Well, today your excitement is going to increase a lot because Kunal sir is going to give you his favorite strategy in options, the way he trades himself and how you can also use this strategy to increase your profits.
So Kunal ji, please west art and learn from you your favorite option strategy. See Pushcart, like there are many ways to reach God, there are many models of trading. And this model is such that it is consistent and the biggest thing in option trading is that your model should be consistent.
Everything should be defined in it, where to take entry, where to exit, how to keep stop loss, how to protect your risk, everything should be laid out. So it is easy to test such strategies and it is also easy to trade on it. So today we are talking about such a strategy. Now you can use this strategy on the index and you can also do it on the selected stocks. Choosing strategy means that such stocks that are not very volatile, whose effect is like some index, you can use it on them.
If you use it on such a stock, then it will not be good on a share like SRF or on a share like REC. But if you do ion such a stock like Merico, Indian Unilever, ITC, which is a big share, it is less up and down, then you can use this strategy there. So you can do this strategy at different timeframes. This chart you are seeing is Nifty’s 30-minute chart. So let’s use it on Nifty and show you. We are using special indicator in this, which you get on Trading View.
Bandit is a very interesting indicator. It is called Kilter Channels. So Kilter Channels like you will write here, Kilter Channel, then you will see it. So use the Kilter Channel built-in. And when you are using it, then the first Kilter Channel we are putting here, you will have to show it like this. This is Kilter Channel.
The line you are seeing in the middle is the moving average of 10 periods. So when you put Kilter Channel on the screen, you see three lines like this. You can see a band. The line in the middle of this band is the moving average of 20 periods.
And two lines are put on a percentage difference. So Kilter Channel is basically a percentage band. And you can put it in any software very easily. We are seeing it on Trading View.
This is a 20-period KeltnerChannel. And the difference you are seeing is 2%. So using this, the difference you are seeing here, using this, we get band. Now you have to see that when the close is coming on the30-minute chart after passing Kilter Channel. Like you saw the close coming here. So let’s start from here.
We will see old examples later. If you see from here, and see this, I am talking in the context of weekly expiry because we are looking at the 30-minute chart. If you trade monthly expiry, suppose you are trading a stock, then you will trade monthly expiry there. So instead of 60 minutes, use it on the daily chart. We are looking at this on the 30-minute chart and talking in the context of weekly expiry.
So see, as soon as this breakout came to you, at that time, you have to sell the put of the strike near the lower band of Kilter Channel. So if there is a breakout above, you will sell the put, that is, you will sell the put interim Bazaar, you will sell the call in Mandy Bazaar. So thesis how it is seen. And the best thing about this is that until the price does not go below the band, it holds the position.
If the put is sold at a very far distance, then you have a cushion. And if some time passes, and because you are trading keeping the trend in mind, if some time passes, then typically the time decay of that put happens, and you get profit every week. You have Tobe careful in this that when you see this band flat, this strategy does not work at that time, and you do not have to take entry at that time.
So you have to take entry when you see an angle in this. If there is a gradient going up, then you will sell the put there, and if there is a gradient going down, then you will sell thecal there. So you get trade on both sides, and you can sell this as a single option. So you do not need a margin of 2, you need a margin of a single option.
You are selling put or call. If you want to make it better, then you can put another Kilter channel in i.e. have put another Kilter channel in it. The second Kilter I have put, its multiple is more. Now I will show you once so that the viewers can understand. So if you look at its settings, then here the multiplier is 1, which I put the first Kilter, and its multipliers 2.
The rest is the same. The rest is the same. So it is a 20 period Kilter, the first multiplier is 1, the second multiplier is 2. So we get two bands. Now see the benefit of the second band is that from this band we know which put we have to buy. So suppose you sold put here, and you also bought the put of the strike below. Hedging has happened.
So what happens with this is that the margin requirement decreases. Because if you are selling naked option, then the margin is more. But if you have bought the second option of the same expiry, then your margin requirement decreases. So the return on investment in the net increases. And there is more safety.
You get mental satisfaction that my risk is defined. So this is the benefit. If you are a new trader, then I would advise you to always buy options. So my question will come here. Let’s talk about this. The green candle that gave breakout to the top.
You remove this white one for a minute. Because we are using it only for hedging. So it gave breakout to the top. I sold the put below. Now it came down again, came inside the band.
So when do I need to think inside it that I should do something else. Right. Now one thing is that you have to do the first reaction when it goes below the band. Break the band. Like if I go here, there is a break coming here. No, no, no. Band means closing. Yes, it should be closed. The second thing is that when you sold here, the strike price must have been very low.
So even if the band breaks, it does not make much difference on that option. So if you do a back test, you will find that you leave very rare situations. That is, there must be one such incident in two months where the price suddenly goes down by breaking the band or there is a gap down suddenly.
