Step-by-Step Guide to Choosing the Right Option Strategy

 Why Picking the Right Strategy Is Crucial 

Options trading, though lucrative, is full of complexities. Just like a skilled cricketer cannot rely on a single stroke to score runs, an options trader needs more than one strategy to navigate different market situations. 

New traders often struggle with one fundamental question: Which strategy should I use? 
This guide walks you through a clear, step-by-step approach to help answer that. 

1. Market Selection 

The first decision is choosing what to trade. This means identifying the indices or stocks that are: 

• Liquid enough to ensure smooth entry and exit 

• Technically or fundamentally sound based on your analysis 

A liquid market keeps your transaction costs low and ensures you don't get stuck in an illiquid contract. 

2. Market Direction View 

Once your market is chosen, the next step is to form a directional view: 

• Bullish or bearish? Choose from directional strategies. 

• Not sure? Consider non-directional strategies that perform well in range-bound conditions. 

Since markets tend to stay within ranges most of the time, non-directional setups can often be the go-to for indecisive conditions. These can also be tweaked into directional plays if the market outlook changes. 

3. Volatility Outlook 

Next, assess your view on volatility—a key driver in options pricing. 

• Anticipating events like elections, budget announcements, or global news? Expect volatility spikes. 

• Use metrics like Implied Volatility Rank (IVR) or Implied Volatility Percentile (IVP) to assess current vs historical volatility. 

Different strategies thrive under different volatility conditions. For example: 

• Some perform better when volatility is low but expected to rise. 

• Others are designed for high volatility that may soon taper off. 

Knowing where volatility stands helps you cut through the clutter of choices. 

4. Watch Out for Events 

One of the most common mistakes traders make is walking into high-impact events unknowingly. 

Volatility typically rises before key events such as: 

• Elections 

• Union budgets 

• Central bank policies 

• Corporate earnings 

Be mindful of the calendar. Taking positions ahead of such events without appropriate strategies can lead to big losses. Always check if there's an upcoming event that could swing the market, and adjust your strategy—or hold off—accordingly. 

5. Define Your Risk-Reward Ratio 

Before locking in a strategy, ask yourself: 

• How much am I willing to lose? 

• What kind of return am I aiming for? 

Options trading offers many strategies with predefined risks and rewards. Pick the one that aligns with your capital, temperament, and expectations. There's no one-size-fits-all strategy. You need to find your balance between risk and reward. 

6. Strategy Selection 

Here’s where many traders feel overwhelmed. With so many possibilities, decision paralysis is real. 

To simplify: 

• Narrow your list based on market direction, volatility, and event outlook 

• Stick to a few proven strategies and perfect them over time 

• Don’t get caught up chasing every new setup you come across 

Start with a mix of directional and non-directional strategies. As you gain experience, expand your toolkit. Choose strategies that suit your personality—whether you're aggressive or conservative. 

7. Picking the Right Expiry and Strike 

Many traders instinctively pick: 

• The nearest expiry, and 

• The strikes closest to market price 

This might work early in a settlement cycle, but deeper insights can improve your outcomes: 

• Net debit strategies closer to expiry are riskier 

• Net credit strategies often work better earlier in the expiry cycle or during sharp market movements 

Make expiry and strike selection a conscious decision—not a default one. 

Conclusion 

Options trading offers immense potential, but it demands clarity and discipline. For new traders using m.Stock, the key is to: 

• Choose your market wisely 

• Have a directional or volatility view 

• Be event-aware 

• Set realistic risk-reward expectations 

• Stick to a few reliable strategies 

• Be deliberate in selecting expiry and strike 

As you grow more confident, you’ll be able to tweak or even build custom strategies—but to start, stick with tested ones that fit your understanding and market view. 

Options trading doesn’t have to be overwhelming. With a structured approach, you can build a strong foundation and grow steadily as a confident, strategy-driven trader.