Tradebulls

trade talk

Option Strategy : Short Strangle
Derivatives - Options

Hi Friends,

I hope you are doing great. Last week we discussed one of my favourite strategies Long Strangle. Our strategy is more or less similar but totally opposite to Long Strangle. Today’s strategy is Short Strangle. It can also be a blessing if you can execute it properly. So without waiting any further let’s discuss the Strategy.

Short Strangle

This strategy involves the selling of a slightly out-of-the-money (OTM) Put and a slightly out-of-the-money (OTM) Call of the same underlying stock / index and expiration date at the same time.

In this strategy, since OTM call and put are sold, the breakeven points are also widened. The underlying stock has to move significantly for the Call and the Put to be worth exercising. If the underlying stock does not show much of a movement, the seller of the Strangle gets to keep the Premium.

When can we use this strategy??

We can use this strategy when we believe that the underlying stock / index will experience very little volatility in near future.

Risk involved while using this strategy

Unlimited

Benefits of using the strategy

Limited Profits

When do we achieve the breakeven?

  • Upper Breakeven Point = Strike Price of Short Call + Net Premium Paid
  • Lower Breakeven Point = Strike Price of Short Put – Net Premium Paid

Example:

Let’s assume currently Nifty is trading at 8200

We sell Rs 8000 Put for Rs. 20 and a Rs. 8400 Call for Rs. 30

Net credit taken to enter the strategy is Rs. 50, which is the maximum gain we can get.

Now let’s understand how we this strategy will shape up:





COMMENTS
No Comments Found
leave your comment
ABOUT TRADE TALK EXPERT
Pratyush DixitConsultant - Digital Marketing and Content

Pratyush is a Post Graduate in Marketing Management and has a leadership experience of nearly a decade in diversified industry including Stock Broking. Having headed companies for over half a decade, Pratyush brings with him, rich Marketing and....

OUR TRADE TALK EXPERTS
636297234239146146_Pratyush-Dixit.jpgPratyush DixitConsultant - Digital Marketing and Content
CATEGORIES
Equity0Mutual Fund0Stock Market Basics8Investment10Derivatives - Futures1Derivatives - Options14Trading1Economy3Tutorials0
ATTENTION INVESTORS -
Prevent Unauthorized Transactions in your demat/Trading account, Update your Mobile Number and Email with your Depository Participant/stock broker and Receive alerts on your Registered Mobile Number/Email for all debit and other important transactions in your demat/Trading account directly from CDSL/Stock Exchanges on the same day......issued in the interest of investors.     
KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.    
No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account.    
We Moneypalm Investment Solutions Pvt Ltd do not do any Proprietary Trading
Consolidated Account Statement (i.e. Single Statement of Investment in Mutual Funds and Securities across DP’s ) has been started by CDSL w.e.f February 2015.
Do write to your Depository Participant if CAS Facility is Not Required.
Logo
Call Us 0124-4342000 Email Us info@moneypalm.in
Guidance Note on FATCA and CRS May 2016
Right and Obligation, RDD, Guidance Note in Vernacular Language

SEBI Registration No INZ000238435. Exchange Registration Nos NSE : TM No. - 14610 | BSE : TM No.-6512 | MCX : TM Code-55175 | SEBI Registration for DP : IN-DP-CDSL-667-2012
Registered Address : Plot No. - 122, Institutional Sector - 44, Gurgaon - 122003 For any complaints email at : info@moneypalm.in. If not satisfied with the response provided by us, you may approach SEBI or BSE or NSE or MCX.

Copyright © 2017 Moneypalm.in. All Rights Reserved
Designed , Developed & Content Powered by    Accord Fintech Pvt. Ltd.