk, but they don't get rid of it completely. Some common mistakes that Indian options traders make are:
Not thinking about how time affects options when you buy them.
Selling options without hedges puts them at risk for an unlimited amount of money.
Trading stock options that aren't very liquid and have big bid-ask spreads.
Not taking into account transaction costs and taxes, which are big deals in high-frequency strategies.
It's very important to manage risk properly, which includes things like stop-loss orders, hedging, and capital allocation.
In conclusion
Options trading gives Indian traders more freedom than any other type of trading. They can make money in bullish, bearish, and neutral markets. The five strategies listed—Long Straddle, Covered Call, Bull Call Spread, Bear Put Spread, and Iron Condor—are some of the most popular and reliable.
For people who are just starting out, spreads and covered calls are good ways to get started with little risk. Straddles and iron condors are tools that experienced traders can use to make money when the market is volatile or stuck in a range.
In the end, the key to success in options trading is not chasing quick profits, but following the rules, knowing how the market works, and managing risk carefully. Indian traders can navigate the growing derivatives market with more confidence and make more money if they learn these five strategies and use them consistently.
