In this article, we will discuss
The Diwali Muhurat trading session is a special one-hour trading session that the Indian stock exchanges - BSE and NSE - conduct on the day of Diwali. The Muhurat trading timings are generally announced a few days before the festival. Going by history, the one-hour session commences at 6:15 PM and lasts until 7:15 PM on the day of Diwali.
It is widely believed that trading in the financial markets during Muhurat trading would bestow prosperity and well-being. However, the stock market is usually volatile owing to the increased participation in the markets during this special session.
If you’re into options trading, this increase in volatility can lead to skewed options premiums and may even amplify losses. Fortunately, with the right muhurat trading strategy for options contracts, you may be able to increase profitability and reduce the magnitude of losses.
Options Trading Strategies for Diwali Muhurat Trading
There are several options trading strategies that you can use to profit from the price movements of the stock market on Diwali. Here’s a quick overview of some of the most common and easy strategies you can employ.
The long straddle is a useful strategy you can use when you expect the markets to be very volatile but are unsure of the direction in which the prices may move. The primary objective of this strategy is to generate profits from major moves in an asset irrespective of the direction.
To set up this strategy, all you need to do is purchase a call option and a put option of an asset. Both these options must have the same strike price and contract expiration date. Now, if the asset moves up, the purchased call option will become profitable and the put option will become worthless.
On the other hand, if the asset moves downward, the put option will become profitable and the call option will become worthless. The maximum extent of loss in either scenario would be the premium you paid for the option that became worthless.
The long strangle is an options trading strategy ideal for Diwali Muhurat trading. The objective of the strategy is very similar to the long straddle, which means that it is ideal for volatile conditions as well as both upward and downward price movements.
The only difference between a long straddle and a long strangle is the construction of the options. To set up a long strangle, you need to purchase both a call option and a put option of an asset. While both options need to have the same expiration date, their strike prices must be different. Typically, most traders tend to purchase a call option at a higher strike price than that of the put option.
The strategy ensures profitability irrespective of whether the asset moves substantially upward or downward. In some unique cases, both the call and put options can gain value, which can boost your total profitability. The maximum loss with the long strangle is the amount you paid as a premium to purchase the options.
Bull Call Spread
If you have moderately bullish views on Muhurat trading stocks, you may consider employing the bull call spread trading strategy. The objective of the strategy is to profit from a rising market while simultaneously lowering the cost and risk of the spread.
To execute a bull call spread, all you need to do is buy an at-the-money (ATM) call option and sell an Out-of-The-Money (OTM) call option. Both options must have the same contract expiration date. The premium you paid for the ITM call option will be partially set off by the premium you received by selling the call option. This reduces the cost of the spread considerably. Now, if the market moves bullishly during the Diwali Muhurat trading session, your bull call spread will become profitable.
Bear Put Spread
If you expect a bearish market during the Muhurat trading session, you can consider employing a bear-put spread options trading strategy. The goal of the strategy is to profit from a moderately bearish market.
To execute a bear put spread, all you need to do is buy an ATM put option and sell an OTM put option, both with the same expiration date. This would result in a net position, where the premium you paid for the ATM put option is partially or completely offset by the premium you received from selling the OTM put option. If the market moves bearishly during the special Diwali share market session, the bear-put spread will become profitable.
These are just some of the many Muhurat trading strategies for options you can use during the session. Now, before you get to execute it in a live trading session, always make sure to test these strategies out in a simulated market environment. This will help you gauge the performance of the strategy and give you enough time to make adjustments to it before using it in real-time.
Also, as you delve into the intricacies of options trading strategies suitable for the Muhurat trading session, Samco Securities brings an innovative dimension to your trading experience this Diwali. Our cutting-edge web AR filter allows you to uncover Samco's expertly curated picks for Muhurat trading simply by scanning any Swastik symbol around you.
This unique tool not only bridges the gap between tradition and technology, but also equips you with valuable insights and enhances your trading strategy, potentially leading to more informed trading decisions. Embrace this novel approach to complement your options trading strategies this Diwali.
Disclaimer: INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL THE RELATED DOCUMENTS CAREFULLY BEFORE INVESTING. The asset classes and securities quoted in the film are exemplary and are not recommendatory. SAMCO Securities Limited (Formerly known as Samruddhi Stock Brokers Limited): BSE: 935 | NSE: 12135 | MSEI- 31600 | SEBI Reg. No.: INZ000002535 | AMFI Reg. No. 120121 | Depository Participant: CDSL: IN-DP-CDSL-443-2008 CIN No.: U67120MH2004PLC146183 | SAMCO Commodities Limited (Formerly known as Samruddhi Tradecom India Limited) | MCX- 55190 | SEBI Reg. No.: INZ000013932 Registered Address: Samco Securities Limited, 1004 - A, 10th Floor, Naman Midtown - A Wing, Senapati Bapat Marg, Prabhadevi, Mumbai - 400 013, Maharashtra, India. For any complaints Email - email@example.com Research Analysts -SEBI Reg.No.-INHO0O0005847