Best option trading strategy in the stock market

 Option trading in Stock market:

Stock market in today's time has become very technical & fundamental knowledge based. Today we will discuss on such a topic in which we will explain the segment of stock market in easy words. Today we will discuss about options trading from the topic of futures & options trading. How to do option trading in the stock market and how to make profit from option trading? How to Create the Best Option Trading Strategy for Option Trading? Just like trading futures in the stock market requires a lot of margin and risk is high in trading stock futures and index futures, on the contrary, the risk in options trading in stock market is limited and profits can also be unlimited. But for this it becomes very important to explain a good options trading strategy. In this article, we will understand options trading with some easy examples.

What is Option Trading in stock market?

what is trading in Options?

 Option trading in stock market is an instrument that gives traders the right for buying or selling a specific security and stock on a specific date at a specific price. If we want to explain in simple language then option trading is divided into two further segments. One is "Call Option" & the second is "Put Option".

What is Call Option trading in stock market ?

Call option is bought in the stock market when a stock market trader thinks that the stock price of a company is going to increase or the index of the market is going to rise. Then whatever premium price is going on for the call of that stock in the market, he buys it. Means traders will buy the "call option" when the market and particular stock is bullish. Call options are represented by the symbol "CE" in the stock market. “Call option” can be done both buy and sell.

What is put option in stock market?

Put options are represented by "PE" in the stock market. A put option is bought when the trader of the stock market is bearish on the index and the particular stock and the trader is expecting lower price levels in the index and the stock price. "Put Option" can be done both Buy and Sell.

Must Note it:  As future trading has expiry date, similarly Option trading has also expiry date. In the option trading traders will find the weekly expiry on every week of Thursday, On the other hand in the Future trading monthly expiry will be on last Thursday of every month. It is as per Current rules of Indian stock exchanges; it may change with the passage of time if any new rule will come. Option trading strategy will be same for all exchanges of the world but we will take examples of as per Indian stock market. Always try to place buying or selling when premium of the call or put option adjust after 1^st t or 2^nd day of the week & book profit in you option trade before expiry date. Because in the last day of weekly expiry most of the time premium of call or put always goes down.

Example of Call & Put Option trading: (20-OCT-2021), If bank nifty future is trading at 39,518 level and Premium is around 300 per lot of 25, in this case if Trader is expecting bank nifty to reach at the level of 40,000 in coming days then a trader will buy at “Call option” at the premium market price (let’s say it is 400). On the other hand if trader is expecting 39,000 or below levels in the bank nifty then trader will buy a “Put option” at the premium market price (Lets say it is 300). If call option price will increase then premium in “Put option” will decrease & vice versa.

  How earn profit in Bank nifty option trading:

Let's understand the best options trading strategy of bank nifty with a best example. Hopefully this option trading strategy will turn profit for our website traders. Remember when Indian stock market is open then no call or put option is to be bought till 1 hour of that. Only then today's option strategy will earn you profit. Always try to buy a call pr put option of closing strike price because it will give better price movement.  Let us understand with example:

Example:

Step 1:  After one hour of the opening of Indian market, Note down the High & low of the bank nifty on your paper. Suppose Bank nifty is opened at 39,500 levels & after 1 hour of trade it made high of 39,700 & low of 39,420 or any low level.

Call Price or premium of 39,700 level of bank nifty is trading at 300rs per lot & it made high of 348rs & low of 310rs per low. Here a trader may put order for buy 39,700 bank nifty call price above 353rs price level. At the same time note high price of “Put option” of same strike i.e. 39,700 (let us say it is 250rs per lot) & Place one buy order for “Put option “at 255rs per lot. Now you have placed two buying positions, one is “Call option” & second is “Put option” of same strike of bank nifty level 39,700. From this strategy one this is sure that you one trade will surely setup for a day trading.

If bank nifty will go up:

 In this case if Bank nifty will show upside movement till 39,800+ levels then there is possibility you will get you order of “Call option” which you had place at 353rs per lot. If you will get this order then immediately you have to place selling order for same call option around 385 or 390rs price level (it will depend how much points of profit you want). In this case trader will earn profit around 1000rs per lot. Then cancel your “Put option order”.

On the other side if bank nifty goes down:

if Bank nifty will go down (let’s say around 39,500 levels” then your “Put option “ order will take place because if bank nifty will go down then Premium of “Put option” will definitely increase & Price of “Put option” will make new day high & you get your order which you had place around 250rs per lot. This upside movement may give profit of 40rs to 60rs per lot of “Put option” and price may reach up to the level of 300rs per lot. Book profit around these levels & don’t be greedy for profit.

Also Read: Can we see deep correction in Indian stock market

Best way for earn profit in both trades:

Now we have secured profit on both side, here you can adopt one more strategy for earning more profit in same option strategy i.e once you will book profit in the call option around 385rs or 390rs per lot the raise your stoploss & try to add one lot of “Put option” of same bank nifty strike price of level 39,700 and put sell order above 30rs to 40rs above your buying price.

In this way you will earn profit in you both traders.  Keep stoploss of first hour of the trading which we had noticed in the beginning. It is the best option strategy for the Option traders in the stock market. Please try this strategy on “Paper” for couple of days once you will feel comfortable then you may try in in real trading with small lot size. This strategy will work in 200 to 600 points movement in the bank nifty on daily basis.