Nifty Futures in stock market can be an excellent instrument for generating income through option selling strategies. Option selling, also known as option writing or selling premium, involves taking a position where you collect the premium by selling options contracts. By leveraging Nifty Futures, traders can implement various option selling strategies to generate consistent income.
In this article, we will explore some popular option selling strategies for income generation using Nifty Futures.
Covered Call Strategy:
The covered call strategy is a commonly used option-selling strategy. In this strategy, you simultaneously hold a long position in Nifty Futures and sell call options against that position. By selling the call options, you collect premiums from the buyers. The objective is to generate income from the premiums while maintaining the potential for capital appreciation from the long Nifty Futures position. This strategy is ideal when you expect the Nifty 50 index to have limited upside potential. Check here what is SIP Calculator.
Cash-Secured Put Strategy:
The cash-secured put strategy involves selling put options while having sufficient cash to cover the potential obligation of buying the underlying asset (in this case, Nifty Futures) if the option is exercised. By selling put options, you collect premiums. If the options expire worthless (out-of-the-money), you keep the premium as income. If the options are exercised, you are obligated to buy Nifty Futures at the strike price. This strategy is suitable when you have a bullish or neutral outlook on the Nifty 50 index in stock market.
Iron Condor Strategy:
The iron condor strategy combines both call and put options to create a range-bound income-generating strategy. In this strategy, you simultaneously sell out-of-the-money call options and put options. The objective is to collect premiums while anticipating that the Nifty 50 index will remain within a specific range until options expiration. By selecting the strike prices carefully, you can define the maximum potential profit and loss. This strategy is effective when you expect the Nifty 50 index to have low volatility and trade within a range. Check here what is SIP Calculator?
Butterfly Spread Strategy:
The butterfly spread strategy is another option selling strategy in stock market that involves selling both call and put options. In this strategy, you sell at-the-money call and put options while simultaneously buying out-of-the-money call and put options to create a symmetrical “butterfly” shape on the options chain. The objective is to collect premiums while having limited risk exposure. This strategy is suitable when you anticipate the Nifty 50 index to have low volatility and trade within a specific range.
Vertical Credit Spread Strategy:
The vertical credit spread strategy is a directional option in stock market selling strategy that involves selling one option and simultaneously buying another option with a different strike price, creating a spread. In this strategy, you collect a net credit, which is the difference between the premiums received from selling the option and the premium paid for buying the other option. The objective is to generate income while having limited risk exposure. This strategy can be implemented for bullish or bearish market expectations by selecting the appropriate strike prices. Check here what is SIP Calculator?