Now we will start and understand what is the meaning of optionstrategies.What is the meaning of strategy?
See when you just buy the option, suppose you have a view bullishand you have boughtthe put option or you have sold the put option, so here you havebought or sold, we callit simply trade in the naked option.It means you have traded in the simple option, in the naked option,trading in the naked option is called, but when you have a strategy, then you cando a lot of things with different options.
You can make multiple strategies by buying and selling options and there are many strategies,but now we will go in the continuation.Continuation in the sense we understood delta and theta in thelast .We have to use delta in our favour, we have to use theta in ourfavor and what strategiescan be used for it, you will understand it.
So here I come to the screen for you.Now understand this, now if you have two types of views, eitheryou are bullish with themarket, the market will go up or the market will fall from here.It may also happen that you are neutral with the market, neutralmeans the market willbe sideways.For all kinds of your direction, for opinion, for analysis, youmay have different strategies.It may also happen that you think the market is very volatile,so how money will be madein all these ways, we will understand.
So for now, our scenario is that it is bullish with the market.Now we are on sensibull.com. If you want, you can also use it sensibull.So here is a strategy, see, before explaining this strategy,you have to understand thebasic concept.When we buy the call option, it is beneficial to go above the market.When we sell the put option, it is also beneficial to go abovethe market, but here our profitis limited.So we talked last time that what is the biggest challenge for people when they sell any option that here fund is needed, we have a requirement of 100000 rupees,if we are selling any option and when we buy, there is very little requirement of funds.
For example, if you want in 6000 rupees, you can trade in onelot, but now there is a strategyhere.We will understand the bull call spread later, first I will explainthe bull put spread.So if you look carefully, when you sold the put option, thenyou were earning a maximumof 4% profit and your fund requirement was 100000.
Now we will understand this new concept like this, but as soonas you have sold the putoption, you have still sold the put option, same at the money,you have sold the put option at the money, you sold 18250 here also, when you sold here also,you sold 18250, but hereit was taking 100000 rupees and we were earning 4% now we will sell,
we will play fast, while selling put option, we have sold put option, but our fund requirement will be less, onlyand only 29000 rupees are being spent.
If you were simply selling put option, then your loss was also unlimited, means if themarket starts to fall instead of increasing from here, then youcan have an unlimited loss, how much loss can be there, you were earning 4000, but if the market falls, then you sold only one lot, you can have a loss of 13000-15000 rupees, in fact more than that,
so if the market keeps falling, then you will have a loss here, see someone’s loss, someone’s profit, so who will have profit, the one who has bought the put option, he has unlimited profit on falling here,
so if it comes out of your pocket, it goes to someone’s pocket.Okay, now we stay on our concept, we were selling put option,we could have earned 4%by investing 100000, but now what I am telling you, if you haveto sell, then what do youdo, you don’t just sell here, buy while selling, listen carefully,don’t just sell, buy whileselling, this is also called hedging and here a strategy comesout, we talked about strategy,in strategy.
first of all, when we talk about option strategies,the first strategy youshould learn is to make a spread, what is spread, spread meansthat whenever spreadis written anywhere, you will make a spread from anyone’s mouth,so you understand thatspread means that we will buy and sell,
similarly, we will buyand sell here, this is calledmaking a spread, so spread also has 4 types of famous spreads,such as bull call spread,bull put spread and in beer, beer put spread and beer call spread,now you see carefullythis is very important, I told you in the last blog that theprobability of profitis more important than the probability of profit, if we talkabout the probability of profit,we are talking about spreads,
so if you make a bull call spread,then the probability ofprofit is 44%, but here the maximum profit can be 24%, but ifyou make a bull put spread,then the maximum profit can be 9% and the probability of profitis 66%, so the profitcan be less, but the chances of making money are more, anyway,
what are we doing, why arewe discussing this strategy, we discuss this strategy because it is useful, your thetais left in this, you understand, you always have to keep in mindthat whenever you makea spread, I have told you one thing, credit and debit, whenever a seller sells an option,he gets credit, he receives the premium, you sold an option of18,250, you received Rs.82 from the market and you also bought an option of 27, now whatare you doing, whatis this, what happens with this,
you understand this from thegraph, if I buy here, then whenwill I benefit, I will benefit when the market falls and whatI have done is, out of themoney, the market is at 18,270 and we are talking about the marketfalling, the markethas not reached 18,050 yet, but I have bought the put optionof 18,050, if I buy, thenmy probability of profit is only 14%, that the market will fallbelow this, then onlyI will get money and the second thing is that whatever
I am givingin Rs. 27, I am givingfor out of the money, we wrote about it in the last blog thatyou do not get delta inout of the money and whatever you have in out of the money, thisRs. 27 is the timevalue, but if you would have sold it, then what would be thebenefit for you, it wouldbe beneficial to increase, so now what is important for us iswhat is your view, whatdo you think the market will increase or fall,
you assume thatyour view of the market willincrease, so you have simply sold for which there is a fund requirementof Rs. 1 lakhand there is a margin requirement, so you need Rs. 1 lakh, nowyou do not have to spendeven Rs. 1 lakh and you have to earn more than 4%, so a strategyis made in which youbuy an output option of out of the money, as you buy, the fund requirement decreases and your max profit increases,
now if the market goes up fromhere, then you will getmoney here and the second thing is that if the market falls fromhere, then your lossis unlimited, now your loss is as soon as you bought it, it cameto 24%, assume thatyou are trading with 30,000 in this option, then your maximumloss can be of Rs. 7,260and the maximum profit can be of Rs. 2740, but why is the probabilityof profit more because you are selling the majority, the seller has a default probability of winningis 67%, so there is a probability of more than 60%, why, if themarket does not go anywhere.
