Start with a view
Every strategy is a bet on three things: direction (up, down, sideways), how far the move goes, and what happens to volatility. Pick the view first; the strategy follows. Buying options needs a big, fast move; selling options profits when the market does less than expected.
The core strategies
| Strategy | View | Max profit | Max loss |
|---|---|---|---|
| Bull call spread (buy ATM CE, sell OTM CE) | Moderately bullish | Strike gap − debit | Debit paid |
| Bear put spread (buy ATM PE, sell OTM PE) | Moderately bearish | Strike gap − debit | Debit paid |
| Bull put spread (sell PE, buy lower PE) | Not falling | Credit received | Strike gap − credit |
| Short straddle (sell ATM CE + PE) | Range-bound, falling IV | Credit received | Unlimited |
| Short strangle (sell OTM CE + PE) | Wide range | Credit received | Unlimited |
| Iron condor (strangle + protective wings) | Range-bound, defined risk | Net credit | Wing width − credit |
| Long straddle (buy ATM CE + PE) | Big move either way, rising IV | Unlimited | Debit paid |
Indian market specifics
- Index options (NIFTY, BANKNIFTY) are European, cash-settled and expire weekly or monthly; stock options are physically settled if held in the money through expiry — you may have to take or give delivery.
- SEBI's 2024–25 rules raised contract sizes, removed most weekly index expiries except one per exchange, and added extra margin on expiry day.
- Selling options needs full SPAN + exposure margin; hedged spreads need far less, which is why most retail sellers trade spreads and condors.
- STT on options is charged on the premium when sold, and on intrinsic value if exercised — check charges before holding ITM options to expiry.
Choosing strikes and expiry
- Use the option chain's highest open-interest strikes as natural boundaries for short strikes.
- Size the range from the ATM straddle: it's the market's expected move.
- High IV rank favours selling premium; low IV rank favours buying it.
- Theta decay is fastest in the final week — sellers prefer near expiries, buyers give themselves more time.
Risk management
- Decide the exit before entry: a loss limit (e.g. 1.5–2× credit received) and a profit target (e.g. 50% of max profit).
- Never sell naked options around results, budgets or RBI policy without a hedge.
- Position size so that the worst case is a small share of capital.
- SEBI's study found 9 in 10 individual F&O traders lost money between FY22 and FY24 — treat options as risk tools, not lottery tickets.