Help me formulating this option strategy ?

[gsurendra]

Almost. I would choose a strike much below say 1040 but sometimes liquidity is poor and margin for call is bad. So we need to have various stocks as choices to find opportunities. We need to choose strikes based on key support levels such as 200ema. Yes rolling down to next strike is same as you mentioned

 

[tanmayagrawal]

I just checked the above scenario's pay off at 1040 strike price. The maximum profit here is 4000 and max loss is unlimited.
How do you book profit and loss here ? Do you wait for the complete month to get 4000 or book your profit much early?

 

[gsurendra]

We need to take such positions as early before the expiry date as possible. Best to let the position expire naturally rather than book profits as it's difficult to take such positions. Too deep ITM gives low returns so we have to be clever to look for stocks which already corrected but are in a general uptrend

 

[tanmayagrawal]

Okay, thanks for the explanation surendra ji. Also not very sure but I think if the stock moves in our favour our profit can also rise more than the max profit potential before the expiry. So if reliance rises 20 points next day, don't think that reliance call will also rise by 17-18 points. Though have to backtest it

 

[gsurendra]

Well, the extrinsic value of call is capped because the rise in futures price is set off against the loss due to call price increase