I agree with you, I say that the market does not go anywhere, the market hasnot gone in your direction, our view is that the market willgo up, but what happened,the market went but then it went sideways, will you make moneyif you use the strategycalled bull put spread, will you make money, the answer is yes,you will make money, istheta in your favor, yes theta.in your favor, but can we improve this strategy more. The answer is yes, you can improve more, and how will you do that? Now let’s understand that.
Now, we talked last time that if you are selling and going, then you don’t just sell the money; what you can do is sell a little bit of the money. You sell at least two strikes in the money, so you will see that your fund requirement is 34000; you are earning 15%; now you have more to earn, and here 28% is going.
If we had gone to default, then our loss would have been 24%, but if I am telling you here that you go and sell two strikes in the money, then what will happen is that we are playing directional and that the market will move in one direction.If the market moves in one direction, you will make more money, and you are using a strategy in which if the market does not fall suddenly but falls slowly, then also the timing is in your favor. Now you are using theta in your favor;
you already know what is your defined loss; if the market turns suddenly, then also what is your loss; but if you are directional,then do not think about this loss; you think about profit, and then you can earn a maximum profit of 15%; in fact, if you want, you can go a little more deep in the money and sell; that is a choice; so what will happen to you?
You can increase this, and here you still have a max loss of 28%; so if you understand this concept, you can definitely increase the number of lots as much as you want; you can calculate according to how much money you will make .
Similarly, we are bearish, nowwe feel that the market willfall, if our view says that the market will fall, so now eitherwe buy put, I come hereand buy put option, in which I can earn unlimited and the maximumloss is 100%, because themoney that is invested can be used for full, now because it canbe used for full, we cansell the call option here,
now to earn only 6000 rupees and themax loss can be limitedto 100000 rupees, but as soon as you make the bear call spread,you are playing withthe call option, then what will happen, you would have sold thecall option with morepremium and you would have bought out of the money, this willalso be your hedging, yourfund requirement is 31000 rupees, the probability of profit is56, you can earn 13%, to earnmore profit, and if the market falls, you will make money,
but as I said, you can sellin the money, so that you can check here, this 20% is to lose,but now to earn it is23%, to lose it is 21%, to earn it is 26%, and what is in this,is theta in your favor,the answer is yes, if the market is sideways, then the premiumwill melt and you will get directional profit, you will not have a lot of max loss and you,as I said, you will notgo into loss along with time, you will earn in directional and sideways, only when themarket turns.
So what is the maximum benefit of using spreads,the maximum benefit is that you are making money in two ways, one is that money will be madein the direction, the problemof direction is that we do not know that the move, see the movewill come, if the movecomes very fast, then
you are not better than the naked option,if the market falls suddenly,then simply if you buy the naked option here, like you have boughtput, there is nothingbetter than that, if the immediate move comes, then you willmake the most money,
but if the immediate move does not come, the move comes slowly or themarket falls or increases while being sideways, then at that time the spreads give youa very good benefit, as Itold you here that your bear call spread, remember that therewill be a confusion here,I am talking about bear call spread, but whenever you go to makea spread, people relate putwith bull and people relate call with bull.
