SHORT STRANGLE ANALYSIS
Options Trading with Shorting Strangle Strategy is basically a neutral strategy.
Short Strangle is basically Selling the Call option at higher Strike price and Selling the put option at lower strike price than the spot price.
To get profit consistently with this strategy, you have to sell deep OTM strike price of Put and Call Options and the underlying asset should be in that range between the Call and Put option.
Risk is Unlimited but Reward is limited though selling options will always helps in favour of decay.
Let's get it into an example
Short Strangle Deep Outside the Market (OTM) with Strike price of NIFTY 17500 CE and NIFTY 15800 PE of June month as expiry
So, Sell NIFTY 17500 CE of monthly expiry of June which is currently trading at 114.85 premium and Sell NIFTY 15800 CE which is currently trading at 21.70 as premium and the current trading price of NIFTY is 15785 On 13th June , 2022.
Let's look at the graph on monthly expiry i.e on 30th June ,2022 (last Thursday of expiry).
When the market is bearish, the premium of 15800 PE is increased and when the market is ATM /ITM , premium is decreased.
On 20th June, 2022 Nifty current trading price is 15279 (OTM) and the premium of 15800 PE is 554 which is against the strategy of shorting strangle
Combined P&L is (-21,060) in loss
On 29th June, 2022 Nifty CMP is 15799 (ATM) , the premium of 15800 PE is 62 and the combined P&L is (+3112) in profit
On 27/06/202 , Nifty CMP is at 15900 (ITM) , the premium of 15800 PE is 97 and the combined P&K is (+1938) in profit.
Though it is ITM, there's 3 days left to expiry.
But On the Day of Expiry i.e 30/06/2022,
the NIFTY is trading at 15837 and the premium of 15800 PE is at 55 and the combined P&L is (+4035) in profit.
But what about 17500 CE ?
So basically Market is in downtrend, premium of 17500 CE decreases, So you will be in profit .All that impacts this strategy in bearish market is lower strike price premium.
OPTION GREEKS
But what if market is bullish?
Same as above but Higher Strike price i.e 17500 CE and the premium of lower strike price will be in your favour.
You can square off your position when you are in profit. If this strategy is in your favour on expiry and you forgot to close your position, its ok still you are in profit.
Don't forget to put Stop loss and Check out Volatility of strike price before you enter.
