Safest Profitable Option Hedging Strategy For Swing Trade
Safest Profitable Option Hedging Strategy For Swing Trade
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Welcome to an in-depth exploration of a sophisticated Nifty options trading strategy designed to balance risk and reward while capitalizing on market movements! In this video, I’ll break down a multi-leg options strategy using Nifty at 18,700 ATM (at-the-money) as our starting point. This approach combines selling and buying out-of-the-money (OTM) call and put options to create a structured trade with defined risk and profit potential. Whether you're an intermediate trader looking to refine your skills or an advanced trader seeking a fresh perspective, this video has something for you. Stick around for a detailed explanation, live examples, and practical tips to implement this strategy like a pro!
This strategy involves constructing a multi-leg options position using both put options (PE) and call options (CE) at various strike prices relative to Nifty’s current level of 18,700. The goal? To profit from moderate market movements—upside or downside—while limiting losses if the market moves too far or stays flat. Here’s the full breakdown of the legs:
Put Side (PE):
Sell 700 Points OTM PE: Nifty 18,000 PE
Sell 600 Points OTM PE: Nifty 18,100 PE
Buy 200 Points OTM PE: Nifty 18,500 PE
Buy 900 Points OTM PE: Nifty 17,800 PE
Call Side (CE):
Sell 200 Points OTM CE: Nifty 18,900 CE
Sell 500 Points OTM CE: Nifty 19,200 CE
Buy 100 Points OTM CE: Nifty 18,800 CE
Buy 600 Points OTM CE: Nifty 19,300 CE
Selling OTM PEs and CEs: By selling the 18,000 PE, 18,100 PE, 18,900 CE, and 19,200 CE, you collect upfront premiums. These are your income generators, betting that Nifty won’t move drastically to those levels by expiration.
Buying OTM PEs and CEs: The 17,800 PE, 18,500 PE, 18,800 CE, and 19,300 CE act as hedges. They limit your losses if Nifty makes a big move beyond your sold strikes, turning potential unlimited risk into a defined-risk trade.
Let’s walk through a real-world setup with Nifty dropping to 18,500 mid-month and eventually settling at 18,000 by expiration:
Buy Nifty 17,800 PE: Protection for a big downside move.
Buy Nifty 18,500 PE: Closer hedge, gains value as Nifty falls.
Sell Nifty 18,000 PE: Collects premium but gains value as Nifty nears 18,000.
Sell Nifty 18,100 PE: Likely expires worthless if Nifty stays below 18,100.
Outcome at 18,000:
18,000 PE (sold): In-the-money, offset by the 18,500 PE buy.
18,100 PE (sold): Expires worthless—pure profit.
17,800 PE (bought): Minimal value unless Nifty crashes further.
18,500 PE (bought): Caps losses from the 18,000 PE sell.
Net result? A controlled loss or breakeven, thanks to the hedges, with premiums collected softening the blow.
Live Example: Upside Scenario
Now, imagine Nifty rallies to 19,000:
Buy Nifty 18,800 CE: Gains value as Nifty rises.
Buy Nifty 19,300 CE: Protection for an extreme rally.
Sell Nifty 18,900 CE: Collects premium, now in-the-money.
Sell Nifty 19,200 CE: May retain some value or expire worthless.
Outcome at 19,000:
18,900 CE (sold): In-the-money, offset by 18,800 CE buy.
19,200 CE (sold): Expires worthless—pure profit.
19,300 CE (bought): Limits loss if Nifty surges past 19,200.
18,800 CE (bought): Reduces the cost of the 18,900 CE sell.
Options trading involves significant risk. Past performance isn’t a guarantee of future results. Trade responsibly and consult a financial advisor before diving in.
*Disclaimer : This video is only for educational purposes, based on research, own experience, case studies and other sources. It is not created with an intent to harm and injure any person or company. Share market is very risky if you do anything after watching this video will have their own risk and responsibility; The Stockan Youtube Channel does not take responsibility for any damages arising directly or indirectly from any actions taken based on this video.
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