Option strategy
Index Investment with zero risk
Vidyasagar
11/20/20243 min read
Let's Dive Straight into an Investment Strategy
This strategy involves options, futures, or a mix of ETFs and futures.
The underlying philosophy is based on zero risk—there’s absolutely no loss to the investment, even if the market falls.
This approach is unique and proprietary. You won’t find it on YouTube, Google, or any other source.
So, sshhh!
Understanding Options and Their Purpose
Options were originally designed to hedge investments. Unfortunately, they’ve become speculative instruments. Their purpose was to mitigate volatility in spot prices, but let’s not get too technical. I’ll explain the concept in simple terms.
Investment Philosophy: Zero Loss, Guaranteed Profits
Yes, you read that right! This philosophy ensures portfolio growth while eliminating concerns about market downturns.
How is This Possible?
This strategy requires three key components:
Core Investment: This could be in the form of ETFs, futures, or a mix of both. (Advanced strategies might involve selling weekly or monthly ITM put options, but let’s keep it simple for now.)
Put Options: Acts as insurance against market downturns.
Call Options: Offsets the cost of the put options and caps the upside.
For this explanation, I’ll assume the reader has basic knowledge of how options work:
Put Options: Increase in value if the underlying asset (e.g., Nifty) falls.
Call Options: Increase in value if the underlying asset rises.
The Strategy
Let’s say we invest in Nifty Index Futures, purchasing 100 lots at a spot price of 24,000.
If the Nifty price increases, we make profits.
If the Nifty price falls, we incur losses.
But I’m a conservative investor—I don’t like losses and want to protect my investments. To do so, I buy put options, which act as insurance.
Example Scenario
Assume the Nifty Index is trading at 24,000.
Here’s the initial setup:
Nifty Futures: Purchased at 24,000.
Nifty Put Option: Purchased 24,000 PUT Option as insurance.
Nifty Call Option: Sold 28,000 CALL Option (explained later).
Details of the Put Option:
Strike Price: 24,000
Expiry Date: December 2025
Premium Paid: 800
The Role of the Call Option
When purchasing the put option, we pay a premium of 800 points, which is a cost. To offset this cost, we sell a call option at a strike price of 28,000.
Details of the Call Option Sold:
Strike Price: 28,000
Expiry Date: December 2025
Premium Received: 800
By selling the call option, we earn 800 points, which offsets the cost of buying the put option. This makes the overall cost zero.
Outcome Scenarios
Scenario 1: Nifty Falls by 4,000 Points (Nifty at 20,000)
Nifty Futures Loss: 20,000−24,000=−4,000
Nifty Put Option Gain: 24,000−20,000−800=3,200
Call Option Premium: Earned 800 points
Net Payoff: −4,000+3,200+800=0
No loss, even if the market falls significantly.
Scenario 2: Nifty Rises by 4,000 Points (Nifty at 28,000)
Nifty Futures Profit: 28,000−24,000=4,000
Nifty Put Option Loss: -800 (premium paid)
Call Option Premium: Earned 800 points
Net Payoff: 4,000−800+800=4,000
Maximum profit is capped at 4,000 points.
Scale of Profits
One lot of Nifty contracts contains 25 units. For 100 lots, that’s 2,500 units.
A 1,000-point move results in profits of ₹25 lakhs.
A 4,000-point move generates profits of ₹1 crore.
If Nifty remains stagnant, the outcome is zero profit or loss.
Advanced Customization
For a minimum guaranteed profit, you can adjust the strategy:
Instead of selling the 28,000 call option, sell the 24,000 call option for 2,800 points.
This locks in a minimum profit of ₹50 lakhs, regardless of market direction.
Combining both strategies (50% in each) results in profits ranging between ₹25 lakhs and ₹75 lakhs annually.
Notes on Options
This strategy involves LEAPS (Long-Term Equity Anticipation Securities), which are options expiring after 360 days. These are rarely traded in the Indian market.
This strategy is designed only for Index options, like Nifty and Banknifty. The reason behind is Index moves in moderate price range every year with an average returns of 10 - 15% approximately. In simple terms Nifty moves between 2000 to 4000 points every year. Whereas some equity stocks returns are highly volatile, for that reason this strategy should be used Only on NIFTY Index, also 12 months contract are open only in NIFTY index.
I strongly discourage speculative trading in options. Avoid weekly options—they’re risky and disrupt trading psychology. High brokerages, transaction costs, and taxes often erode profits. Use options solely for hedging and leveraging investments effectively.
General Investment Advice
Wealth is created over time—invest in companies with strong future earning potential.
Diversify your portfolio; never allocate more than 5% of your total investment to a single company.
Maintain discipline and focus on long-term growth.
Simulation
Below is given a simple simulation to check the profit and losses at different prices.
You can notice that below 24000 there are no losses, above 24000 to 28000, profit ranges from 25 lakhs to a crore.