Option strategies, explained for Indian markets
How each structure is built, what it can make and lose per lot, and how it behaves on Nifty, Bank Nifty and Sensex. Examples use illustrative numbers.
For a rising market
Bull call spread
Buy a call and sell a higher-strike call with the same expiry. You pay less than for the call alone, and give up gains above the upper strike.
Bull put spread
Sell a put and buy a lower-strike put. You collect a premium up front and keep it if the index stays above the sold strike.
Protective put
Hold the shares and buy a put below the current price. The put sets a floor under the loss until expiry, at the cost of its premium.
For a falling market
Bear put spread
Buy a put and sell a lower-strike put with the same expiry. A cheaper way to take a falling view than a single put, with capped gains.
Bear call spread
Sell a call and buy a higher-strike call. You collect a premium and keep it if the index stays below the sold strike.
For a range-bound market
Iron condor
A bull put spread and a bear call spread together. You collect premium and keep it if the index stays between the two sold strikes.
Iron butterfly
A short straddle with protective wings: sell the at-the-money call and put, buy a call above and a put below.
Short straddle
Sell an at-the-money call and an at-the-money put. You collect two premiums and lose if the index moves far either way. The loss is not capped.
Short strangle
Sell an out-of-the-money call and an out-of-the-money put. You keep the premiums if the index stays between the strikes; the loss outside them is not capped.
Long call butterfly
Buy one lower call, sell two middle calls, buy one higher call. A low-cost structure that pays most if the index ends near the middle strike.
Covered call
Hold the shares of one lot and sell a call against them. The premium adds income; gains above the strike are given up.
For a big move either way
Long straddle
Buy an at-the-money call and an at-the-money put. The position gains from a large move in either direction.
Long strangle
Buy an out-of-the-money call and an out-of-the-money put. Cheaper than a straddle, but needs a bigger move to pay off.