Options Trading Strategy for Bank Nifty on Weekly Expiry

Boost Your Bank Nifty Trading with a Simple Short Straddle Options Strategy in Indian Stock Market.

Step-by-Step Guide to Implementing Short Straddle Strategy with Examples in Bank Nifty Weekly Expiry Options Trading

Options trading is an advanced form of trading that involves buying and selling options contracts based on the underlying assets, such as stocks, indices, or commodities. In the Indian stock market, one of the popular options contracts is Bank Nifty, which tracks the performance of the banking sector in the NSE. In this blog, I will share a simple yet effective options trading strategy that can be used on Bank Nifty weekly expiry.

The strategy is called the short straddle, which involves selling a call option and a put option with the same strike price and expiration date. The idea behind this strategy is to profit from the time decay of the options contracts and the volatility compression that occurs after the earnings announcement or any other significant event.

Let's take an example to understand this strategy better. Suppose the Bank Nifty is trading at 35,000, and we sell a 35,000 call option and a 35,000 put option, both with a weekly expiration date. The premium received for the call option is Rs. 200, and the premium received for the put option is Rs. 150, making the total premium received Rs. 350.

Now, there are three possible scenarios that can happen at expiration:

1. Bank Nifty remains at 35,000: In this case, both the call and put options expire worthless, and we get to keep the entire premium of Rs. 350 as profit.

2. Bank Nifty goes above 35,350: In this case, the call option is in the money, and we have to pay the difference between the strike price and the current price of Bank Nifty. Let's say Bank Nifty closes at 35,500; we have to pay Rs. 150 as a loss on the call option. However, the put option expires worthless, and we get to keep the premium of Rs. 350, making the net profit Rs. 200.

3. Bank Nifty goes below 34,650: In this case, the put option is in the money, and we have to pay the difference between the strike price and the current price of Bank Nifty. Let's say Bank Nifty closes at 34,500; we have to pay Rs. 150 as a loss on the put option. However, the call option expires worthless, and we get to keep the premium of Rs. 350, making the net profit Rs. 200.

As we can see from the above scenarios, the short straddle strategy can be profitable as long as Bank Nifty remains within a certain range. The maximum profit we can make is the premium received, and the maximum loss we can make is unlimited if Bank Nifty moves significantly in one direction.

To minimize the risk, we can use a stop-loss order to close the position if the loss exceeds a certain threshold. For example, we can set a stop-loss order at Rs. 500, which means we will close the position if the loss reaches Rs. 500.

In conclusion, the short straddle strategy is a simple yet effective options trading strategy that can be used on Bank Nifty weekly expiry. It involves selling a call option and a put option with the same strike price and expiration date to profit from the time decay and volatility compression. However, it's important to manage the risk and use stop-loss orders to minimize the potential losses.

You can use the Calculator(Located at the bottom of this Blog) to Calculate Your Potential Profit and Loss