The benchmark index has been trading for a clear direction for the last few weeks. The tussle between bulls and bears has intensified, leading to a sideways movement for some time now.
This kind of movement is ideal for non-directional options strategies. Here’s one high-risk traders can explore for the current monthly expiry.
– 21900 CE at 210
– 21300 PE at 103
+ 21150 PE at 75
This strategy is called a Reverse Jade Lizard. The combined premium traders will receive is 238, i.e. INR 11,900 per lot which will be the maximum profit. The margin required is around INR 63,000. This translates into a maximum profit of 19% for the next 16 days.
Talking about the risk and return profile, the maximum profit will be fetched if the index expires between two short strikes 21900 – 21300. On the upside, the breakeven is around 22,138, above which the unlimited loss will start. This breakeven level is even higher than the all-time high therefore I don’t expect it to be breached soon, especially when the index is going nowhere. Waiting till the 19% max profit is not recommended. Once the profit hits 5% of the margin deployed, traders can think about booking their positions.
On the downside, there is no loss. After falling below 21150 the profit will reduce to a minimum of INR 4,400 per lot. Those well-versed in options trading can look at this payoff chart to better understand the risk and return profile of the strategy.
Image Source: Sensibull
X (formerly, Twitter) – aayushxkhanna
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