created : 3 months ago| | live deployment: 0
Strategy description
Direction Spread – Nifty 50 Monthly Expiry Strategy
Strategy Type: Directional Option Selling / Credit Spread
Underlying: Nifty 50
Expiry: Monthly / Bi Monthly Expiry
Strategy Description
The Direction Spread strategy is a directional options trading approach that combines option selling with risk protection. The trader identifies the probable market direction and creates a credit spread by selling an option closer to the market and buying a further out-of-the-money option as a hedge.
Bullish Setup (Bull Call Spread)
- Sell 1 OTM Call Option at near expiry.
- Buy 1 Far ITM Call Option as protection at far expiry.
- The strategy profits if Nifty remains above the sold strike at expiry.
Bearish Setup (Bear Put Spread)
- Sell 1 OTM Put Option at near expiry.
- Buy 1 Far ITM Put Option as protection at far expiry.
- The strategy profits if Nifty remains below the sold strike at expiry.
Entry Criteria
- Determine market direction using trend indicators such as supertrends.
- Enter Bull Call Spread in an uptrend.
- Enter Bear Put Spread in a downtrend.
- Prefer entry when implied volatility is moderate to high, allowing collection of higher premium.
Risk Management
- Maximum loss is limited to the difference between strikes minus the net premium received.
- Position size should be based on predefined risk per trade.
- Exit if market structure changes or if spread reaches predetermined stop-loss levels.
- Consider booking profits at 50–80% of maximum potential profit before expiry.
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