Option Trading Techniques
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2. Trading on “At the money calls and puts”

At the money calls and puts are highly liquid (more volumes) during market trading hours.
Generally current month options and futures are highly liquid (more volumes) then next months options and futures.

What is the At the money calls and puts?
If Nifty is trading at 3000, then the calls and puts whose strike prices are at 3000 are called as At the money calls and puts.

How to trade on them?

At the money calls and puts are very highly liquid and volatile. Even if Nifty is expected to move up 10 to 15 points then At the money calls and puts shows enough movement to trade and book profits.

Buying “At the money call” in the upside will provide good results and on the other side buying “At the money puts” in the downside will provide you good profits.

If the “At the money call/put is having value below Rs.100 and if you are getting even 4 to 5 points movements then it is enough to book profits. It has been observed that Nifty’s 10 to 20 points move either side creates 4 to 6 points move in “At the money calls and puts”. So if traders plan to take small Rs 4 to 5 profits in single trade and do only 3 to 4 trades in a day then it would generate good profit.
Traders have to do proper monitoring and act accordingly to buy “At the money calls and puts”.
Before start trading with actual money, traders can watch or do paper trading and then plan their actual trades.

There is quite possibility that underlying either Nifty (Index) or stock may change their direction suddenly against the expectation so using stop loss at appropriate levels is highly recommended.

Other way to trade at the money calls and puts is when Nifty is trading at their days high and low and seeing some consolidation.

For example - If Nifty has rallied and trading 250 points up and is consolidating (not moving up) and seems to come down few points then at such scenario also trader’s can act on buying “At the money put and square off (book profit) once Nifty comes down couple of points.

Booking profit in such scenario is important because the possibility of Nifty to move again in upward directions could not be ruled out because this happens generally in bullish market sentiments that Nifty may bounce back making new highs.

Above strategy even applies when Nifty is trading at day’s low and buying “At the money calls”.

Note - For doing successful trading in such strategies the brokerage should be less, then only it’s possible to book good profits.
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