Top 15 Options Strategies for Income, Unlimited Profit

Top reason behind the wide popularity of options trading, is the uncapped profit target. Risk low & gain high with right usage of different income options strategies. With options with traders can generate regular income monthly, at least 3-4% return per month by properly blending buy & sell option legs. Almost 20-30% yearly gain which is the most demanding profit target among all institutional fund managers. For some strategies, income is more than 100%, we will explain it below.

Strategies:

Before proceeding you need understand the basics of options trading, you can learn it from our other post.


#1 Long Call

Difficulty Market Direction Max Risk Max Reward
Beginners Upward Limited Unlimited

We have explained the basics of long call and long put many times before. Here we will demonstrate once again with a clear example.

Trade Setup:
  • Buy a call option
Time Period for Trade:

With this kind of trade, time decay works against it, therefore it its wise to buy at least three months expiry options contracts.

Long Call Example
Stock Name Google
Stock Exchange NASDAQ
Current Price $1140.99
Strike Price $1100.00
Call Premium $43.60, amount you pay
Option Status In money
Max Risk $43.60 (call premium)
Max Reward unlimited with the stock price increment
Breakeven $1100.00 + $43.60 = $1143.60
Call strike + call premium

If google share moves above $1143.60, option contract will start making money.
long call option payoff graph

Long call option payoff graph


#2 Long Put

Difficulty Market Direction Max Risk Max Reward
Beginners Downward Limited Unlimited
Trade Setup:
  • Buy a put option
Time Period for Trade:

Same way before, time decay works against it, therefore it its wise to buy at least three months expiry put options contracts.

Long Put Example
Stock Name ONGC
Stock Exchange NSE
Current Price ₹157.35
Strike Price ₹160
Put Premium ₹4.00, amount you pay
Option Status In money
Max Risk ₹4.00 (put premium)
Max Reward unlimited with the stock price increment
Breakeven ₹160 – ₹4 = ₹156
Put strike + put premium

That means if ONGC shares moved below ₹156, then put option will start making money.
long put option payoff graph

Long put option payoff graph


#3 Cover Call

Difficulty Market Direction Max Risk Max Reward
Beginners Upward Limited Limited
Call strike – stock price + call premium
Trade Setup:
  • Buy stock
  • Sell out of money call option
Time Period for Trade:

As this strategy is used for creating monthly dividend from your own stock. So its better to sell the call options monthly.

Covered Call Example
Stock Name TATAMOTORS
Stock Exchange NSE
Current Price (Buy stock) ₹225.40
Strike Price ₹235
You pay ₹214.95
Option Status Out of Money
Max Risk ₹214.95 (100% of total expense)
Max Reward ₹20.05 (9%)
Breakeven ₹214.95
Stock price paid – call premium

April TATATMOTORS stock price ₹225.40, Sell May TATAMOTORS option contract at ₹10.45.
cover call option payoff graph

cover call option payoff graph


#4 Synthetic Call

Difficulty Market Direction Max Risk Max Reward
Beginners Upward Limited Unlimited
Trade Setup:
  • Buy stock
  • Buy at money or out of money put option
Time Period for Trade:

Buy the puts with at least one month extra time period. Longer time period avoid the bad effect of time decay.

Synthetic Call Example
Stock Name WIPRO
Stock Exchange NSE
Current Price ₹289.40
Strike Price ₹288.75
Net Debit ₹2894 + ₹13.20 = ₹2907.2
stock price + put premium
Option Status Out of money
Max Risk ₹1385
stock price + put premium – put strike
Max Reward unlimited
Breakeven ₹302.6
Strike price + put premium + stock price – put strike price

Buy 100 shares of WIPRO at ₹289.40.
Buy 1 MAY put option contract at ₹13.20 with 288.75 strike.
synthetic call option payoff graph

synthetic call option payoff graph


#5 Synthetic Put

Difficulty Market Direction Max Risk Max Reward
Beginners Downward Limited Unlimited
Trade Setup:
  • Sell stock
  • Buy at money or out of money call option
Time Period for Trade:

Buy the call with at least one month extra time period. Longer time period avoid the bad effect of time decay same as before with synthetic put option.

Synthetic Put Example
Stock Name HDFCBANK
Stock Exchange NSE
Current Price ₹2287.90
Strike Price ₹288.75
Net Credit ₹2206.90
stock price- call premium
Option Status In money
Max Risk ₹73.1
call premium + call strike – stock price
Max Reward ₹2206.90
stock price- call premium
Breakeven ₹2206.9
stock price – call premium

Sell 10 shares of HDFCBANK at ₹2287.90 on April.
Buy 1 MAY call option contract at ₹81 with 2280 strike.

synthetic put option payoff graph

synthetic put option payoff graph


#6 Bear Call Spread

Difficulty Market Direction Max Risk Max Reward
Intermediate Downward Limited Limited
Trade Setup:
  • Sell lower strike call option
  • buy higher strike call option with same amount & same expiray date. Both strike price should be higher than current market price.
Time Period for Trade:

Can be traded on short term, one month or less expiray dates.

