Before you pick a strategy
Two questions — where is the market going, and are options cheap or expensive? — point you to the right strategy.
Strategies are just Lego
In Module 1 you met four blocks: buy call, sell call, buy put, sell put. A strategy is simply several blocks combined so that the payoff graph matches what you expect — no more, no less.
Why combine? Because a single option often gives you something you don't need and charges you for it. If you think NIFTY will rise to 22,600 — not to 24,000 — why pay for unlimited upside? Sell off the part you don't believe in, and your trade gets cheaper.
Question 1: what's your view?
| Your view | Family of strategies |
|---|---|
| Up, moderately | Bull call spread, bull put spread |
| Down, moderately | Bear put spread, bear call spread |
| A big move up (but protect if wrong) | Call ratio back spread |
| A big move down (but protect if wrong) | Put ratio back spread |
| A big move, either direction | Long straddle, long strangle |
| Nothing much happens | Short straddle, short strangle, iron condor |
| Like owning the futures | Synthetic long |
Question 2: are options cheap or expensive?
Remember vega: when is high, premiums are fat.
IV is high (expensive options)
- Lean towards SELLING premium — credit strategies.
- Bull put spread, bear call spread, short strangle, iron condor.
- You benefit if IV falls back.
IV is low (cheap options)
- Lean towards BUYING premium — debit strategies.
- Bull call spread, bear put spread, long straddle.
- You benefit if IV rises.
Debit or credit?
- A strategy costs you money upfront (net buyer). Time works against you.
- A strategy pays you upfront (net seller). Time works for you.
Neither is "better". A debit spread wins less often but usually risks less to make more. A credit spread wins more often but risks more to make less. Over many trades, what matters is whether your view is right often enough for the shape you chose.
How every lesson in this module works
All examples use the same market so you can compare strategies fairly:
Option prices come from the Black-Scholes model with these inputs (the same model the Strategy Builder uses), so the numbers are realistic and consistent across lessons. Every lesson has an interactive payoff chart — drag the slider to any expiry price and see the exact P&L.
Quick check
You think NIFTY will rise about 1% this week, and IV is unusually high. Which fits best?