Options trading is an excellent way to generate consistent income every month. For Indian investors engaged in futures and options trading, mastering a few basic options strategies can significantly enhance their investment portfolio.
In this article, we’ll explore seven easy options strategies that can help you earn a steady monthly income. Whether you are new to options trading or have some experience, these strategies will guide you in making the most of your investments in the stock market.
1. Covered Call
What is it?
A covered call involves owning the underlying stock and selling a call option on the same stock. This strategy allows you to earn a premium from the option while holding the stock.
How it works:
- Buy shares of a stock in your demat account. There are many brokers in the market, such as Groww, m.Stock by Mirae Asset, ICICI Direct, and Angel Broking, who offer the facility of demat account.
- Sell call options for the same stock.
- Earn the premium from the sold call options.
Benefits:
This strategy provides a regular income from the premiums and offers some downside protection if the stock price falls.
2. Cash-Secured Put
What is it?
A cash-secured put involves selling a put option while holding sufficient cash to buy the stock if it gets assigned.
How it works:
- Select a stock you are willing to buy.
- Sell put options at a strike price you are comfortable with.
- Keep enough cash in your account to purchase the stock if the put option is exercised.
Benefits:
You earn premiums from selling the put options and get to buy the stock at a lower price if it falls below the strike price.
3. Iron Condor
What is it?
An iron condor is a neutral strategy that involves selling a lower strike put and a higher strike call while buying an even lower strike put and a higher strike call.
How it works:
- Sell a put and a call option at different strike prices, closer to the current stock price.
- Buy a put and a call option further away from the current stock price to limit potential losses.
Benefits:
This strategy generates income from the premiums collected and limits risk, as the maximum loss is predefined.
4. Vertical Spread
What is it?
A vertical spread involves buying and selling options of the same type (either calls or puts) with different strike prices but the same expiration date.
How it works:
- Buy a call (or put) option at a lower strike price.
- Sell a call (or put) option at a higher strike price.
Benefits:
This strategy reduces the cost of buying options and provides a limited risk and reward scenario.
5. Calendar Spread
What is it?
A calendar spread involves buying and selling options with the same strike price but different expiration dates.
How it works:
- Buy a longer-term option (call or put).
- Sell a shorter-term option (call or put) with the same strike price.
Benefits:
This strategy profits from the time decay of the short-term option while benefiting from the longer-term option’s potential movement.
6. Strangle
What is it?
A strangle involves buying a call and a put option with different strike prices but the same expiration date.
How it works:
- Buy a call option at a higher strike price.
- Buy a put option at a lower strike price.
Benefits:
This strategy profits from significant price movements in either direction and is suitable for volatile market conditions.
7. Butterfly Spread
What is it?
A butterfly spread is a neutral strategy that involves buying and selling multiple options to create a spread with a defined risk and reward.
How it works:
- Buy a lower strike call option.
- Sell two at-the-money call options.
- Buy a higher strike call option.
Benefits:
This strategy profits from minimal price movements and provides a low-risk, moderate-reward scenario.
Conclusion
Engaging in options futures trading requires a good understanding of various strategies to generate consistent income. The strategies mentioned above are relatively easy to implement and can provide regular monthly income while managing risk effectively. To start trading in options, ensure you have an active demat account and a good understanding of the stock market dynamics. With practice and careful analysis, these options strategies can help you achieve your financial goals and enhance your investment portfolio.
Start exploring these strategies today and take your options trading to the next level!
