Trending Day Simple Option Buying Strategy

A thread about SIMPLE OPTION BUYING STRATEGY USING VWAP

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Generally, VWAP is used to know the strength in a buying or selling. VWAP means VOLUME WEIGHTED AVERAGE PIRCE

when price starts rising it would be pulled back to VWAP line. Then buyers would again rush in to buy the stock taking it to price higher

If we compare the CALL and PUT charts, we can identify the correct entry. On trending days VWAP acts as support/resistance

If market is trending UPSIDE, VWAP acts as support in CALL option charts of ATM STRIKES and same VWAP acts as RESISTANCE in PUT option charts of ATM STRIKES

compare the charts of CALLS and PUTS attached here to get an overall idea. This is a simple strategy that most don’t use

Today was this kind of day. Use VWAP on 5 minutes chart on OPTION CHARTS
17000 CE, 17050 CE, 17100 CE, 17150 CE charts

BULLISH STRATEGIES

If we want to trade in F&O then, first we have to create a view.

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If our view is BULLISH then we can deploy following strategies

1⃣Call Buy

👉If our view is TOO BULLISH then we can simply buy a CALL option of ATM strike

👉Risk would be the premium we have paid and
Reward would be unlimited only If it goes above strike price + premium paid

Consider below example :

You bought 17200 CE at 110, at expiry in order to be in profit

Nifty has to stay above 17200 + your premium you paid 110 = 17310.

2⃣Bull Call Spread

👉Spreads are deployed when our view is NEUTRAL TO BULLISH

👉These are limited risk and limited reward strategies

👉In this spread, we use only calls to trade our bullish view

👉We buy a CALL option of ATM strike and SELL a CALL option above that strike.

👉Risk would be the premium debited and
Reward when ever it goes above SOLD STRIKE.

Example : You bought 17200 CE at 110

And sold 17350 at 51

So, 110 - 51 = 59👇

So you will be in profit if it stays above
17200 + 59 = 17259

NEUTRAL STRATEGIES

If market is sideways, These strategies can be deployed

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If our view is sideways or market is moving sideways, it is not good for option buyer. In that case we use this OPTION SELLING STRATEGIES to benefit from the sideways market

SHORT STRADDLE

In this strategy we sell ATM CALL OPTION and PUT OPTION with the same underlying INSTRUMENT, same STRIKE PRICE and same EXPIRY DATE

We receive premium, we benefit from the premium decay. Theta is our friend in this strategy.

The combined premium we receive, added to strike price becomes our upside break even

When the same premium is subtracted from the strike price becomes our downside break even

As long the underlying trades in this range, we benefit from the THETA DECAY and becomes our profit.

The huge risk is overnight carrying of the position. We never know when the market open LC because of BLACK SWAN events.

pay off chart for your reference