Bear Put Spread trade on NIFTY Sept expiry Options

Updated: Dec 23, 2019

#NIFTY Trade Summary:

A Bear Put Spread trade on NIFTY September expiry #options is a good probability trade

After 5.3% bull rally on 20th September, NIFTY gapped up 3% again on Monday, 23rd September. Opening at 11545, it quickly rallied to the supply area between 11600-11700. Given the ballistic move up with an amateur gap, we see the market is super stretched and into area of significant supply. This gives a high probability trade to short the market.


Looking at the option chain this morning when the market was trading at 11655, the option chain looked as follows:

NIFTY Options Chain

(source - NSEINDIA)

Given our bearish bias, we consider either bear put or bear call spread. We do not advise naked short on options given the unlimited risk it carries.

Remember- the options expire in three days. They have very high theta. That means if the market does not move, each of these options would lose value quickly.

Trade Setup: NIFTY @ 11655

Bear Put spread:

Buy NIFTY SEP2019 11600 PE @Rs 86.55 Sell NIFTY SEP2019 11500 PE @Rs 50.55

This spread will have net debit of Rs 36 (all the premium numbers should be multiplied by 75 to get per lot or per pair of lots amount when you do your risk calculations and management. Here the net premium paid will be Rs 36 X 75 = 2700. In the trade here we have given the premium alone, not premium per lot)

Max profit = difference in strikes – premium paid = ((11600 - 11500) – 36) = 64 Max loss = net premium paid = 36

Spread delta = - 0.126 (i.e. for every one point rise in NIFTY, the spread premium will drop by Rs 0.13, provided everything else (i.e. volatility remains same) Spread theta = -2.637 (i.e. the spread net premium will reduce in value by Rs 2.64 overnight if everything else such as volatility and NIFTY index remain same) Greeks are calculated using options calculator on Zerodha.

Exit conditions – If any of the following condition is true, we would exit the trade

1. If spread premium drops below 18

2. If NIFTY trades above 11725

Bear Call spread:

Sell NIFTY SEP2019 11700 CE @Rs 73.55 Buy NIFTY SEP2019 11800 PE @Rs 42.95

This spread will have net credit of Rs 30.6

Max profit = Net premium paid = 30.6 Max loss = (difference in strikes – net premium received) = 100 – 30.6 = 69.4

Spread delta = -0.147, theta = 1.521

Exit conditions – If any of the following condition is true, we would exit the trade

1. If NIFTY trades above 11725

Of these two trades, given the market technical, greeks and risk rewards we are inclined towards bear call trade.

Update 1 (25th Sept 2019)

Close Bear Put Spread trade at 66.4 from it's original premium of 36. That is a cool 84% rise in two days. 

As NIFTy dropped below 11500 this morning, both the legs were in the money. The bear put spread (11600 PE - 11500 PE) that we had bought for 36 appreciated to 114 - 47.6 = 66.4. 

On initial risk of 18, which was our stop on the spread premium, our gain is 169% in two days!!. 

Update 2 (26th Sept 2019)

Both Options expired worthless on 26th Sept 2019. We captured net credit premium of 30.6 as profit.

Credits - All charts are drawn using TradingView charting tools.

Disclaimer – This is not a trading recommendation. Please refer to our full disclaimer text.