I have not talkedabout bear call spread andbear put spread, all are looking the same, we are doing the opposite,we are puttingput with bull, we are putting put with bull and we are puttingcall with bear, we aredoing the opposite, why are we doing this, now you understand that if you were bullishand you would have made bull call spread, then people will saythat here also, sir,we buy the option which is a little expensive, you buy at callside of 121, like you bought121 at the money
, and what you do is you go here and sell theoption out of the money,what happens with this, you give this to the market, you give21 and you receive 42, thenyour loss becomes 121-42, 10 to 50, then you can calculate it,it is very simple, butwhat will happen in this, if the market goes up, then you earnprofit, but does thetawork in your favor, theta does not work in your favor, thetaworks against you, so itsprobability of profit is less,
here you see more percentage,but you will always checkthe probability of profit, the probability of call spread is44, sorry the probabilityof call spread is 44, but the probability of put spread is 66,why 66, because thetais in your favor, now you are making money in two ways, if Iam directional, if I justwant to go directional and I don’t have to worry about theta,suppose you are tradingon Friday,
then you simply trade the call option, then you don’thave to worry abouttheta, because theta will not be eroded much that day, and ifthere is a fast move, thennothing is better than a simple option, nothing is better thanthat, but if you talk aboutmaking spread, then according to me, this is my experience, manypeople have their ownexperience, everyone has their own strategies, so I don’t makebull call spread,
if I feelthat the market will increase slowly and time will be erodedin it, then what will I make,I will make bull put spread, I am directional also, but I don’tknow how fast the movewill come, so you have to understand this also, now similarlyif you are bearish, thenyou can make bear put spread also, what will you do,
you willbuy option put of add the money, which is more expensive of 82 rupees, and you will sellout of the money, so thedifference is your loss, so you can calculate the difference,it is a loss of 12%, but it is 31% to earn, people find it very attractive, but the probabilityof profit is 34%.
similarlyif I make bear call spread here, then the probability of profitwill be a little more,because theta will go with you, and you sell this much money,I have explained to you thatas soon as you sell this much money, then your profit percentagewill increase, andthe loss percentage is visible in front of you, that the losspercentage is not changingbut you can take advantage of directional, loss of 20% can bea profit of 29%, becauseyou sell this much money, you are getting 45000 here, but alwaystalk in percentages .
how much percentage of profit you can earn, so here you willcome in the direction, youwill earn money, sideways will also be there, theta will be inyour favor, only your losswill be there, when the market goes in the opposite direction,there is a reversal,you do not pay attention to it, so in this case, you do not haveto understand that peoplesay that we will lose only 20%, so we will remain till the end,no, you have to understandthat if things did not happen according to your view, then youcan leave,
the thing isthat the movement is coming slowly, there is no problem, youfeel that the view ischanging, the market is going sideways, it is going up and down,you can stay, you willbe able to stay, because you must have heard that people whotrade only in the naked option,what they do, they say that whatever you get, take it and leave,a little money has come,earn a little money and leave, why, because if you stay and themarket goes sideways,then everything will go, the profit will be less, but when youare making a spread,
youcan stay, you stay, if you stay, then money will be made, thetawill work in your favor,direction will also work for you, so if you stay, money willnot go, only and only ifit is reversed, then you can lose money and there are other strategiesfor that, so Ihope today I have explained to you a beautiful concept, thatis this and do not try it, donot do this, after learning, do not try.
whether you do virtual trade, you are on virtualtrade option SensiBull, there is a very good option, that youdo virtual trade, you makeyour view and do virtual trade and see whether there is a profitor loss, and if you willhave a continuous profit, then you try by making spreads andI am telling you, onceyou start to make spreads, see what will be the problem withbig capital, if suppose today whatever is your capital.
then maybe you trade in the negativeoption or you can also makea spread and trade, but once you will have more capital, todayor tomorrow you are tradingin lakhs and crores, then you cannot lose crores of rupees,
whenwe are into negative,you think if someone is trading in the negative option, he willearn 50 lakhs, 60 lakhs, 70lakhs, but when the loss will be in front of him of 30 lakhs,then he may not digest it,so at that time it is necessary to take a limited risk and itis also necessary to take advantageof this situation as well.will be 5 lakhs from 1 croreand 7 lakhs is a good amount.
So as the capital increases, you will have to have this intelligence so that you use the strategies rather than doing naked option trading.
So I have tried my best to explain to you that now you have to start understanding the strategies. It is not complete yet. There are many strategies left. So I have some friends who think that I will earn 50 lakhs from 1 crore today.