Options strategies for bearish markets

Protrader permits speedy analysis of options strategies before implementation

 

Over the last few weeks, Indian stock markets have been overwhelmed by a series of negative news, particularly from the banking sector. The unearthing of one of the biggest scams in the history of the Indian banking system has led to a free-fall in what was once the country’s favourite public sector bank, the Punjab National Bank. Not only has the stock price crashed by close to 60 percent within four months of hitting all- time highs of ₹231.45 last October, the fallout has also led investors to be extremely cautious with their investments in the other public sector banks too. The broader banking index, the “Bank Nifty” has however been well supported by the private sector banks, thereby preventing the sectoral index from heading for a major sell off.

With the near- term trend in the broader market in a bearish phase, short- term traders looking for quick gains on the Bank Index would be finding it exceedingly challenging in defining entries, acknowledging the volatility the Index generally displays. Traders expecting further declines in the Bank Index can take comfort by buying plain vanilla puts or writing call options. However, considering the recent volatility, a pullback will most likely lead to negative ROI even if it only means losing the option premium.

It’s in times like these that Option Strategies come into play with the Protrader options analyser tool generating ready to implement options strategies for various strike prices with one- touch order entry. Launched in India by Compositedge, a leading discount broker and algo- trading solutions provider for retail clients, the Protrader platform comes with a host of features for Options traders, many of them for the first time in the history of the Indian financial markets.

Traders with low risk- return profiles can choose to implement bear spread strategies which are generally a combination of two put options; Bear Put Spread OR a blend of two call options; Bear Call Spread.

 

Highlighted below is a bear put spread for Bank Nifty


Source: Compositedge- Protrader platform

Traders with a slightly larger risk appetite can develop a range of custom built bearish strategies, depending on the expected price range, volatility and time to expiration.

 

The following chart illustrates a custom options strategy for Bank Nifty


Source: Compositedge- Protrader platform

Traders using the Compositedge platform can view a large number of strikes for multiple expiries at one go instead of manually selecting them to display in the watchlist window. Users can also monitor option Greeks, implied volatility, configure ATM strikes and choose the max number of strikes to be displayed on the screen. Options analyser instantly throws up the payoff diagram for a strategy based on implied volatility and time to expiry, which can then be modified by users to determine the impact on the P/L of a strategy.

The Protrader platform broadly simplifies the way options traders successfully analyse and perform trades. In addition to speedy entry/ exits, in- depth analysis of a strategy before implementation and probability calculation of specific levels being reached, the platform can be used to identify and execute arbitrage opportunities in real- time.

Compositedge is a leading discount broker and provider of algo trading solutions for retail customers in India for the last 22 years. Headquartered in Bangalore, we provide the internationally acclaimed Protrader platform, which comprises of charts, scalper, matrix, grid, market-depth and options master in addition to a ready to implement algo platform. We combine discount broking and algo trading solutions to ensure all our retail clients experience the finest trading amenities at affordable costs.