Part 1 Master Candle Stick Pattern

1. Long Call Strategy – Betting on Upside

One of the simplest option strategies is buying a long call. Traders use this when they are bullish but want to risk less capital than buying the stock outright.

Maximum Loss: Limited to premium paid.

Maximum Profit: Unlimited (stock can theoretically rise infinitely).

Best Case: Strong bullish move in underlying.

Worst Case: Stock stagnates or falls, premium decays to zero.

2. Long Put Strategy – Profiting from Downside

Buying a long put is the bearish counterpart to a call. It gives downside protection or speculative profit.

Maximum Loss: Premium paid.

Maximum Profit: Stock can fall to zero.

Use Case: Protecting stock portfolios (hedging).

3. Covered Call Strategy – Income Generation

In a covered call, an investor owns the underlying stock and sells call options against it.

Purpose: Generate extra income through premiums.

Risk: Stock may rise above strike, forcing the seller to sell shares.

Advantage: Provides downside cushion via collected premium.

4. Protective Put – Insurance for Portfolio

Buying a put option while holding stock acts like insurance.

Example: If you own Reliance at ₹2500 and buy a put at ₹2400, your maximum downside risk is capped.

Benefit: Peace of mind in volatile markets.

Cost: Premium, just like an insurance policy.

5. Spreads – Controlling Risk and Cost

Spreads involve combining two or more option positions. Examples:

Bull Call Spread: Buy lower strike call, sell higher strike call.

Bear Put Spread: Buy higher strike put, sell lower strike put.

Advantage: Lower premiums, defined risks.

Disadvantage: Capped profits.

6. Straddles and Strangles – Playing Volatility

When traders expect big moves but are unsure of direction:

Straddle: Buy one call and one put at the same strike and expiry.

Strangle: Buy OTM call + OTM put.

Profit: Large move in either direction.

Risk: Market remains stagnant, premiums decay.

7. Iron Condor and Iron Butterfly – Income from Range-Bound Markets

Advanced strategies like Iron Condor and Butterfly Spread allow traders to profit in low-volatility environments. They involve selling both calls and puts to collect premium, betting that prices stay within a certain range.

These strategies are popular among professional traders who trade based on time decay (Theta).

8. Role of Volatility in Option Pricing

Volatility is the lifeblood of options.

Implied Volatility (IV): Market’s forecast of future volatility.

Historical Volatility (HV): Actual past movement.

Rule: When IV is high, options are expensive. When IV is low, options are cheap.

Trade Insight: Buy options in low IV and sell/write options in high IV.