Diversifying Your Portfolio: Incorporating Crypto Options with Nifty Trading
Source: Trading
Portfolio diversification is a cornerstone of effective trading and acts as a financial safety net, shielding your investments from unexpected market shifts. Distributing your assets across different sectors, industries, and asset types reduces the effect of a single investment’s underperformance on your entire portfolio. In other words – this approach helps you to control risk and creates chances for better growth in the portfolio.
In trading, diversification isn’t about trading a lot of assets, but also trading a number of strategies. It keeps your portfolio strong and able to adapt to stock market fluctuations. There are several Nifty options strategies available to choose from. This blog will discuss various crypto options strategies you can incorporate with Nifty trading and the potential benefits.
A Quick Insight Into Nifty Trading And Crypto Options
Nifty (or NIFTY 50) represents the National Stock Exchange (NSE) performance and and is the face of the Indian stock market. It features the top 50 companies in India listed on the NSE. So buying and selling Nifty options helps investors participate in broader market shifts while keeping their risks in check. To understand their options strategies better, you can go through the Nifty Trader website.
Source: National Stock Exchange
Options trading is relevant to the stock market and cryptocurrency trading. Crypto options allow investors and traders to mix up their investments. These unique contracts let people bet on upcoming cryptocurrency prices, offering something different from regular stock options.
Adding crypto options to your Nifty trading can further diversify your portfolio, boost your returns and lower risk. This approach taps into the potential for growth in traditional and evolving financial markets, opening up exciting new opportunities for your portfolio.
If you are new to options trading, Delta Exchange India and GoCharting are great platforms to start.
Source: Options Desk on GoCharting
Integrating Crypto Options With Nifty Trading
There are two types of crypto options: Put and Call options.
- Put options: gives you the right to sell an asset at an agreed price before expiration.
- Call options: gives you the right to buy an asset at an agreed price before expiration.
Source: Options on Delta Exchange India
At Delta Exchange India, put and call options are available on Bitcoin and Ethereum. Traders can use these options to create a strategy to hedge their crypto portfolio or assets.
Let’s now discuss some of the standard crypto options used in various strategies that are suitable for Nifty trading.
Covered Call
This strategy requires you to own the underlying cryptocurrency and sell a call option against it. When you do this, you earn a premium from the call option sale, which brings in extra money. It allows you to generate additional income from your crypto holdings and caps your premium after the options expire. As long as the crypto’s price is below the option’s strike price, you make money from it.
Source | Covered call options strategy
Protective Collar
Collar strategy involves purchasing a protective put option and trading a covered call option on the same cryptocurrency simultaneously. The put and call options work like insurance to guard against price drops and help generate more income by collecting premiums, respectively.
Source|Protective collar options strategy
Married Put (Protective Put)
It involves buying a put option for the cryptocurrency you already own, which safeguards against possible price declines. When crypto prices drop, a put option allows you to sell at the agreed-upon price, minimizing loss.
Source | Married (protective) put options strategy
Bull Call Spread
This approach involves buying a call option at a lower cost while simultaneously selling another one at a higher price. The sold call option provides funds to offset the cost of the option purchase. If the price exceeds the higher strike, you can profit from the price difference; otherwise, you will be at a loss.
Source | Bull call spread options strategy
Long Call Spread
In this strategy, the investor or trader can buy call options at a particular strike price and sell the same amount at a higher strike rate. This limits the upside but reduces the overall amount spent compared to buying a call option.
Source | Long call options strategy
Long Put Spread
Contrary to the long call spread, this involves buying put options at a specific strike rate while selling the same number at a lower strike rate, offering limited losses and gains regardless of whether the underlying market is bearish.
Source | Long put options strategy
Long Straddle
It involves purchasing a put and call option with the same strike and expiration. It benefits from considerable price movements in either direction. If the price changes substantially, you can exert the profitable option. But if the price remains stable, both options may become worthless.
Source | Long straddle options strategy
Long Strangle
In a long strangle strategy, one can buy out-of-the-money put and call options on the potential to profit from large price swings without directional preference at a lower cost than a straddle.
Source | Long strangle options strategy
Long Call Butterfly Spread
This options strategy combines bull and bear spreads using three different strike prices, capping potential profits and losses to profit from moderate price movements.
Source | Long call butterfly spread options strategy
Iron Butterfly
The iron butterfly strategy includes put and call options with the same strike value. It potentially gains from a net bonus and benefits from low volatility.
Source | Iron butterfly options strategy
Potential Risks and their Management
Adding put and call options to your Nifty trading also comes with certain risks you need to manage appropriately.
- Volatility: The crypto market is highly volatile. If not addressed properly, there are substantial probabilities of price swings and losses.
- Liquidity: Some cryptos may not be as liquid as traditional options, which implies that getting in and out of positions at the correct price levels may be difficult.
- Regulatory challenges: The cryptocurrency market is constantly evolving. Changes to government regulation could adversely affect crypto trading, ownership, and overall financial or Nifty market status.
You can hedge your positions by trading in the underlying assets to manage such risks effectively.
- Diversification is always advised to spread your investments across various crypto options and other assets.
- Stop-loss is implemented by setting orders to automatically hit a sell order once an asset price attains a given level.
The Bottomline on Portfolio Diversification
Nifty traders can adapt and incorporate Delta Exchange India’s crypto options into their trading strategies to improve, diversify, and monitor risks effectively across the trading market. It is a safe space for experienced and newcomers. Investors can gain exposure to the crypto market by trading put and call options without holding the underlying assets. Hence, risk management is possible with various strategies that generate income from option premiums.
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Disclaimer: Cryptocurrencies are inherently volatile, and investments in the asset class can carry significant risks. The information presented in this article is not intended to be financial advice, and we strongly recommend conducting your due diligence before investing in crypto.