I've made majority of my money by short strangles and I'll explain one very easy short strangle strategy which you guys can follow. I'll also explain the adjustments and risk management.
1: What days it should be done? It has to be done on Monday to Thursday. You can skip Fridays as there's negligible decay and big delta moves.
2: Preferred Instrument: Banknifty will be the preferred instrument, since it's high risk and high reward. Moreover it has good premiums.
3: Criteria: It has to be done when Banknifty is inside a range on the 15 min chart. As we can see here, it was June 6th Monday and Banknifty was in a perfect range, which makes it ideal for short strangles.
4: Positon sizing: Although we'll hedge our positions but you strictly don't have to use the margin benefit which you will receive. Ideal qty which be 6 lots on each side on a 10L rs capital and 3 lots on 5L capital
5: What premiums to sell? We'll start of by selling 30rs call and 30rs put if the market is rangebound. You DON'T need to sell high premiums to make 1% a week. It's a myth!
- You should easily get a very wide range since 30rs premiums will be trading approx 1500-2000 pts away. - This will also ensure more safety.
6: Overnight hedging: Since we'll be carrying overnight positions you can buy 3-4 rs far otm options on both side for worst case scenario. You will get margin benefit which is not supposed to be used to increase size.
7: Adjustments: -Let's say if you sold 30rs short strangles and Banknifty falls. -The put will rise to 50rs and the call will fall to 20rs - In this case, one can exit the call at 20rs and shift it down and sell a new call worth 45-50rs and carry the positions overnight.
- Proper hedging has to be done while carrying the positions.
8:Stoploss: If any of your sold options touches 90-100(i.e 3x of the premium) then it should be very clear that Banknifty is not in a range anymore, it is trending. Under this condition you should immediately exit the losing position and sit out.
9: Risk management: In any case even after adjustments, if your loss exceeds more than 1% of your total capital, you should exit all your positions that day and start fresh the next day. There's no point in fighting with the market.
10: Event days: -Event days should be strictly avoided by newbies. - If there's a fed interest rate meet in the US then too you should not take any overnight positions as there is a high chance of gaps.
11: Your highest profits will come on wednesdays and thursdays on short strangles. - If on any day you are in 1% profit, then it's better to book all your positions for that day and start fresh the next day.
- If you have any doubts then hit me up on DM anytime and I'll try my best to answer your query.
12: I have already made a video on this strategy last year, so you can watch it for a better understanding:
(2) Banknifty weekly option selling strategy with adjustments | Make 1% return per week - YouTube
Comments
Post a Comment