Nifty strategy for tomorrow

Long Strangle Construction

Buy 1 OTM Call Buy 1 OTM Put

The long options strangle is an unlimited profit, limited risk strategy that is taken when the options trader thinks that the underlying stock will experience significant volatility in the near term. Long strangles are debit spreads as a net debit is taken to enter the trade.

Unlimited Profit Potential

Large gains for the long strangle option strategy is attainable when the underlying stock price makes a very strong move either upwards or downwards at expiration.

The formula for calculating profit is given below:

• Maximum Profit = Unlimited
• Profit Achieved When Price of Underlying > Strike Price of Long Call + Net Premium Paid OR Price of Underlying < Strike Price of Long Put - Net Premium Paid
• Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid OR Strike Price of Long Put - Price of Underlying - Net Premium Paid

Nifty is trading at 6150. One can executes a Long Strangle Strategy by buying a 6000 Nifty Put for a premium of Rs. 15.65 and a Rs 6300 Nifty Call for Rs 36.50. The net debit taken to enter the trade is Rs. 13,000.  consider  we  are  buying 5  lot  each

Strategy: Buy Nifty 6000 Put + Buy Nifty 6300 Call 

Nifty Current Value = 6150

Buy Nifty Call Option Strike Price = 6300

You pay premium (Rs.) 36.50

Buy Nifty Put Option Strike Price = 6000

You pay premium (Rs.) 15.65

a) Lot size of Nifty = 50 Qty

b) Let us assume that your total investment for this trade is approx Rs 15,000

c) You can buy 5 lots (50*5 = 250 qty) of Nifty 6300 Call Option by paying Rs 9125/-

d) You can buy 5 lots (50*5 = 250 qty) of Nifty 6000 Put Option by paying Rs 3912/-

Total Investment = Rs 13,037 /- which is the maximum loss possible

Max Profit (Unlimited) but assuming that Nifty moves above 6300 or market moves down below 6000 levels by expiry of this month, one can expect a profit of  6000- 7000  approximate 

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