1/ Short Strangles
As the name suggests, you need to sell options in this strategy
It involves 2 legs:
Short OTM CE
Short OTM PE
As the name suggests, you need to sell options in this strategy
It involves 2 legs:
Short OTM CE
Short OTM PE
2/ Stance
You expect the market to trade within a narrow range. A narrow range means low volatility and hence lowering option premium due to theta decay
You expect the market to trade within a narrow range. A narrow range means low volatility and hence lowering option premium due to theta decay
3/ Net Credit Strategy
Shorting options means that you will receive premium
Ex Nifty spot 16200
To create Short Strangle
Short 16300CE @92
Short 16100PE @132
Total premium received = 92 + 132 = 224
Shorting options means that you will receive premium
Ex Nifty spot 16200
To create Short Strangle
Short 16300CE @92
Short 16100PE @132
Total premium received = 92 + 132 = 224
@132 4/ Maximum Profit
The max profit is the premium received at entering the strategy, possible when the market expires within or at the selected strikes
In the Ex, expiry at or between 16100 or 16300, means options go worthless due to theta decay and you receive 224 points per lot
The max profit is the premium received at entering the strategy, possible when the market expires within or at the selected strikes
In the Ex, expiry at or between 16100 or 16300, means options go worthless due to theta decay and you receive 224 points per lot
@132 5/ Maximum Loss
The risk is open ended.If the market expires outside the selected strikes,there will be a loss
The extent of the loss depends upon the magnitude of the rally away from your strikes
In that case, volatility and option premium would increase which means more loss
The risk is open ended.If the market expires outside the selected strikes,there will be a loss
The extent of the loss depends upon the magnitude of the rally away from your strikes
In that case, volatility and option premium would increase which means more loss
@132 6/ Advantages over Short Straddles
Short Strangles: are
More sensitivity towards theta decay due to OTM options
Have wider breakeven points, good for option selling
Narrow price move and less volatility means more decay, compared to straddles, for same time-wise correction
Short Strangles: are
More sensitivity towards theta decay due to OTM options
Have wider breakeven points, good for option selling
Narrow price move and less volatility means more decay, compared to straddles, for same time-wise correction
@132 7/ Limitations over Short Straddles
While creating a Short Strangle you receive a lesser premium compared to Short Straddles.
This is due to OTM options used in strangles, which have a lesser premium compared to ATM option used in short straddles
While creating a Short Strangle you receive a lesser premium compared to Short Straddles.
This is due to OTM options used in strangles, which have a lesser premium compared to ATM option used in short straddles
@132 8/ Payoff Diagram
Short Strangle Stance – Sideways
Involves selling OTM CE and OTM PE
Max Profit – Limited to the premium received (on expiry within strikes)
Risk – Unlimited (on expiry outside breakevens)
Breakevens – Wider
Short Strangle Stance – Sideways
Involves selling OTM CE and OTM PE
Max Profit – Limited to the premium received (on expiry within strikes)
Risk – Unlimited (on expiry outside breakevens)
Breakevens – Wider
@132 Stay tuned @finkarmaIN for more write-ups in the coming days
Don’t forget to like and retweet
Thanks for reading
Don’t forget to like and retweet
Thanks for reading
@132 If you loved this, check out our thread on Long strangle :
https://twitter.com/finkarmaIN/status/1527280615367712768?s=20&t=zDOJdy-eAsQIY1OTuZJRrw
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