A smart Trader would constantly be Looking for New ways that they can generate maximum Profits from the market. It may seem unusual to some, but it’s 100% possible. Market legit offers various trading approaches to make Better profits. But, you must choose a Smart Way of Investing in the Stock Market.
How, You ask? There are 2 major ways of Doing so:
1) The Market moves upside significantly, and 2) The Market goes down significantly. Buying & Selling the Put & Call options based on market behavior becomes decisive for profit-making.Quick Info -What are Put and Call options?
Put and Call are two actions that you can take in options trading. If you have the Put option, you have the Right to Sell the underlying stock. Whereas if you have the Call option, you have the Right to Buy the Stock under consideration.
Now let’s jump to the main debate after this Small recalling of What are Put and Call options -
(1)Buying a Put Option | Selling a Call option :
There are multiple benefits of trading either by Buying a Put option or Selling a Call option. There are factors attached to both. Such as Upfront capital required, risks involved, market movement type & Few others.
So, Before deciding whether Should I ‘Buy a Put option’ or ‘Sell a Call option’ - Consider the differences below :1) Market Movement Type :
This factor plays a huge role here. There are 3 Types of Market movement or Individual stock behavior possible :
- Upwards movement (bullish),
- Downwards movement (bearish),
- Sideways movement (very little movement).
If you are expecting the Market/stock to Fall downwards significantly, the trader should buy a Put option. Here you will benefit from Falling a particular stock price. So you can enter the Trade by paying a small premium amount & Exit the trade before the Expiry when the Price has gone down significantly.
But, If you are expecting the market to Not Go down too much, Just a Little bit of downward movement & then Some bounce back from that Point: Then Selling the Call will be a perfect option for you. Because you end up making a profit even if the Stock does not Move up or move down too much.
2) Upfront Capital Requirement:
Every trader has a very different and Usually diversified portfolio. So, based on that, The capital availability can be different for every trader. Based on how much capital you have at your disposal or Can afford to spend - You can decide whether to Buy a put option or Sell a Call option :
Put Buying - Buying a Put option required a very Low amount of Upfront capital. You just have to pay the premium amount for the Lot. For example, Let’s assume the premium amount for Reliance Energy’s shares is ₹20.
Traders can buy a Lot of 50 units here by paying just the premium amount. I.e 50 x ₹20 = ₹100. So, You pay a Very nominal amount Upfront & Book your chance to make good profits if Share prices Go down until Contract expiry.
Traders can buy a Lot of 50 units here by paying just the premium amount. I.e 50 x ₹20 = ₹100. So, You pay a Very nominal amount Upfront & Book your chance to make good profits if Share prices Go down until Contract expiry.
Call Selling - Call selling requires you to have a Higher amount of Funds to be kept available upfront. The trader will need the full amount of the Call selling contract to have at the Disposal while entering the Contract.
So, Call selling is definitely a good way to make profitable trades if you have a good amount of Capital at your disposal. For any reason, If you can not Keep a high amount of Funds occupied - Go with Put Buying.
Read More: 👉 How to Trade on Option Expiry Day?
3) Which is More Profit Making?
Traders can make a good amount of Profit with Both types of Trading. But, what matters the most is which way are you expecting or predicting the market to move. Another great favor you can do to yourself will be to make sure to use the Best algo trading app in India.
That way you make sure all your trading is Happening the best way possible. Keep in mind that, Bullish, Bearish & Sideways: All 3 Types of movements can Benefit you :
Put Buying - A strong downward movement is a must to make money by Buying a put option. Trader makes a good profit if the market goes Bearish after they enter the Trade. That would be one smart way of Investing in the Stock Market.
Call Selling - This approach is preferable if the market does not offer too much movement before the Expiry of the options contract. So if your prediction of the market is neither going down too much nor Moving upwards too much, the Selling the Call option will make you profits.
While selling the Call, You are selling in the OTM (Out of -the-money) zone. Which is just above the ATM (at-the-money) price. Call selling in Algo trading allows you to make good returns when the Market is NOT Moving down or going up too much.
👉 A Bonus Tip 👈
Algo trading can make a huge difference to your Trade outcomes compared to the traditional way of trading. You can use it For All types of Trading & is impactful for Options trading as well.
Why? It Fully automates lots of redundant trading tasks with 100% Accuracy, Algo trading Increases your Trading efficiency by at least 26% Easily Making it a Nice smart way of Investing in the Stock Market.
So, whether you go to Put buying, Call selling - Understand the 3 Key Differences we discussed above & Then further improve trade outcomes with the Best Algo trading app or with the options trading app.
