Safest Hedging Option Strategy with Adjustment

Safest Hedging Option Strategy with Adjustment.
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Welcome to an exhaustive exploration of a Weekly Option Strategy with Adjustments, designed for traders aiming to harness the power of short-term market movements using options. In this video, we break down a sophisticated yet approachable strategy that leverages weekly options expiries to potentially generate profits while managing risk through precise adjustments. Whether you’re an experienced trader or new to options, this guide offers valuable insights into setup, execution, and real-world application—complete with a live trade example and backtest analysis.

This strategy revolves around buying and selling call options at specific strike prices, creating a position that thrives in certain market conditions, with adjustments to adapt to price shifts. We’ll cover the margin requirements, optimal entry timing, detailed trade mechanics, and how to tweak the position for maximum effectiveness. Plus, we include a live trade walkthrough and backtest results to demonstrate the strategy’s potential in action.

Strategy Overview
Margin Requirement:

Initial Margin: Rs 70,000 to 80,000
Final Margin (After Adjustments): Rs 40,000 to 50,000
This reflects the capital needed to initiate the trade and how adjustments can reduce exposure and free up margin as the trade progresses.

Entry Timing:

Enter the trade on the next day after the weekly expiry, around 9:30 AM. This timing capitalizes on the fresh weekly options cycle, allowing you to position yourself early in the new expiry period when volatility and opportunity are ripe.

Trade Setup:

Assuming a lot size typical for Nifty options (50 contracts per lot), the position is structured as follows:

Buy 1 Lot of 100 Points Out of The Money (OTM) Call:
A call option 100 points above the At The Money (ATM) price.
Buy 1 Lot of 600 Points In The Money (ITM) Call:
A call option 600 points below the ATM price.
Sell 2 Lots of 300 Points In The Money (ITM) Call:
Sell double lots of a call option 300 points below the ATM price.
This configuration resembles a broken wing butterfly or an asymmetric ratio spread, aiming for maximum profit if the underlying price hovers near the short strike at expiry, with defined risk on significant moves.

Let’s assume the ATM price is 19,500 (e.g., Nifty Index). Here’s how the setup looks:

Buy 1 Lot of 19,600 Call (100 Points OTM):
If Nifty is at 19,500, 19,600 is 100 points above, an OTM call with lower premium but upside potential.
Buy 1 Lot of 18,900 Call (600 Points ITM):
600 points below 19,500, this ITM call has higher intrinsic value and acts as a hedge or profit base.
Sell 2 Lots of 19,200 Call (300 Points ITM):
300 points below 19,500, selling two lots here collects premium and defines the profit zone around 19,200.
This position balances premium costs and payouts:

The long 18,900 call gains value as the price rises past 18,900.
The two short 19,200 calls cap profit potential but provide income, peaking if Nifty expires at 19,200.
The long 19,600 call limits losses if Nifty surges beyond 19,200, capping the upside risk.

Live Trade Example Clarification
Your provided example lists:

Sell 18,900 Call
Buy 19,600 Call
Buy 19,600 Call
For ATM 19,500, this differs from the strategy outline (buy 18,900, sell 2x 19,200, buy 19,600). This appears to be a typo or an adjustment scenario. For consistency, let’s assume the intended live trade aligns with the strategy:
Buy 1 Lot 18,900 Call
Sell 2 Lots 19,200 Call
Buy 1 Lot 19,600 Call
In the video, we walk through this setup with Nifty at 19,500:

*Disclaimer : This video is only for educational purposes, based on research and my own experience, I'm Certified by NSE and SEBI (NISM) About Option Trading Strategies. Share market is very risky if you do anything after watching this video will have their own risk and responsibility; The Stockan Youtube Channel does not take responsibility for any damages arising directly or indirectly from any actions taken based on this video.
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