NEUTRAL STRATEGIES

If market is sideways, These strategies can be deployed

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If our view is sideways or market is moving sideways, it is not good for option buyer. In that case we use this OPTION SELLING STRATEGIES to benefit from the sideways market
SHORT STRADDLE

In this strategy we sell ATM CALL OPTION and PUT OPTION with the same underlying INSTRUMENT, same STRIKE PRICE and same EXPIRY DATE
We receive premium, we benefit from the premium decay. Theta is our friend in this strategy.

The combined premium we receive, added to strike price becomes our upside break even

When the same premium is subtracted from the strike price becomes our downside break even
As long the underlying trades in this range, we benefit from the THETA DECAY and becomes our profit.

The huge risk is overnight carrying of the position. We never know when the market open LC because of BLACK SWAN events.

pay off chart for your reference
SHORT STRANGLE

In this strategy we sell OTM CALL OPTION and PUT OPTION with the same underlying instrument and the same EXPIRY DATE

we receive a premium from selling two options, we get the benefit premium decay. Same theta is our friend in this strategy too.
The combined premium we receive, added to the CALL OPTION STRIKE becomes our UPSIDE BREAK EVEN

When the same premium we received, subtracted from the PUT OPTION premium becomes our DOWNSIDE BREAKEVEN
As long as the underlying trades in this range, we benefit from the THETA DECAY and it becomes our profit.

This strategy carries the same risk as short straddle, overnight risk of gap down or gap up.

Pay off chart for your reference
If we compare the overall pay-off charts of two strategies we will know which strategy has better R:R
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How I trade monthly short strangles for regular income

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👉Short strangle means,
Selling OTM call option and Selling OTM put option

Here is a detailed thread on short strangle


👉Generally, this strategy gives good returns when market is sideways but most trader get wrong entries and wrong exist

👉Ahead of major event option price will increase because of uncertainty. We have to take advantage of that

👉As the VIX is the derivative of option price, we have to check this parameter first

When VIX is >20, it is the right opportunity to deploy short strangle

👉If we look at the weekly and monthly candles of nifty, it is easier to identify which strikes to choose

Entry conditions:

👉VIX >20
👉Choose the strikes which are 6% above and below of nifty in next month contracts
👉Combined premium should be in the range of 160-170
👉Next month contracts should be taken at the mid of current month

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