InvestorQ : If the market is going to be listless, is there still something I can do with options?
Rutuja Nigam made post

If the market is going to be listless, is there still something I can do with options?

Answer
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Arti Chavan answered.
2 years ago


A straddle is a hybrid strategy wherein you simultaneously sell calls and puts on the same stock or index in the same expiry at the same strike price. Let us say you expect RIL to be in the range of Rs.890 to Rs.910 for the month of November 2017. Let us also assume that the 900 RIL call option is available at Rs.20 and the 900 put options is available at Rs.15. If you sell 1lot of 900 call options and 1 lot of 900 put options, then your total premium income will be Rs.35 (20+15). However, the assumption here is that the price of RIL must be in the range of Rs.865 to Rs.935, which is broadly in line with our view on Reliance. As long as the stock price is in the range of Rs.865 to 935, you are safe. If the stock crosses either of these levels, then you have a problem on hand as losses can mount and you will have to close your position by triggering a stop loss. You will prefer that the stock price closes the month near the Rs.900 mark as it will ensure that the entire premium earning of Rs.35 comes to you. This is a popular strategy during lacklustre times.