Advanced Option Strategies

What are Options?
Before we dive into advanced stuff, here’s a quick refresher.

An Option is a contract that gives you the right (but not the obligation) to buy or sell a stock/index at a certain price, on or before a certain date.

There are 2 types:

Call Option – Right to BUY

Put Option – Right to SELL

Buyers pay a premium. Sellers receive a premium and take on the obligation.

💼 Why Use Advanced Strategies?
If you only buy calls or puts, you might:

Lose 100% of your capital quickly

Get the direction right, but still lose due to time decay

Suffer from high premiums or volatility crush (IV crush)

Advanced strategies help you:

✅ Reduce risk
✅ Lock-in profits
✅ Earn from sideways markets
✅ Trade during high volatility events
✅ Create income strategies

🧠 1. Bull Call Spread – Directional but Risk-Defined
Used when: You’re moderately bullish, but don’t want to spend too much on a call.

How it works:
Buy 1 ATM Call

Sell 1 higher strike OTM Call

Example:

Nifty at 22000

Buy 22000 CE @ ₹100

Sell 22200 CE @ ₹40

Net Cost = ₹60

Max Profit: ₹200 (22200–22000) – ₹60 = ₹140
Max Loss: ₹60 (net premium paid)

👉 This strategy caps your risk and reward but is cost-efficient and smart in range-bound bull moves.

🧠 2. Bear Put Spread – Controlled Downside Betting
Used when: You’re mildly bearish and want to control losses.

How it works:
Buy 1 ATM Put

Sell 1 lower strike Put

Example:

BankNifty at 48500

Buy 48500 PE @ ₹120

Sell 48000 PE @ ₹60

Net Cost = ₹60

Max Profit: ₹500 – ₹60 = ₹440
Max Loss: ₹60

👉 Ideal for limited downside moves — cheaper than naked Put.

🧠 3. Iron Condor – The Sideways Market King
Used when: Market is flat or expected to stay in a range.

How it works:
Sell 1 OTM Call + Buy 1 higher OTM Call

Sell 1 OTM Put + Buy 1 lower OTM Put

You make money if market stays between the 2 sell strikes.

Example:

Nifty is at 22500

Sell 22800 CE, Buy 23000 CE

Sell 22200 PE, Buy 22000 PE

👉 You collect premiums from both sides.
Max Profit = Net Premium
Max Loss = Difference between strikes – Net Premium

👉 Works great in expiry week or low-volatility phases.

🧠 4. Straddle – Big Move Expected, Direction Unknown
Used when: A major move is expected (news, event, earnings), but unsure about direction.

How it works:
Buy ATM Call and ATM Put of the same strike & expiry.

Example:

Stock at ₹500

Buy 500 CE @ ₹20

Buy 500 PE @ ₹25

Total Cost = ₹45

If stock moves big — say ₹60 or more either way — you profit.

👉 High risk due to premium decay if market stays flat.
Need volatility to spike.

🧠 5. Strangle – Cheaper than Straddle, Wider Range
Used when: You expect a big move but want lower cost than a straddle.

How it works:
Buy OTM Call and OTM Put (strikes wider apart than ATM).

Example:

Nifty at 22500

Buy 22800 CE @ ₹12

Buy 22200 PE @ ₹10

Total Cost = ₹22

You profit if the move crosses either strike + premium.

👉 Needs bigger move than straddle but less premium at risk.

🧠 6. Calendar Spread – Play with Time
Used when: You expect price to stay near a level short term, but may move later.

How it works:
Sell near-term option

Buy far-term option (same strike)

Example:

Sell 22500 CE (weekly) @ ₹50

Buy 22500 CE (monthly) @ ₹70

Net Cost = ₹20

👉 You make money if price stays near 22500 by expiry of short leg.
Profits from time decay of the short leg.

🧠 7. Ratio Spreads – Advanced Directional with a Twist
Used when: You expect a move in one direction, but want to reduce cost.

Bull Call Ratio Spread
Buy 1 lower Call

Sell 2 higher Calls

Example:

Buy 22000 CE @ ₹100

Sell 2× 22200 CE @ ₹60 each

Net Credit = ₹20

If market moves moderately up — you profit.
But if it rises too fast — risk increases.

👉 Suitable for experienced traders only — manage risk carefully.

🧠 8. Covered Call – Income Strategy for Investors
Used when: You hold stocks and want to earn extra income.

How it works:
Hold 100 shares of a stock

Sell 1 OTM Call

Example:

You own 100 shares of Reliance @ ₹2500

Sell 2600 CE @ ₹20

If Reliance stays below ₹2600, you keep the premium.
If it rises above ₹2600, your shares get sold, but you still profit.

👉 Perfect for long-term investors.

🧠 9. Protective Put – Insurance for Your Stock
Used when: You own shares but want downside protection.

How it works:
Hold stock

Buy 1 ATM/OTM Put

Example:

Own Infosys @ ₹1500

Buy 1480 PE @ ₹20

If stock falls below ₹1480, your loss is capped.

👉 It’s like buying insurance for your portfolio.

🧠 10. Butterfly Spread – Range-Bound Precision Strategy
Used when: You expect minimal movement and want low-risk, high-RR trade.

How it works (Call Butterfly):
Buy 1 lower strike Call

Sell 2 middle strike Calls

Buy 1 higher strike Call

Example:

Buy 22000 CE

Sell 2× 22200 CE

Buy 22400 CE

You earn if market expires at the middle strike.
Max loss = Net debit
Max profit = At middle strike

👉 Best for expiry day premium decay strategies.

Common Mistakes to Avoid
Not understanding strategy risk

Using high-margin strategies without protection

Overtrading in expiry week

Not adjusting trades as market moves

Ignoring volatility impact (IV crush)

🛠 Tools to Use
Option Chain (for strike selection)

IV (Implied Volatility) data

Open Interest (OI)

Strategy Builder platforms (e.g. Sensibull, Opstra, or TradingView)

🎯 Final Thoughts
Advanced options trading isn’t gambling — it’s about smart risk management.

These strategies:

Give you control

Limit losses

Provide flexibility across different market types