Strategies
Start from a strategy, not a blank form
18 ready-made positions for Indian index options. Each one says what it is, why anyone would use it, and — the part usually left out — exactly what happens when it goes against you. Nothing is calculated until you ask, and when you do, it runs on your machine.
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Short straddle
Loss uncappedSell the at-the-money call and put on the same strike.
When it goes wrong: The loss is unbounded in both directions.
Short strangle
Loss uncappedSell an out-of-the-money call and an out-of-the-money put.
When it goes wrong: Still unbounded on both sides.
Delta strangle
Loss uncappedSell the call and put nearest a chosen delta, rather than a fixed distance.
When it goes wrong: Unbounded, like every short strangle.
Covered call
Loss uncappedHold the index through futures and sell a call against it.
When it goes wrong: You keep every point of the fall and give away every point of the rise beyond the strike you sold.
Credit spreads
Iron condor
Loss cappedA short strangle with a bought option beyond each sold one.
When it goes wrong: Loss is capped, but the cap is typically several times the credit received — a handful of bad expiries can undo many good ones.
Iron fly
Loss cappedA short straddle with a bought option on each side.
When it goes wrong: Capped, but you are wrong more often than with a condor because the profitable band is narrow.
Bull put spread
Loss cappedSell an out-of-the-money put, buy a further out-of-the-money put.
When it goes wrong: Capped at the gap between the strikes minus the credit.
Bear call spread
Loss cappedSell an out-of-the-money call, buy a further out-of-the-money call.
When it goes wrong: Capped at the gap between the strikes minus the credit, and the cap is normally much larger than the credit.
Collar
Loss cappedHold the index, buy a put for protection, and sell a call to pay for it.
When it goes wrong: Both ends are given away: the loss is floored but the gain is capped, and in a strong rally the capped side is the one that hurts.
Debit spreads
Bull call spread
Loss cappedBuy an at-the-money call, sell a further out-of-the-money call.
When it goes wrong: You can lose the entire amount paid, and you will if the index does not rise.
Bear put spread
Loss cappedBuy an at-the-money put, sell a further out-of-the-money put.
When it goes wrong: The whole debit is at risk and is lost if the index holds up or drifts.
Volatility
Long straddle
Loss cappedBuy the at-the-money call and put on the same strike.
When it goes wrong: The most reliably losing structure in this catalogue if held to expiry.
Long strangle
Loss cappedBuy an out-of-the-money call and an out-of-the-money put.
When it goes wrong: Cheaper to put on and harder to win.
Directional
Long call
Loss cappedBuy a single call.
When it goes wrong: Most bought options expire worthless.
Long put
Loss cappedBuy a single put.
When it goes wrong: The same decay problem as a long call, and puts are often more expensive relative to calls because demand for downside protection is persistent.
Protective put
Loss cappedHold the index through futures and buy a put as insurance.
When it goes wrong: The put costs money every cycle whether or not it is needed, and that cost is certain while the protection is not.
Ratio spreads
Call ratio spread
Loss uncappedBuy one at-the-money call, sell two further out-of-the-money calls.
When it goes wrong: Unbounded above the sold strike, and the danger sits exactly where the trade looks like it is working.
Put ratio spread
Loss uncappedBuy one at-the-money put, sell two further out-of-the-money puts.
When it goes wrong: Unbounded below the sold strike, and index falls are faster than rallies.