3 best Options trading strategies for investors
To generate profitable returns during correction, Shubham Agarwal has explained 3 best Options trading strategies for the investors.
The volatility in 2025 has been a bit concerning. What looked like a slight correction of the rise from 21000-26000, now looks to be extending.
These are the times when traders rejoice by selling options or selling futures, but investors do not. Investors’ wealth gets stalled during such corrections. Corrections can be either time (consolidation) or price. Either poses challenges of the invested capital not generating profitable returns.
In such times of price or time correction, investors can use the following 3 strategies and capitalize on being investors.
- Covered Call for Short Term Investments with Target on Site
Covered Call is a strategy where one buys an underlying in Futures or Cash segment and Sells a Call option of a higher strike than the current market price.
This applies to an investor. We already have a buy position in the underlying. All we need to make sure of is that there are options available, and the quantity is equal to or more than the market lot of options.
Trade: Just Sell a Call option of the nearest available expiry with a strike price closest to the expected target of the short-term investment.
Exit: No action if the option expires at zero with stock trading below the strike price on expiry. If the stock is trading above the Call Strike (target). Sell the stock and take the loss on the Call option (expiry price of the stock – strike price)
Benefit: Remember the option loses value in case the stock does not move at all, or it moves down. This will help in capitalizing the premium. In case one has to exit the stock, we will get the Target Price + Premium of the Call.
- Put Write for Bargain Hunting.
Put write is simply Selling a Put option. Imagine a stock trading at 100. You feel that if the stock comes down to 95, I will buy it. If it does not come down to that level, there is no reward of getting ready to buy at slightly lower prices.
Trade: In such case, the action to be taken is to Sell a Put Option of 95 strikes of closest possible expiry.
Exit: If the stock expires above 95 the Put Option will expire at zero. So, no action will be taken. If the stock expires below 95, we will book a loss (95- stock price on expiry) + Buy the stock. This means that we bought the stock at a 95 – Premium of the Put received. An improvement on what we wanted to do in the first place.
- Protective Put for scary times.
This is pretty simple. If one is scared of a fall after breach of certain price on the stock, just Buy a Put Option closest to current market price as soon as the support is taken out.
Trade: Buy Put Option
Exit & Benefit: If the stock Falls, the loss in investment value below the support will be compensated by the Put Option (minus the premium). If it does not, money well spent on Put Option (Insurance).
First published on 11 Jan 2025: prices, lot sizes and expiries are those of that time. They are illustrations for education only, not investment advice. Derivatives trading carries risk; read all scheme and risk documents before trading.
