An Option Selling Strategy for Nifty 6 April Expiry with 7% ROI!

  • Stock Market Analysis
Aayush Khanna/Investing.com - Investing.com

Options selling is the playing field for almost every trader I come across. There’s no doubt that indices are the best instruments to sell options due to high liquidity and lower volatility compared to equity options.

If you love selling options and have decent experience in the derivatives market, here’s a strategy you can have a look at which can be executed for the 6 April 2023 weekly expiry of Nifty 50 to profit from theta decay. The strategy discussed below can also be modified by individual traders to suit their risk appetite

My current view on the index is sideways with a negative bias. The range for the index is 17,200 - 17225 on the upside and 16,850 - 16,825 on the downside. To play this range, traders can put on a Jade Lizard options strategy. The strikes, payoff, and premiums are discussed below.

Traders can sell 1 lot of 16800 PE which is currently trading at INR 118 and 17300 CE at INR 51. This will create a 500-point-wide short strangle. The reason for selecting these strikes is 16,800 is strong support and 17,200 is strong resistance, but still taking a margin of 100 points above the resistance in case a sharp bounce comes on account of current oversold levels of Nifty 50. Now, to curb losses on the upside traders can buy 17450 CE at INR 25.

Now you have a 3-leg position

1x - 16800 PE (short) at INR 118

1x - 17300 CE (Short) at INR 51

1x - 17450 CE (long) at INR 25

The net credit received on this strategy is INR 7,200 and the total margin required on all 3 legs combined is around INR 98,600. This gives a max profit potential of 7.3% in only two weeks.

Now the main question - What is the payoff and exit criterion of this strategy?

As 16800 PE and 17300 CE are short, this 500-point range is our max profit area. If Nifty 50 expires anywhere within this range on 6 April 2023, traders get to keep the entire INR 7,200 as profit. However, waiting till expiry is not recommended. Once the trader’s MTM starts to hit 3% to 4% of the max profit, an exit should be made.

If Nifty soars above 17,300, profit would start to decline and after reaching the breakeven at 17,444, it will turn to a max loss of INR 290. As we are hedged on the upside, the loss is capped at INR 290, no matter where Nifty goes.

On the lower side, below 16,800, profits would start to decline and after hitting a breakeven at 16,656, the strategy will run into losses. Hence, exiting from the complete strategy is recommended, if Nifty 50 breaks either 16,800 or 16,650 (traders can decide for themselves). Although I have a negative bias, this support is a pretty strong one therefore the lower side is not hedged. Experienced traders can always modify this strategy anytime to make it more customized as per their own view.

Read More: Weekend Read: A Book Meant for ‘Serious Traders’!

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  • Avi Mondal @Avi Mondal
    sir next 03-04-23 nifty ka Strategy kay hoga
    Like 0
  • sonika rani @sonika rani
    nice booked profit today. thanks
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Great!
      Like 0

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  • Nilesh Patel @Nilesh Patel
    Tomorrow this short strangle will turn in to loss
    Like 0
    • Nilesh Patel @Nilesh Patel
      You won 👍
      Like 0

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  • Rajesh Pahuja @Rajesh Pahuja
    Usually April starts on a good note in anticipation of results. Selling 17000 pe with 16500 cover is way better in such scenario
    Like 1
  • Galib Ansari @Galib Ansari
    Thanks for best one. But i think we should cover put as well below 16800, although breakeven is far than call leg.
    Like 0
  • Satheesan Sivaraman @Satheesan Sivaraman
    good one
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Thanks, Satheesan.
      Like 0

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  • Harsh PANDYA @Harsh PANDYA
    thank you sir
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      You're welcome, Harsh.
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  • Bimla Devi @Bimla Devi
    Thanks, very well explained.
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      I am glad you liked it, Bimla.
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  • Siddharth Lahoti @Siddharth Lahoti
    Just like on the upside, losses on downside should be capped too, no matter what the support is.. Market is very uncertain.. Can't expect such strategy from experienced trader..
    Like 4
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Hi Siddharth, you can make thousands of modifications to this strategy.
      Like 0

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  • Áýâń ansari @Áýâń ansari
    Nice views
    Like 0
  • Jayprakash Patil @Jayprakash Patil
    good
    Like 0
  • bharati pawara @bharati pawara
    nice strategy
    Like 0
  • Rajesh Pahuja @Rajesh Pahuja
    I guess selling 16800 and buying 16500 2 lots at 82000 margin is better
    Like 2
  • Rajesh Pahuja @Rajesh Pahuja
    Sound Strategy
    Like 0
  • Unnikrishna Pillai @Unnikrishna Pillai
    Dear Aayush, please give some advice on upcoming expiry on buyer's perspective
    Like 1
  • Pavan Jogannagari @Pavan Jogannagari
    THIS WEEK NIFTY WILL FALL UP TO 16800 AND WILL BOUNCE BACK NEXT WEEK
    Like 0
    • Krishna Kumar @Krishna Kumar
      grcbb
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  • vijay kumar @vijay kumar
    good idea 👍
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Thanks, Vijay :)
      Like 1

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  • Vishal Patil @Vishal Patil
    Sounds amazing 🤑
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      :)
      Like 0

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  • SANJEEV RASTOGI @SANJEEV RASTOGI
    👌
    Like 1
  • Asif Ekbal @Asif Ekbal
    Good Idea
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Thanks, Asif :)
      Like 0
    • Ketan Patel @Ketan Patel
      Thank you sir
      Like 0

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