Hey Folks! How’s your trading going? I’m trying to share one option strategy every week to help our fellow traders. Today I’m sharing a Call Ratio Spread Strategy in INFRATEL for 30th July 2020 expiry.
Because this option strategy is an unlimited risk strategy, so we have to be a little cautious to choose this strategy. If you choose wisely, this strategy can give you some decent returns in a very short time.
In this article I will share some of the rules or setups you can follow to make it a high probability option strategy.
Before you deploy this strategy in your account, I want to share some important points related to option strategies here.
- Before you start any live trading, You must understand all the logic and the factors behind these strategies.
- You must have basic knowledge about option pricing. Like what are the greeks? What are the intrinsic value and the Implied volatility?
- Last but not the least, How these factors will affect your option pricing?
Basic knowledge about the factors will help to manage your option strategy in a proper way.
I believe We make money not because of a good trade but from proper trade management. And if you want to manage your trade well, You should learn these basic terms first. It will help to make some better decisions which will boost your confidence.
Let’s back again to our Call ratio spread strategy.
What is the Call Ratio Spread Strategy?
Call ratio spread Strategy is an unlimited risk strategy. It can give you a very good return if choose wisely. Let’s look at the formation of the Call Ratio Spread Strategy.
In Call Ratio Spread, We are buying one ATM/OTM Call and selling 2 further OTM Calls. Because we are buying and selling in ratios like 1:2, 2:3, etc… that’s why it’s called a Call Ratio Spread.
You can optimize it based on the view like If you are expecting a range-bound activity or any downside movement. you can make it a Net credit spread.
It is advisable that you should create this strategy in those stocks that are trading near to its resistance zone and expecting some consolidation with downside movement. To understand more please refer to the next section where we are sharing the strategy.
I did some optimization in this strategy. Want to know how we are using it? You can enroll in our Option Strategies – A Mentorship Program.
Call Ratio Spread in INFRATEL
Before we go to our Call Ratio Spread Strategy in INFRATEL, I will tell you, Why I choose INFRATEL for this strategy? To understand this, let’s look at the chart first.
After a good rally, Today INFRATEL gave a good breakdown from 200. Around 220 – 250 there is a strong resistance zone that seems to be difficult to break at least for this expiry.
- It’s a simple setup, Whenever you saw a breakdown from important support zone, can initiate this strategy.
Now the next step is to check the option chain data. Based on the data you can select a resistance zone and based on that zone you can choose your strikes.
Option chain analysis of Infratel
Based on the option chain data, you can see that 220 – 230 carries highest call Open interest and reacting as an immediate resistance zone for July expiry. So we can use it to choose our strike. Now. let’s look at the Call ratio spread strategy in INFRATEL.
Call Ratio Spread Strategy in INFRATEL
In the previous section, we have find that 220 – 230 is the strong resistance zone. So I choose 215 CE and 220 CE.
Reason is: I will not lose anything till INFRATEL expire below 220. This is my Breakeven.
Now I have a question, I said, I will not loose anything till INFRATEL expire below 220. But what will happen if we got any good upside movement in the next 2/3 days? How will you manage it?
Let me tell you the adjustments.
You can see, we have unlimited risk on the upside. So any upside movement will create some problems. TO manage this trade in such a situation, the first thing you can do is: Stop your unlimited loss first. To do that simply square off one sold call and convert it into a bull call spread.
After you square off one sold call, your Unlimited risk will convert into limited risk and limited profit.
There are some other adjustments too. To learn those adjustments you can enroll in our Option Strategies – A Mentorship program.
I hope my articles are helping to trade with these options strategies. Which strategy you are using to generate your pay-check? Do let me know in the comment box.
Options Strategies – A Mentorship Program
On the 1st of September 2019, We have launched a new mentorship program for Option strategies, in which we are discussing how can we deploy these strategies? What rules we should follow before taking a trade? and what should be our adjustments if the script is moving against your direction?
DISCLAIMER: – we are not a SEBI research analyst. Views posted here only for educational purposes. There is no liability whatsoever for any loss arising from the use of this article or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods. This information should only be used by investors and traders who are aware of the risk inherent in securities trading.
8+ Years working as a derivative trader, Option Writer, Blogger, Trader by passion, Keen Follower of Indian share market