Bear Call Spread Example
Stock Name LUPIN
Stock Exchange NSE
Current Price ₹827.45
Net Credit ₹9.75
sell premium – buy premium
Max Risk ₹10.25
higher strike – lower strike – net credit
Max Reward ₹9.75
net credit
Breakeven ₹829.75
lower strike + net credit

LUPIN is trading at ₹827.45.
Sell May option call with strike rate of 820 at ₹46.80.
Buy May option call with strike rate of 840 at ₹37.05.

bear call spread option payoff graph

Bear call spread payoff graph


#7 Bull Put Spread

Difficulty Market Direction Max Risk Max Reward
Intermediate Upward Limited Limited
Trade Setup:
  • Buy lower strike put option
  • Sell higher strike put option with same amount & same expiray date. Both strike price should be lower than current market price.
Time Period for Trade:

Can be traded on short term, one month or less expiray dates.

Bull Put Spread Example
Stock Name ICICI Bank
Stock Exchange NSE
Current Price ₹403.90
Net Credit ₹8.3
sell premium – buy premium
Max Risk ₹6.7
higher strike – lower strike – net credit
Max Reward ₹8.3
net credit
Breakeven ₹403.3
higher strike – net credit

ICICIBANK is trading at ₹403.90.
Buy May option put with strike rate of 395 at ₹12.25.
Sell May option put with strike rate of 410 at ₹20.55.
bull put spread option payoff graph

Bull put spread payoff graph


#8 Straddle

Difficulty Market Direction Volatility Max Risk Max Reward
Intermediate Range High Limited Unlimited
Trade Setup:
  • Buy at money strike put
  • Buy at money strike call with same expiry date & same strike price.
Time Period for Trade:

Longer time is better, 2-3 months expiry is reasonable.

Straddle Example
Stock Name IDEA
Stock Exchange NSE
Current Price ₹18.05
Net Debit ₹3.15
Total premium
Max Risk ₹3.15
Net debit
Max Reward unlimited
Breakeven up ₹14.85
strike – net debit
Breakeven down ₹21.15
strike + net debit

IDEA is trading at ₹18.05 April.
Buy May option put with a strike rate of 18 at ₹2.40.
Buy May option call with a strike rate of 18 at ₹0.75.

straddle option payoff graph

Straddle option payoff graph


#9 Strangle

Difficulty Market Direction Volatility Max Risk Max Reward
Intermediate Range High Limited Unlimited
Trade Setup:
  • Buy out of money lower strike put
  • Buy out of money strike call with same expiry date & with higher strike price.
Time Period for Trade:

Longer time is better, 2-3 months expiry is reasonable.

Strangle Example
Stock Name Suzlon
Stock Exchange NSE
Current Price ₹7.40
Net Debit ₹2.5
Total premium
Max Risk ₹2.5
Net debit
Max Reward unlimited
Breakeven down ₹3.35
low strike – net debit
Breakeven up ₹10.5
high strike + net debit

Suzlon is trading at ₹7.40 April.
Buy May option put with a strike rate of 6 at ₹1.5.
Buy May option call with a strike rate of 8 at ₹1.

strangle option payoff graph

Strangle option payoff graph


#10 Long Iron Buttefly

Difficulty Market Direction Volatility Max Risk Max Reward
Intermediate Range Low Limited Limited
Trade Setup:
  • Buy out of money lower strike put option.
  • Sell at money middle strike put option.
  • Sell at money middle strike call option.
  • Buy out of money higher strike call option.
Time Period for Trade:

When position in profit, time decay is positve when positive in loss, time decay is negative.

Strangle Example
Stock Name ASIANPAINT
Stock Exchange NSE
Current Price ₹1468.45
Net Credit ₹31.85
Net premium
Max Risk ₹8.15
differenence in strike – net credit
Max Reward ₹31.85
net credit
Breakeven down ₹1428.15
middle strike – net credit
Breakeven up ₹1491.85
middle strike + net credit

ASIANPAINT is trading at ₹1468.45 April.
Buy May put option with a strike rate of 1420 at ₹27.85.
Sell May put option with a strike rate of 1460 at ₹40.
Sell May call option with a strike rate of 1460 at ₹61.20.
Buy May call option with a strike rate of 1500 at ₹41.50.

long iron butterfly option payoff graph

Long iron butterfly option payoff graph


#11 Long Iron Condor

Difficulty Market Direction Volatility Max Risk Max Reward
Intermediate Range Low Limited Limited
Trade Setup:
  • Buy out of money lower strike put option.
  • Sell out of money lower middle strike put option.
  • Sell out of money higher middle strike call option.
  • Buy out of money higher strike call option.
Time Period for Trade:

When position in profit, time decay is positve when positive in loss, time decay is negative.

