InvestorQ : Even if you are not bearish, can you use options if you feel that upsides are limited?
Abhi Yadav made post

Even if you are not bearish, can you use options if you feel that upsides are limited?

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Abhisha Yadav answered.
2 years ago


This is a normal dilemma that trades have. They are not sure if the markets will go down marginally or substantially but they are almost confident that the Nifty is unlikely to go above the 9900 mark. What to do under these circumstances? The answer is to sell a 9900 call option on the Nifty. Assuming that you receive a premium of Rs.75 on that position, you are protected till a Nifty level of 9975. The idea is that the Nifty will expire below the level of 9900 and you will earn the entire Rs.75 as profit on the trade. Here you are not buying a put option because you are not confident on covering the cost of your put and also making profits on top of that. Under these circumstances, selling a call option works perfectly. However, it needs to be remembered that this has the possibility of unlimited losses. If Nifty goes above 9975 then the losses of the option seller can be unlimited. Remember an important point that, options being a non-binary product, you can customise options strategies based on whether you are strongly bullish, moderately bullish or bullish with uncertainty. With the power of options you can