Over the last two years, NIFTY has shown high degree of volatility. Nifty fell very sharply in 2009 touching as low as 2539 and then rebound back to 5310 level. This continued setting of uncertainty is posing discomfort for every style of investor. Being right is already difficult enough, but the cost of being wrong can be so much higher with high degree of volatility in the market.

Trading in options has become difficult for retail traders and small investors who are ignorant of option strategies  in high volatile market.  For instance, NIFTY 5100, 5200, 5300 long call in March series have fallen today even when NIFTY is up 1.29% and all NIFTY put options have fallen very sharply. The option trading call that was recommended by many analysts and brokers yesterday was to buy 4600 put and 5200 call with assumption that one can gain on volatile move on either side. Yesterday’s closing price for NIFTY 4600 put was 63.05 and NIFTY 5200 call was Rs.31.  Net investment of Rs.4700. Current value of combined NIFTY 4600 put and NIFTY 5200 call is Rs. 2650, loss of Rs.2050 in one day. Here is a modified option strategy which works best in volatile market.

The best method to trade in this kind of volatile market is short straddle with hedging.

Total profit Rs.660

Many might wonder that the profit was too less, but one should appreciate the gain this trade has made even in volatile market.  Buying only call or put is just a speculation and speculation seldom works in stock-market. Calculated risk management is the key factor in trading options. A smart option trader never buys just calls or put. He takes calculated risk and is prepared for any move which market makes.  Calculate your risk before trading options. For instance, long call or put has premium risk, which means whole premium can be wiped if the market moves in opposite direction from the expected direction.

Narendar Rathod, Options Strategist, www.AssuredGain.com

Options Disclaimer: Options trading involves high risk and you can lose a lot of money. Investing in options involves high risk and may not be suitable for everyone. No statement in this blog should be construed as a recommendation to buy or sell a security or to provide investment advice.

Related Readings and Observations

• 100% FOOL-PROOF MONTHLY INCOME PLAN (MIP) USING OPTIONS.
  Most of us know about SIP or systematic investment plan to invest in mutual funds, and other financial instruments. As you very well know such investment works only when the price of assets in which one has invested increases and thereafter gets prof...
• Nifty May Sell Strangle : Option Strategies
  When volatility is very high, and the market has just made a dramatic move and you are expecting it to consolidate and take some time to digest its gains, you might consider selling a strangle. When you observe the past days of Open Interest Action ...
• Using Options to get paid to buy Blue-chip stock for less
  I would like to thank all readers of marketcalls for your mails. As I was busy with my new sub-broker, I could not update here.   Most retail traders buy put option to make money in falling stock or index.  Have you ever wondered who is selling the p...
• Option Pain Charts for Nifty
  Option Pain, also known as Max Option Pain or Max Pain, is based on the theory that since most options buyers lose in options trading, the price of the underlying stock must be manipulated somehow to close during options expiration at a price that re...
• Reverse Iron Butterfly Strategy for Nifty
  As there is a low volatility prevailing in the market and most of the bullish people are expecting a breakout either above 5300 levels. For those who people who are expecting a breakout above 5300 levels before expiry here is a safe strategy to pract...