Strangle Example
Stock Name GAIL
Stock Exchange NSE
Current Price ₹352.10
Net Credit ₹2
Net premium
Max Risk ₹3
differenence in strike – net credit
Max Reward ₹2
net credit
Breakeven down ₹348
lower middle strike – net credit
Breakeven up ₹357
uper middle strike + net credit

GAIL is trading at ₹352.10 April.
Buy May put option with a strike rate of 345 at ₹10.80.
Sell May put option with a strike rate of 350 at ₹11.70.
Sell May call option with a strike rate of 355 at ₹15.15.
Buy May call option with a strike rate of 360 at ₹14.05.

long iron condor option payoff graph

Long iron condor option payoff graph


#12 Bull Put Ladder

Difficulty Market Direction Volatility Max Risk Max Reward
Advance Downward High Limited Unlimited
Trade Setup:
  • Buy lower strike put
  • Sell middle strike put with same expiry date & with same amount.
  • Sell higher strike put with same expiry date .
Time Period for Trade:

Medium to longer time is better, 2-3 months expiry is reasonable.

Bull Put Ladder Example
Stock Name INDIGO
Stock Exchange NSE
Current Price ₹1637.95
Net Debit ₹68.95
Total premium paid – premium receive
Max Risk ₹88.95
Difference between middle & higher strike price + net debit
Max Reward unlimited
Breakeven down ₹1511.05
low strike – max risk
Breakeven up ₹1728.95
high strike + max risk

INDIGO is trading at ₹1637.95 April.
Buy May put option with a strike rate of 1600 at ₹80.
Buy May put option with a strike rate of 1620 at ₹90.25.
Sell May put option with a strike rate of 1640 at ₹101.30.

bull put ladder option payoff graph

Bull put ladder option payoff graph


#13 Bear Call Ladder

Difficulty Market Direction Volatility Max Risk Max Reward
Advance Upward High Limited Unlimited
Trade Setup:
  • Sell lower strike call
  • Buy middle strike call with same expiry date & with same amount.
  • Buy higher strike put with same expiry date & with same amount.
Time Period for Trade:

Medium to longer time is better, 2-3 months expiry is reasonable.

Bear Call Ladder Example
Stock Name YESBANK
Stock Exchange NSE
Current Price ₹257.20
Net Debit ₹10.70
Total premium paid – premium receive
Max Risk ₹20.70
Difference between middle & higher strike price + net debit
Max Reward unlimited
Breakeven down ₹239.30
low strike – net debit or (+ net credit)
Breakeven up ₹290.70
high strike + max risk

YESBANK is trading at ₹257.20 April.
Sell May call option with a strike rate of 250 at ₹24.
Buy May call option with a strike rate of 260 at ₹19.45.
Buy May call option with a strike rate of 270 at ₹15.25.
bear call ladder option payoff graph

Bear call ladder option payoff graph


#14 Strip

Difficulty Market Direction Volatility Max Risk Max Reward
Expert Downward High Limited Unlimited
Trade Setup:
  • Buy two at money put option
  • Buy one at money call option with same expiry date.
Time Period for Trade:

Medium to longer time is better, 2-3 months expiry is reasonable.

Strip Example
Stock Name JETAIRWAYS
Stock Exchange NSE
Current Price ₹175.50
Net Debit (₹34.30×2)+ ₹32.15 = ₹100.75
Total premium
Max Risk ₹100.75
net debit
Max Reward unlimited
Breakeven down ₹119.62
strike – (net debit/2)
Breakeven up ₹270.75
strike + net debit

JETAIRWAYS is trading at ₹175.70 April.
Buy two May put option with a strike rate of 170 at ₹34.30.
Buy one May call option with a strike rate of 170 at ₹32.15.
strip option payoff graph

Strip option payoff graph


#15 Guts

Difficulty Market Direction Volatility Max Risk Max Reward
Expert Range High Limited Unlimited
Trade Setup:
  • Buy in money lower strike call option
  • Buy in money put option with same expiry date.
Time Period for Trade:

Medium to longer time is better, 2-3 months expiry is reasonable. Never setup guts on the last month of the expiry dates. Closer to the expiry date value loses faster with the effect of time decay.

Guts Option Example
Stock Name DHFL
Stock Exchange NSE
Current Price ₹160.70
Net Debit ₹49.55
Total premium
Max Risk ₹29.55
net debit – difference in strike price
Max Reward unlimited
Breakeven down ₹120.45
low strike – max risk
Breakeven up ₹199.55
high strike + max risk

DHFL is trading at ₹160.70 April.
Buy May call option with a strike rate of 150 at ₹26.50.
Buy May put option with a strike rate of 170 at ₹23.05.
guts option payoff graph

Guts option payoff graph

Conclusion:

It is always advised to use technical analysis side by side before making an option trading decision. Each strategy mentioned above work for different types of markets based on their metrics. Some are for a bearish high volatile market. Some are for the bullish high volatile market. Even some are for range market. So first find stocks, index, currency options matching with these metrics, then confirm its trend with technical analysis. Find a sweet spot & make an entry with good price & risk-reward ratio.


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