3 Option Strategies Make Money During a Market Crash

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🔍 Introduction

When the stock market crashes, most traders panic. Prices fall fast, and people lose money quickly. But smart option traders use this time as an opportunity to make profits. Options are powerful tools that can protect your money and even grow it during a downtrend—if you know the right strategies.

In this article, you’ll learn 3 safe option strategies that can help you make money when the market is going down. These strategies are beginner-friendly and focus on risk management and reward-to-risk (R:R) ratios.

✅ 1. Put Buying (Long Put)

This is the most basic way to profit from a market fall.

What It Means:

You buy a Put Option when you think the price of a stock or index will go down.

How to Do It (Step-by-Step):

  1. Choose a stock or index that is showing weakness.
  2. Pick an At-The-Money (ATM) or slightly In-The-Money (ITM) Put Option.
  3. Make sure the expiry is near (weekly or monthly).
  4. Place a stop-loss (based on premium value).
  5. Exit when the price drops and premium increases.

📍 Example: Nifty50

Suppose today is Monday, and Nifty50 is trading at 22,000, and you expect a crash this week.

🧾 Steps:

  1. Go to the option chain and buy a 22,000 Put (ATM).
  2. Suppose the premium is ₹120.
  3. 1 Lot = 50 units → You pay ₹120 × 50 = ₹6,000
  4. Market crashes, Nifty goes to 21,600 in 2 days.
  5. Your 22,000 PE may rise to ₹400.
  6. Now your position = ₹400 × 50 = ₹20,000
  7. Profit = ₹20,000 – ₹6,000 = ₹14,000

Reward:Risk (R:R) Ratio:

  • Risk: Limited to the premium paid
  • Reward: High (can be 1:2 or even 1:3)

✅ Tip:

Only use 1-2% of your capital. This is a high reward but needs good timing.

✅ 2. Bear Call Spread

This is a safe option-selling strategy with limited loss and limited profit.

What It Means:

You sell a Call Option at a strike price and buy another Call Option at a higher strike price. This works well in falling or sideways markets.

How to Do It (Step-by-Step):

  1. Find a stock or index that is falling or not moving up.
  2. Sell a Call Option (OTM) – e.g., 18000 strike
  3. Buy a higher strike Call Option – e.g., 18100 strike
  4. Keep both in the same expiry.
  5. Wait for expiry or close earlier if profit is made.

📍 Example: Bank Nifty

Suppose Bank Nifty is at 47,000 and you think it won’t cross 47,300 this week.

🧾 Steps:

  1. Sell 47,000 CE @ ₹180
  2. Buy 47,300 CE @ ₹80
  3. Net Premium = ₹180 – ₹80 = ₹100
  4. Lot Size = 15 → ₹100 × 15 = ₹1,500 profit (max)

🔐 If Bank Nifty closes below 47,000 at expiry:

  • You get full ₹1,500 profit.

❌ If Bank Nifty closes above 47,300:

  • Max Loss = (300 strike gap – 100 premium) × 15 = ₹3,000

Reward:Risk (R:R) Ratio:

  • Risk: Limited
  • Reward: Moderate
  • Typical R:R: Around 1:1.5 or 1:2

✅ Tip:

This strategy needs margin but gives consistent profits in a crash.

✅ 3. Protective Put (Hedge Strategy)

If you hold stocks and want to protect them during a crash, this is the best.

What It Means:

You buy a Put Option to hedge your long stock positions. If the market crashes, your Put will gain even if your stocks fall.

How to Do It (Step-by-Step):

  1. Suppose you hold Reliance shares.
  2. Buy a Put Option of the same stock, same quantity.
  3. Choose a strike price slightly below the current market price.
  4. This acts like an insurance.

📍 Example: Nifty50 Long-Term Holding

Suppose you are holding NiftyBEES (ETF) worth ₹11 lakhs (~500 units), and market is uncertain.

🧾 Steps:

  1. Buy 1 lot of 21,800 PE (slightly OTM Put)
  2. Suppose it costs ₹80 → Total cost = ₹80 × 50 = ₹4,000
  3. If Nifty crashes to 21,200:
    • ETF value drops = Loss
    • But 21,800 PE jumps to ₹500
    • Put value = ₹25,000 → covers a big part of your loss

Reward:Risk (R:R) Ratio:

  • Risk: Limited to the cost of Put
  • Reward: It protects your large capital from big losses

✅ Tip:

Best for long-term investors during high-volatility times.

🧠 Final Advice

  • Don’t try all three at once. Learn one, backtest it, and start small.
  • Always check market trend and use support/resistance levels.
  • Never trade without a stop-loss or exit plan.
  • Focus on capital protection first, profits will follow.

📈 Conclusion

Options can be confusing at first, but the right strategies can turn a market crash into a money-making chance. With Put Buying, Bear Call Spread, and Protective Puts, you can stay safe and even profit during downtrends. Just remember—practice, stay calm, and respect your risk!

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