OPTIONS STRATEGY FOR BUDGET. LIMITING RISKS WITH UNLIMITED GAIN POTENTIAL

With the budget just a couple of days away traders are gearing up to capitalize on the event. But for now the run up to this budget has been unusual. We didn’t have much of a an usual pre budget rally so far. Hence markets are not able to provide any sense of direction. Hence is difficult to take a one sided trade. Hence the need for a covered trade.

Our chief options strategist recommends this Bullish Call ratio spread. The strategy is meant for traders who want to bet on the upside an believe markets can go after this budget or in this series and yet want to cover himself in case the markets go down.

The strategy is prepared by buying a far call in a different ratio and selling a near call at the same time

Strategy Construction: Long 8800 CE March series (2 Quantity) + Short 8700 CE March Series (1 Quantity)

The benefit with this strategy is that maximum loss is limited to -256 INR per pair of trade, while the gain potential is unlimited. This will mean irrespective of how much the market falls the max loss will not exceed -256 for the trader.

Strategy performance v/s NIFTY:

Total Investment: 255

Total Debit: 155

Max Profit potential: Unlimited ( Profit at 9200: 155 INR, Profit at 9400 : 345 INR )

Max Loss: Below 8800 at -255

Upper Breakeven : 9055

Here is a detailed snapshot of strategy performance v/s the underlying:

NIFTY Options Strategy performance/ Underlying