Short Strangle Strategy

The short strangle strategy is a non-directional option selling strategy. The short strangle strategy is a good strategy if you know how to make use of it in the right way.

Here is how the strategy works:

1. Call option selling: sell the call (CE) option of the OTM strike price of the underlying, for which the strike price will be above the market price.

2. Put option selling: Sell the put (PE) option of the underlying whose strike price will be below the market price.

3. When to use this strategy:

When you think the underlying will be less volatile and in a range, you can go for this strategy. Example: When you expect that the market can be in a range of 1000 points in Bank Nifty at that time, from the spot price, you can sell 500 points above the call option, and from the spot price, you can sell 500 points below the put option. If the market is in that range on expiration, then the premium volume will be zero, and you’ll be making a good amount of profit in that case. In my opinion, if you are unable to predict a market in a particular range of 1000 points, then you can follow rule-based trading.

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 entry time, exit time, and stop loss, which can be done in OTM and ITM as well.

5. Positional trading style:

Look for less volatile underlying or analyze a range of markets than Sell CE and PE in that range (example given in the 3rd point).

If you are following a rule-based trading system, then you will have a fixed entry time, exit time, and stop loss.

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 the up-side direction, then your call-side premium will be increasing.

You can have a certain stop loss percentage on the premium, or else if the market goes above your strike price, 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 the OTM call option.

By doing this, you will be in profit in the market. We have given the Short Strangle strategy in our course as well, which could be the best way to make money consistently on a monthly basis..

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Short Strangle Strategy

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