Here is how the strategy works:
1. Call option selling:
Sell call (CE) option of ATM strike price of underlying, where the strike price will be nearest the market price.
2. Put option selling:
Sell put (CE) option of ATM strike price of underlying, where the strike price will be nearest the market price.3. When to use this strategy:
4. Rule-based trading:
Rule-based trading, which is easier as it will have the right entry time, right exit time, and right stop loss, requires you to trade intraday, which will give a very good return without having any technical analysis.
If you are following a rule-based trading system, then you will have a fixed rule. Entry time, exit time, and stop loss will allow you to make a good amount of profit consistently on a monthly basis without any adjustments.
5. Short straddle with adjustment:
Another type of rules-based trading can be entry, exit, and stop loss with adjustment as per the market movement. Let's assume if the market goes in an up-side direction, then your call-side premium will be increasing, and you can have a certain stop loss percentage on the premium. If the market goes in a down-side direction, then you can exit the call-selling position by buying it and take a fresh position in Ce-selling according to the current market underlying price of ATM Call Option. By doing the adjustment, you will be in profit in the market.
Another type of adjustment can be when you enter the strategy with Ce and Pe selling with the same strike, and if the market goes in one direction, then you can add a call-long position, which will protect you from big losses.
We have given the short-straddle strategy in our course as well, which could be the best way to make money consistently on a monthly basis..