Thread by @Quants_Capital

#Straddles vs #Strangles ( Sell only )

These are the most common #Options strategies when one would start with #OptionsTrading.

Let’s understand from a broader perspective what’s the difference between these two.

Would not like to discuss the construction difference between them if you don’t know stop trading #options

#Straddles

You get higher premium so pnl would be higher compared to #strangles

But from where are you getting higher premiums is that your selling 0.5 #delta.

So probability of one going wrong is always 50% so to simply put one side is goin to get stuck in a #straddle but then market tends to #flucuate a lot so there is always the case of #meanreversion if you have selected the #strike rightly.

#Delta for #Straddles

Delta management is the 🔑 in #starddles as the more you manage more your goin to give in reverse scalps or reverse #gamma.

Generally deltas are higher for straddles compared to strangles

#Gamma for #Straddles

The maximum possible #negative gamma is goin to come from #selling a straddle.

This is the reason #delta management is the key to success

#Vega for #Straddles

View on #volatility is of highest importance for straddle as #vega is highest for #ATM options

#volatility if predicted rightly then this is the best or worst #strategy you want to be into.

#Theta for #Straddles

This is again goin to play an important role as its maximum at #atm so the more you hold the more benefit is goin to kick in.

Generally you should give away half of days #theta to manage your #deltas that’s where management lies.

#Strangles

This is the most common #options #strategy a trader would like to start with while #selling options & that’s where I think most traders do the mistake.

#strangles though is a very passive options strategy the management required for this is not a beginner thing.

The premium received is lesser whereas you may see wider fluctuations on your pnl if markets start fluctuating or trending a lot.

The 🔑 here is to understand the environment of #underlying and also #volatility regime the #markets are into.

#Delta for Strangles

These tend to be lower compared to #straddles but can suddenly start to rise.

#Gamma for Strangles

The sudden rise is delta is defined by the

#Gamma profile of the #strangles which tends to increase very fast as you approach your short #strikes.

Gammas are relatively lower as compared to straddles.

#Vega for Strangles

Though it’s lower than straddle the ratio for vega to theta is much higher comparatively.

So strangles can go wrong very fast as #volatility regime changes.

#Theta for #Strangles

This is one thing which is goin to benefit you as long as the strikes are not being #breached.
#theta generally would be lower compared to straddles in this strategy.

#Conclusion

Better strategy for beginners would recommend only #straddle they tend to move and that’s where learning would come you wouldn’t wait long to act on.

Whereas on the other hand #patience would be developed only through #strangles but that’s not what beginners have.

Both #straddle and #strangles have a negative #gamma and negative #vega profile and a #positive #theta profile.

#Risk is similar on both the cases but a lot of case studies have proved #strangles to carry higher risks.

#Returns would be higher for #straddles.

For a higher exposure on #short #volatility you should go for #straddles where a long #theta play income #strategy go with #strangles.

#OptionsTrading #volatility #optiongreeks #quantscapital