5 Option Strategies Every Investor Should Know

The Indian stock market is very opportunity-rich, and Indian investors are increasingly moving towards it. Various Indian investors are turning towards option trading to hedge risks and generate passive income.

Options can be a potent tool in the Indian stock market when used correctly. Understanding how to use Option strategies can help retail investors in the stock market when trading on platforms like the NSE( National Stock Exchange) or the BSE(Bombay Stock Exchange).

Let’s understand the five essential Option strategies which can help Indian retail investors gain an edge in the stock market.

Also Read | Calendar Spread Options Strategy: A Guide for Options Traders

Understanding Options – A Quick Primer

Before jumping into the Option strategies, let’s understand the basics of options trading.

In India, options are primarily traded on indices like Nifty 50 and stocks such as Reliance, HDFC Bank, Infosys, and more. One option contract typically represents lot sizes (like 50 shares for Nifty).

There are two types of options:

• Call Options – Right to buy an asset at a certain price.

• Put Options – Right to sell an asset at a certain price.

Options are time-bound, and the closer they get to expiry, the faster they lose value (time decay). Understanding this is critical when using any of the strategies below.

1. Covered Call Strategy

Ideal for: It is best for investors who hold the particular stocks and want to generate a steady monthly income. A covered call strategy is one of the safest and most common strategies used by Indian investors. The strategy involves selling a call option on a stock you already own.

Example:

You own 100 shares of TCS, currently trading at Rs3,800. You decide to sell a 1-month call option with a strike price of Rs4,000 at a premium of Rs100.

• You receive Rs100 × 100 = Rs10,000 as income upfront.

• If TCS stays below Rs4,000 by expiry, you keep the premium and your shares.

• If TCS rises above Rs4,000, your shares may be “called away” (assigned), but you still earn a total profit of Rs20,000 (Rs4,000 – Rs 3,800) + Rs10,000 = Rs30,000.

Advantages:

• Monthly income from option premiums

• Ideal for sideways or slightly bullish markets

• You retain ownership of your stocks unless assigned

2. Protective Put Strategy

Ideal for: It is for the investors who are looking to hedge against their portfolio.

A protective put is essentially an insurance policy for your shares. You own a stock and want to protect yourself from downside without selling the stock.

Example:

You bought 100 shares of HDFC Bank at Rs1,500 per share. To protect your investment, you buy a put option with a strike price of Rs1,400 for Rs25.

• Cost = Rs25 × 100 = Rs2,500

• If the stock falls to Rs1,300, your put option will be worth Rs100, allowing you to recover Rs10,000 in losses.

• If the stock stays above Rs1,400, your put expires worthless.

Advantages:

• Limits your losses

• Allows you to stay invested long-term

• Especially useful during high market volatility

3. Long Call Strategy

Ideal for: Bullish investors looking for high returns with low capital.

A long call is a speculative strategy that gives you the right to buy a stock at a fixed price, anticipating the stock will rise before the option expires.

Example:

You expect Infosys (currently at Rs1,400) to rise in the next month. You buy a call option with a strike price of Rs1,450 for Rs30 per share.

• Cost = Rs30 × 100 = Rs3,000

• If Infosys rises to Rs1,550, your option is worth Rs100 (Rs1,550 – Rs1,450)

• Profit = Rs10,000 – Rs3,000 = Rs7,000

Advantages:

• Low capital investment

• High profit potential

• Limited losses (premium paid)

The strategy is helpful for short-term market moments or event-driven trades like earnings results or budget announcements.

4. Cash-Secured Put Strategy

Ideal for: Investors looking to buy quality stocks at a lower price and get paid for waiting.

A cash-secured put involves selling a put option on a stock you want to own at a lower price. If the price falls, you buy the stock at a discount. If it doesn’t, you keep the premium.

Example:

You want to buy Maruti Suzuki shares, currently trading at Rs11,000. You sell a put option with a strike price of Rs10,500 for Rs150.

• Premium earned = Rs150 × 100 = Rs15,000

• If Maruti falls to Rs10,500 or below, you're obligated to buy 100 shares at Rs10,500 = Rs10.5 lakh

• If it doesn’t fall, you keep Rs15,000 and try again next month

Advantages:

• Get paid to wait for a better price

• Can build long-term positions in blue-chip stocks

• Lower break-even price (Rs10,500 – Rs150 = Rs10,350)

This strategy is ideal for long-term value investors in India.

5. Iron Condor Strategy

Ideal for: Earning passive income when the market is range-bound.

An iron condor is an advanced strategy that involves selling two spreads—one call and one put spread—on the same underlying asset, such as Nifty 50, with the expectation that the market will remain in a specific range.

Example:

You expect the Nifty 50 to stay between 22,000 and 22,500 this month. You:

• Sell 1 put at 22,000 and buy 1 put at 21,800

• Sell 1 call at 22,500 and buy 1 call at 22,700

• Net credit received = 80 per lot

Each lot on Nifty is 50 units:

• Premium = Rs80 × 50 = Rs4,000

If Nifty remains in that range, you keep the entire premium. If it moves outside, your losses are capped by the long legs.

Advantages:

• High probability of profit

• Capped risk and reward

• Effective in low-volatility markets

Why Indian Investors Should Use Options Strategies

Options strategies are now available to retail investors. The emergence of brokers such as Zerodha, Upstox and Bigul has made it easier for retail investors to experiment with strategies to manage option trading.

Key Benefits for Indian Investors:

• Low capital requirement for speculative bets (long calls, long puts)

• Monthly passive income (covered calls, iron condors)

• Risk management during uncertain times (protective puts)

• Buying stock cheaper with built-in discounts (cash-secured puts)

The key is to treat options not as gambling, but as a disciplined, rules-based investment tool.

Best Practices for Using Option Strategies in India

1. Understand Lot Sizes – Option contracts in India are standardized and trade in lots (e.g., Nifty = 50 units, Bank Nifty = 15).

2. Watch for Liquidity – Stick to high-volume stocks and indices for better fills.

3. Use NSE/BSE Market Data – Keep an eye on open interest, implied volatility, and PCR (Put/Call Ratio).

4. Avoid Holding to Expiry – Most retail traders should exit profitable positions before expiry to reduce risk.

5. Monitor STT & Taxes – Options are subject to Securities Transaction Tax and are considered speculative income for taxation.

Summary Table – Option Strategies At a Glance

Final Thoughts

For retail investors India, learning these 5 option strategies is an exhaustive approach to continue generating income, growing, and protecting your investments. These strategies are applicable for new people in call and put options but also for experienced traders who want to enhance returns offering you tools to trade with more intelligence and develop your portfolio.

The Indian options market is growing rapidly, and this presents a great learning opportunity, exploring at minimal costs and improving your trading experience.

Also Read | How to Build a Profitable Options Trading Strategy: Strategies That Actually Work