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Introduction to Options Trading
Options trading often gets a reputation for being complicated, risky, or suitable only for professionals. That’s not entirely true. Once you understand the structure and intent behind different option strategies, they become powerful tools—tools that can generate income, hedge risk, or even profit from sideways markets.
Options contracts give traders the right, not the obligation, to buy or sell an asset at a predetermined price before expiration. Used wisely, they help control risk instead of amplifying it. That’s the real appeal.
Also Read: 357 Trading Strategy with Example
Why Option Strategies Matter
Buying options randomly rarely works. Strategies exist for a reason. Each one matches a specific market expectation—bullish, bearish, neutral, or volatile. Choosing the right strategy can mean the difference between steady returns and unnecessary losses.
Many experienced traders don’t predict markets. They prepare for them.
1. Covered Call Strategy
A covered call is one of the most widely used income-generating strategies. Here, you buy or already own shares of a stock and simultaneously sell a call option on those shares.
This strategy works best when you expect the stock to move sideways or rise slowly. The premium you receive acts as extra income and offers slight downside protection.
Example:
Suppose you own 100 shares of a stock trading at ₹1,000. You sell a ₹1,050 call and receive ₹25 per share as premium. If the stock stays below ₹1,050, you keep the premium. If it crosses ₹1,050, your shares get sold—but at a profitable price.
2. Married Put (Protective Put)
Think of a married put as insurance for your stock holdings. You buy shares and simultaneously purchase a put option to protect against sharp downside moves.
It’s commonly used during uncertain markets or before major events like earnings.
Example:
You buy a stock at ₹800 and purchase a ₹760 put. If the stock crashes, your losses stop at ₹760 (plus premium paid). Peace of mind has a price—and this strategy pays it.
3. Bull Call Spread
This strategy suits traders expecting moderate upside. You buy a call at a lower strike and sell another call at a higher strike, both with the same expiry.
Costs are reduced, but so is maximum profit.
Example:
Buy a ₹1,200 call and sell a ₹1,300 call. If the stock moves up moderately, you profit. If it explodes higher, profits are capped—but losses remain controlled.
4. Bear Put Spread
The bear put spread mirrors the bull call spread, but for bearish views. You buy a higher-strike put and sell a lower-strike put.
This lowers the cost of entering a bearish trade while limiting risk.
Example:
If a stock trades at ₹900 and you expect a decline, you buy a ₹900 put and sell a ₹850 put. The trade profits if prices fall, but risk stays defined.
5. Protective Collar
A protective collar combines a covered call and a protective put. You already own shares, sell an OTM call, and buy an OTM put.
This strategy is common after a stock has made strong gains and you want to lock them in.
Example:
Buy shares at ₹500, sell a ₹550 call, and buy a ₹470 put. Upside is limited, downside is protected. Stability wins here.
Also Read: A Guide to Call Options Trading
6. Long Straddle
A long straddle is a volatility play. You buy both a call and a put at the same strike and expiry.
Direction doesn’t matter. Movement does.
Example:
Ahead of earnings, you buy a ₹1,000 call and ₹1,000 put. If the stock moves sharply—up or down—you profit. If it stays flat, premiums decay.
7. Long Strangle
Similar to a straddle, but cheaper. You buy an OTM call and an OTM put.
The stock must move more—but your upfront cost is lower.
Example:
Buy a ₹1,050 call and ₹950 put on a ₹1,000 stock. Big news? Big opportunity.
8. Iron Condor
Iron condors thrive in low-volatility markets. You sell both a call spread and a put spread.
The goal? Let time decay work for you.
Example:
If a stock trades between ₹900–₹1,000 consistently, you profit as long as it stays in range. Quiet markets pay traders here.
9. Long Call Butterfly Spread
This neutral strategy benefits when the stock doesn’t move much. It combines three strike prices using call options.
Risk is low. Reward is precise.
Example:
Buy a ₹980 call, sell two ₹1,000 calls, and buy a ₹1,020 call. Maximum profit occurs if the stock expires near ₹1,000.
10. Iron Butterfly
The iron butterfly is an income-focused, range-bound strategy. You sell an ATM call and put, while buying protective wings.
It rewards stability.
Example:
Sell ₹1,500 call and put, buy ₹1,550 call and ₹1,450 put. If price stays near ₹1,500, premium stays with you.
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Frequently Asked Questions (FAQs)
Yes, especially covered calls and protective puts. They’re simple and controlled.
Iron condors, butterflies, and short premium strategies perform well.
Absolutely. Protective puts and collars are designed specifically for that.
Not with defined-risk strategies. Most strategies limit downside.
No. Spreads allow smaller capital deployment with controlled risk.
The Bottom Line
Options trading isn’t gambling when done right. It’s structured. Strategic. Purpose-driven.
The Top 10 Option Strategies with Examples discussed above are widely used because they work across market cycles. Some generate income. Others hedge risk. A few thrive on volatility.
The real edge lies in matching the strategy to your market view—and sticking to disciplined execution.
