In general, price movements of high beta scrips are more volatile than the general market swings. In the case of a rising market, these stocks tend to offer higher returns than the market but look more vulnerable when market sentiment weakens.
From a trader's point of view, the best options strategy for high beta scrips is 'Delta Neutral Strategy'.
What is 'Delta Neutral Strategy'?
Delta is the amount by which an option price is expected to move based on an Rs1 change in the underlying stock. Delta Neutral strategy refers to any strategy where the sum of your deltas is equal to zero. Buying both the call option and the put option simultaneously at the money strike price is a popular delta neutral options trading strategy, called a Long Straddle, in which profit accrues when the underlying stock moves up or down significantly. An At The Money (ATM) call option has a delta value of 0.5 and an ATM put option also has a delta value of -0.5. Buying both the call option and put option results in a delta neutral position with '0' delta value, i.e. 0.5 (call option) - 0.5 (put option) = 0 Delta
Click here for a list of High Beta Stocks
How much would be the maximum risk and reward?
Risk: Limited to the initial premium paid. Reward: Unlimited
- Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid
- Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid