Short Strangle Strategy in Tamil

This session is all about the short strangle strategy which is a writing strategy. There are many advantages to this writing strategy. The market view in this strategy must be neutral. It is mainly based on your prediction regarding the market. It can be either a weekly contract or a monthly contract. You can even predict the exact value of the market. For example, in Nifty the expiry closes at 17,000 whereas in Bank Nifty it closes at 37,000. You can also predict the stocks like State Bank of India, Reliance. You can apply this strategy only when you predict that the market closes at neutral.

In this strategy, both the call and the put option are sold at the same strike price. For example, in Nifty, both the call and put option are sold at the strike price of 17,000. The main advantage of this strategy is that the time decay. There would be a maximum risk in this strategy. This is because, this strategy is executed at the money, i.e, the call and put options are sold at the strike price of 17,000 in Nifty. When the market goes down to 16500, the premium of the call option goes down whereas the premium of the put option goes up. Hence this case can be applied only when the market is neutral. You can also make adjustments like buying the put option or maintaining the stop loss when the market goes down or crosses the break event. This provides only minimum returns. The premium that you collect is the return in this strategy. This becomes a hedging strategy on selling both the call and the put options. Hence there would be some margin benefits as the selling takes place on both sides. The margin benefits vary from strike to strike. 

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Choosing the Strike Price
The strike price has to be chosen at the money. There would be more fluctuation due to news. Hence it is better to avoid it on weekends. This strategy has to be applied only when the market is very stable. This strategy can be attended to on a daily or weekly or monthly basis. But your intention of the market should be neutral. The strike value should be at the money and you must be careful regarding the position. When it moves away the strike value may fall under in-the-money or out-of-the-money. Hence you must be careful about the strategy as it involves more risk. 

According to this strategy, the market should be sideways, range-bound, and neutral. When it moves in one way, you have to decide whether to maintain the stop loss or take some other position or shift the range.  The decision should be subjected to the market. 

Margin benefits of short strangle
This strategy can be explained in detail with the below example. I have considered the Zerodha calculator. I have selected the product as options, symbol as Bank Nifty, the contract expiry as 25 th November 2021, option type as call and put strike value as 37300, and the net quantity as 25. I have chosen to sell. In short, strangle, both the call and put have to be selected at the same strike price i.e, 37300. The total margin that is needed is 2,94, 534. It is considered a hedging strategy with a margin of approximately 1,66,797. The premium would be added along with this. This is the margin benefit in a short strangle. 

The illustration of this strategy includes a spot price of 37128.8 and a future of about 37270. I have chosen the strike value for the future as 37300.  You can select the strike directly and sell them. The selling part is indicated by -1. The premium value is 304.95. The premium would be collected on selling. The intention of the market is neutral then the premium would be collected within the range. The probability of success in this strategy is 50% and there is a 50% risk in it. The maximum profit would be 15938 which would be the premium. The maximum loss is undefined. When the market moves one side, the call option fades away leading to profit where there would be a maximum loss in the put option. Hence the maximum loss is undefined. The breakeven is the range of value above which you face the loss. Hence on the lower side the value below 36662 and the value above 37938 cause losses. 

I have provided you with a calculator, i.e, in the range of 37300, you would receive the premium i.e, 7623.75 in the call option completely and also the put option premium as 8333. Approximately the total premium would be 15957. In case if the market goes up to 38300, you would receive the put option premium as profit, and the call option moves to in-the-money causing loss. As it is said earlier when the breakevens cross 38,000 you would acquire loss. Hence it is advisable to make some adjustments or maintain the stop loss at this time. When the market goes down to 36300, the call option gives you profit but the put option leads to loss. When the market goes down from 37300 to 36700 you would receive a profit of about 957. When the market goes up from 37300 to 37900 you would receive a profit of about 957. You would end up with a profit in this contract only when the market expires within the range of 36700 to 37900 i.e, about 1200 points. This is the best strategy to attend. You can contact us if you have any queries.