Level 3: Derivatives & Options
1. Directional Option Strategies (Spreads)
A. Bull Call Spread (Moderately Bullish)
Buy 1 ATM Call Option + Sell 1 OTM Call Option. By selling the OTM Call, you collect premium that offsets the Theta decay and upfront cost of the ATM Call, creating a strictly defined-risk setup.
B. Bear Put Spread (Moderately Bearish)
Buy 1 ATM Put Option + Sell 1 OTM Put Option. Limits downside risk while lowering breakeven threshold.
2. Non-Directional Rangebound Strategies (Income Generation)
A. Short Straddle (Delta Neutral)
Sell 1 ATM Call + Sell 1 ATM Put simultaneously on weekly expiry morning. Profits when the index remains contained within the collected premium range, capturing 100% Theta decay.
B. Iron Condor (Defined Risk Range Trading)
Consists of 4 legs: Sell OTM Call + Buy Far OTM Call (Hedge) AND Sell OTM Put + Buy Far OTM Put (Hedge). Delivers consistent monthly returns with guaranteed protection against sudden black-swan gap openings.
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