Profit by leveraging the Nifty Futures and Options Setup - Secrets revealed

In the recent stock market crash, we have seen so many traders loose all their money in Futures and Options. Like Udayan says, "Stock Future is not a toy but a time bomb in the hands of an expert". An expert Futures trader keeps looking for loopholes (price differences in the premium spread) to make quick money and does not get into naked positions, i.e. one can profit if the market swings either ways or atleast the losses are minimised. Today I shall share one such setup which is applicable to the current rangebound scenario.

The NSE India website provides you with latest prices of all the contracts; the following link displays the prices of all the Nifty Options contract. I prefer to trade mostly on Nifty contracts as they are actively traded and even easy to get rid off.

Link: NIFTY Options contracts

Entering the Position

• The Underlying value of the February Nifty Options is 5315 and we still have 18 trading sessions before settlement.
• We have a view that the makets are rangebound between 5100 and 5400 with a downward bias, so one can risk writing a CALL Option at Strike Price 5400. The last traded price for Strike Price 5400 is Rs. 211.00

Exiting the position

We can be faced with the following scenarios :

• We will start loosing money on the above position only if Nifty crosses 5611, so we are covered for 211 points above. To secure ourselves, strategy would be to 'BUY' Nifty futures  only if the trigger price of 5550 is reached.
• Lets assume the rangebound scenario extends further uptill the next week, we will be able to buy and square-off the position at half the price.
• If the market never crosses 5400 before the settlement period, we pocket the entire premium.
• The most tricky scenario would be if markets bounces back to levels of 6000. It becomes all the more important that mechanically, we get into the Futures position at the right time, say when Nifty is around 5550, with a Stop loss of 5400.

The above setup works very well in a rangebound scenario, like the one Indian markets are currently stuck in. I would advice one to first understand Futures and Options very well, rehearse all of these scenarios with examples, experiment with small values and then take up positions.

Disclaimer: Please trade in these positions at your own risks. I do not guarantee that these setups will always work and you need to excercise the right caution.