It’s been a while since the broader market index made a new all-time high (ATH). The current ATH of 19,991.85 was marked on 20 July 2023 and amid a decent correction from there, it seems like the top has been printed, at least for this monthly expiry.

Amid your overwhelming response to my previous options strategy for , here’s another one for Nifty 50 that can reap 5% ROI in the next 3 weeks, and can be explored by traders who don’t think the market will make a new high in this August 2023 expiry.

To keep it super simple, this is a bear call spread that involves only two options positions.

-20000 CE at 50

+20200 CE at 24

In this strategy, traders can explore going long on 20000 CE at the current premium of 50. As short-selling options expose traders to unlimited risk, to curb that, one farther OTM option of 20200 CE can be bought at the current price of 24.

The net premium that will be received in this 20000 CE short and 20200 CE long option strategy is INR 1,300 per lot. The total margin required to execute this strategy is approximately INR 25,500. The margin is low because the position is hedged and the trader is not exposed to an unlimited loss.

Now here’s the payoff.

The net premium received, i.e. INR 1,300 per lot will be the maximum profit if the market closes below 20,000 on 31 August 2023, a return of 5% on margin. As this is the max profit, even if Nifty falls 1,000 points, the profit will remain the same, but the best part is there is absolutely no risk on the downside.

Now, from where does the risk actually start? If Nifty breaks its ATH and soars past 20,000, that is where the profit will start to decline till it hit the breakeven of 20,026. At this level, the P&L will become 0. If Nifty keeps on rising, then the loss will start and will keep on increasing till 20200, which is when it will reach a maximum of INR 8,700 per lot. This position cannot incur a higher loss than this, even if Nifty surges 1,000 points.

So the risk-to-reward ratio is 7:1 which is not good. That means for INR 1 of max gain, you are risking INR 7. However, the probability of closing this trade in the green is 80%.

To reiterate again, this strategy should not be deployed if you think Nifty 50 will break its ATH in this monthly expiry.

Disclosure: I have multiple positions in Nifty 50

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