So in that case you will definitely get stuck. If you get stuck, then take a stop loss and come out. So typically you see because we have sold so much out of the money put, so it does not have any special impact. The second thing is that it is a risk.
Now many people ask me that sir, let’s say we sold an option and went and suddenly the market opened very low the next day or an earthquake came or some such event happened. So see that is a risk involved. You cannot wish away that risk.
If I think that risk will go away, then the return will also go away. So the return is because we are taking that risk. You can mitigate it. The way put the second band to mitigate it, through that you can reduce your risk, control it, define it, but the risk cannot be completely removed. So how much percentage return does it get weekly, sir?
Well, a good thing is that if this worthless expires option, then you typically get a return of 3-4%. But the issue with this is that it will not expire worthless every week. Sometimes you will get stuck wrong, sometimes you will have to pay the cost and sometimes you will have to pay loss. So if you look at the net off, the returns are good.
And the best thing is that after a little practice, you get this discretion that whether the option is trending or not. The biggest trick in this game is that you have to identify the direction of this band yourself. If this band is going up, then you have to sell Putin that period. If it is going down, then you have to sell call.
And if it is sideways, then you have to do nothing in that period. Then you have to employ something else for its if you trade like this, then it works very well. So now we have taken the time frame of 30minutes. So this is for weekly.
And for monthly? For monthly, you can trade the same system on the daily chart. So if you are like this daily chart, then it will work in the same way on the daily chart. So now in this period, we are seeing that we have sold put continuously and that put is expiring month to month, worthless. And after that, our call would have been sold here.
So you can work at any time frame. In stocks, typically the monthly chart, because the monthly chart is expiring, then you have to see the daily chart. And if you are doing nifty weekly options, then 30-minute chart. And if you want to do it monthly in any option, then you can do it. Yes, you can do it. Why not? So now here comes another question. We come back to the time frame of 30 minutes.
Now here we are basically giving an option selling strategy. So basically here I understand one thing that we are capturing the trend. Capturing the trend. Capturing the trend. See there are two benefits in this. One is that you are capturing the trend. The basic idea is that we are selling very low puts.
Which are out of the money, whose chances of expiring worthless are high. So you are selling that and you are not doing any trick in it. So in this, no one has to do in and out again and again. No adjustment or repair has to be done. So this is a simpler strategy for somebody who is starting new.
So the biggest benefit in thesis that if the markets trending, then that option expires worthless. If the markets a little volatile, then also see typically such big moves are very rare that your option gets threatened. And suppose if after 3-4 days that market falls, then also you will get that the put you sold because the time value is so low that you do not get any special loss in it.
So after little practice, you will be able to do it very well in this and you will get a good return in this. But what is important for this is that you will have to practice a little. So my advice is that if you are considering any new option strategy, then do a thorough back test of it. You should not trade on hearsay because in reality, the money is yours, the risk is yours and you understand your temperament best.
So that is why do a back test. Back testing has become very simple. everything. Secondly, trade paper or trade with a small amount for some times that you can know the ins and outs of it. What is the actual pull and pressure? Some things look good optically. So, nowadays you can back test by pressing a button. So, back test but when you start using it, you come across such pages 6 don’t see the return.
So, practice. It is very beneficial to practice. How long have you been using this strategy? I have been using it for a long time and the result is very good. Many of my students are working on it and generating a consistent return.
So, it is a wonderful idea. But like all other trend following models, it will have its own problems. Like sudden gap down, sudden gap up. In that case, you can definitely face losses. We all know that there are inherent risks in option trading. The biggest problem of option selling is that you keep earning money for months.
For example, you are selling options for 6 months and you have not faced such losses for 6 months. And you start thinking that it is a very easy job. Till now, I was selling 2-5 lots. I feel like selling 10 lots. Gradually, your capability increases and you start selling 10lots.And when your quantity increases, then you face that shock.
You have heard about it but never experienced it. And then you face a big loss. So, in option trading, especially in option selling, you have to increase your position incrementally. And you have to be careful that if there is a risk, how will you deal with it, try to simulate it. Suppose, if the market opens 1000 points below, what will I do? If it opens 500 points below, what will I do? There is a question here.
If by chance, you said that it breaks the band below, then we will just take the stop loss. There is no adjustment. No, typically, for a new person who is new to this idea, you can sell the upper call and repair it. But for a new person, complications confuse you.
So, my experience says that if a new trader works on a simple model, then he is better off. Theoretically, if you are very professional and you have worked on many such strategies, then definitely you can repair it.
You can also average it and handle it in other ways. But if you are new, then my advice is to give the stop loss quietly and wait for another day. So, what happens in this is that it does not always happen that big event happens.
It happens once in a blue moon. So, you have to be ready for that. And when you know mentally that if that situation comes, it will be a loss, then you are ready for it at that time. Alright, sir. I hope people liked this strategy a lot. And a very simple strategy that you can earn money by selling options.