Secret Advantage Of Option Trading: A Simple Definition

If You Do Not Know the Soft Skill of OptionsTrading You would be in Cold.


What brought me to Options Trading is Making Money and nothing else.

We all have the same in mind. Don’t We.

Perhaps we miss something more important. If you have googled enough for benefits of options trading you would have got an entire list. But the purpose of this article is very different. These benefits that you often find are mostly largely subjected to marketers offering to reveal.

When we say secret advantage we would like to bring your attention to advantages which otherwise are not focused on. Options too are excellent investment tools which give more flexibility along with reduced risk and increase your income from investments.

Let’s discuss the most guarded benefits of Options Trading that are not otherwise found.

Cheap Insurance

Cheap insurance is when we buy long term Out Of Money Put options. This is usually done by Long Term Portfolio Investors. You can volumes in put options up to the year 2020 which is around three years from the current date.

Yearwise Option Chain for Cheap Put Option for Insurance AlphaTradingSource: NSEINDIA Underlying Index: NIFTY 10066.40 As on Aug 04, 2017 15:30:29 IST

The reason why it’s called as cheap insurance is many. Most importantly it is the only option available to protect your long term portfolio in case there is a bearish market over a long period of time. Compared to the money lost in your stock portfolio this would be much cost effective. The reason being is market falls rapidly and gain slowly.

Market Fall Very Rapidly Comparitively Alpha TradingSource: Google Finance Aug 4 – Close NSE 17 Years Line Chart

This can be easily found for the year 2008. Most people those who have bought put insurance during that period would have survived the crash and also indemnified.

Income In Bearish Market

The bearish market for a longer term or even when the stock market is consolidating investing opportunities are very limited. Especially during consolidation market are usually flat.

When I mention consolidation it not for few weeks or months. You can in the below chart that from the year 2010-2013 was a year of consolidation when the market did not achieve much movement. During this period the return of the index was around 15% as seen in the chart. Which is way below its long term average.

During this period option trading strategies are of great benefit to generate income.

Consolidation in Stock Market NSEINDIA 2010 to 2014 AlphatradingSource: Google Finance NSEINDIA Nifty 50 Aug 4 – Close NSE

goes for few years.

I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up. Jesse Livermore Click To Tweet

Consistent Income Option Trading Strategies

Options trading because of its flexibility gives the opportunity to trade certain strategies which generate consistent monthly income.

Since these strategies are completely hedged the risk is limited and return is also limited which gives enormous opportunities to generate additional income from Portfolio Margin.

Some of the Consistent Income Generating strategies are mentioned below.

  • Option Spreads
  • Iron Condor
  • Butterfly Option Trading Strategy
  • Covered Call
  • Credit Spread
  • Time Spread Strategies

Mastering the skill of Income Generating Strategies does not have to be very complex. These are a list of strategies anyone is enough to understand and master which you are comfortable with.

The best part of these kinds of monthly income strategies you can continue your day to day work and at the same time manage the income generating option strategies.

Option Trading to Earn Not to be Right All The Time 

Income During Depression

India has not witnessed Depression so most of us including me would not be aware.

What I have heard from others is that it takes a decade to regain which is a fact too.

The United States of America has experienced depressions like no other. Wikipedia gives these details of The Great American Depression USA annual real GDP 1910–60, with the years of the Great Depression (1929–1939) highlighted. The unemployment rate in the US 1910–1960, with the years of the Great Depression (1929–1939) highlighted.

Wikipedia defines economic depression as,

In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a recession, which is a slowdown in economic activity over the course of a normal business cycle.

Options trading strategies could be an opportunity to generate a regular income.

Did you find some great strategies of your own in the post? What are the exciting ideas informing your own strategies—and how are you implementing them?

Let us know in the comments.

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