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Beginner-Friendly Option Trading Strategies

Let us now study some beginner-friendly option trading strategies in detail.

Covered Call Strategy

Best for: Investors who already own shares.

Market Outlook: Neutral to slightly bullish.

How it works:

Buy or hold 100 shares of a company.

Sell (write) a call option on the same stock.

Example:

You own Infosys shares bought at ₹1600.

You sell a call option at strike ₹1700 for ₹30 premium.

Outcomes:

If Infosys stays below ₹1700, you keep the ₹30 premium (profit).

If Infosys rises above ₹1700, you must sell shares at ₹1700. You still make profit because your cost was ₹1600.

Pros:

Generates steady income.

Low risk.

Cons:

Your profit is capped if stock rises sharply.

Educational takeaway: A covered call is like earning rent on a property you own.

Protective Put Strategy

Best for: Investors who want insurance for their portfolio.

Market Outlook: Bullish, but with fear of downside risk.

How it works:

Buy shares of a company.

Buy a put option for protection.

Example:

You buy TCS shares at ₹3600.

You purchase a put option with strike ₹3500 for ₹50.

If TCS falls to ₹3300, your shares lose ₹300. But your put option gains value, limiting your losses.

Pros:

Acts like insurance.

Protects against big losses.

Cons:

Premium cost reduces net return.

Educational takeaway: A protective put is like buying health insurance—you hope not to use it, but it provides safety.