3. Short selling “Deep in the money calls and puts” (low risk high profits)

The example of “deep in the money call” is like suppose if Nifty Index is trading at 2500 then “deep in the money call” would be 2800, 2900, 3000 etc.
The example of “deep in the money put” is like suppose if Nifty Index is trading at 3000 then “deep in the money put” would be 2700, 2800, 2500 etc.

Generally “deep in the money calls and puts” carry very high price.

How to trade on “deep in the money calls and puts”?
These types of calls and puts carry big premium (high price) traders get benefit mostly by short selling.
If Nifty Index or particular stock is expected to move down sharply in coming weeks or in coming days then short selling these high premium calls and puts provide good returns.


For example - Suppose if Nifty is trading at 3200 and “deep in the money call at strike price 3600, costs at Rs.350 and if you have short sell it, the profit would be good.
As the Nifty moves in downward direction away from your strike price, which is at 3600, your profits will keep on increasing.
The maximum profit would be Rs.350 x 50 (one lot of Nifty) = 17,500 when your call expires.

You have done short sell taking into consideration that Nifty Index would move down sharply in next couple of weeks or in coming days and if the Nifty moves as you predicted, they you would reap good profits . The maximum profit (17,500) you can get when Nifty moves very sharply down and your call expires.

Please note - For short selling options future derivatives margin is required.
Option Trading Techniques
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Short selling “deep in the money put”
Suppose if Nifty is trading at 2800 and the deep in the money put at strike price 2500 is at 300.
If you are expecting Nifty to go up in next couple of weeks or days then you can short sell above “deep in the money put” and you would get good returns if Nifty turns as you expected.

As Nifty moves in upper direction, away from your strike price (which is at 2500), you will start getting profits into your account.
So the maximum profit you can gain is Rs.300 x 50 (quantities) = Rs.15,000, if your put expires if Nifty moves sharply in upper direction.

Please note - It’s very rare case of where Nifty “deep in the money calls and puts” get expired unless Nifty moved very sharply in expected direction, so instead of waiting to expire your deep in the money calls and puts book your profits whenever applicable.
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