Option strategies for rookies

Cash-Secured put

The setup:

Sell a put, strike price A

Keep enough cash on hand to buy the stock if the put is assigned

Generally, the stock price will be above strike A

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Covered Call

You own the stock

Sell a call, strike price A

Generally, the stock price will be below strike A

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Protective Put

You own the stock

Buy a put, strike price A

Generally, the stock price will be above strike A

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Collar

You own the stock

Buy a put, strike price A

Sell a call, strike price B

Generally, the stock price will be between strike A and strike B

Option selling process

1. I will trade NIFTY200 QUALITY 30 and NIFTY100 QUALITY 30 stocks.

2. I will identify fair value using investing.com

3. I will sell OTM cash-secured puts if the strike is less than 20% of fair value (at .8*fair value as I am looking for a 25% upside) or if I notice any strikes below the 20% of fair value I will pick the far strike to sell.

4. I will pledge gilt, money market and liquid funds to get the margin.

5. If the option is in the money at expiry, I will buy the put option and will unpledge the funds and buy the stock from the market.

6. If the stock is in the portfolio, I will again sell the covered call at a strike equal to Fair value*(4/3). If I do not find a strike I will sit tight.

7. If the option is in the money at expiry, I will buy the call option (I have to check if I have enough cash to purchase the option)

8. I will never sell a covered call for less than the buy price if the stock price drops.

9. I will only do cash-secured puts and covered calls. Basically a wheel strategy.