Even after the increase in bank fixed deposit rates, you cannot earn ANNUAL return of more than 8%. Is there any way to earn MONTHLY return of 8% from selling bank nifty options? In terms of risk, the two are not comparable as selling bank nifty options involves much higher risk compared to the bank fixed deposit that has almost no risk. But those who wish to take even moderate risk or calculated risk can earn high returns. 

Why not explore earning money through bank nifty options? If you are able to sell even far out of the money bank nifty monthly options with proper hedging, then returns can be attractive. For e.g. Bank Nifty put option for the month of June 2023 with strike price of 41,500 can be sold at Rs 130. With lot size of 25, the premium earned is Rs 3,250 per lot. The margin money required could be as low as Rs 25,000 to as high as Rs 90,000 based on doing the margin management through buying of other weekly put options or buying of deep out of the money monthly put options. Even though the buying will reduce the net premium earned, it will serve the dual purpose of reducing the margin money as well as offering protection against black swan events. Bank Nifty is currently trading at ~ 44,000, so there is a cushion of almost 2,500 points –almost 6% before the 41,500 option becomes ATM. The sold option will start giving a loss only beyond 41,370 i.e. 41,500-130.

Why did we choose 41,500 strike price? Because the probability of losing money at this strike price is low.  Over the last 18 months including May 2023, there have been only two months wherein Bank Nifty has fallen by nearly 5%. However, the absolute fall was less than 2,500 on both occasions. These data points support our view that the strike price selected is conservative.

What is the probability of losing money? Let’s look at it in percentage terms and absolute terms in terms of the biggest monthly falls in Bank Nifty. The biggest fall in the recent history was ~ 9% or 3,400 points in the month of November 2021.

How do we manage the trade if it goes wrong and protect against a loss?   You may write your questions in the comment section below. We shall try our best to address your queries.

DISCLAIMER: This article is only a thought provoking one and intended to spread education among people to make them aware about the potential of selling options. This is not an advice to implement the strategy. We are not SEBI registered advisors. So kindly consult your financial adviser before acting.

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