NEUTRAL STRATEGIES
If market is sideways, These strategies can be deployed
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In this strategy we sell ATM CALL OPTION and PUT OPTION with the same underlying INSTRUMENT, same STRIKE PRICE and same EXPIRY DATE
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
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
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.
When the same premium we received, subtracted from the PUT OPTION premium becomes our DOWNSIDE BREAKEVEN
This strategy carries the same risk as short straddle, overnight risk of gap down or gap up.
Pay off chart for your reference
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