Delta neutral, Vega long Strategies

1. Long strangle:
 A VOLATILE STRATEGY
 Steps to trading a Strangle:
1. Buy OTM (lower) strike puts, preferably this month or next month to
expiration.
2. Buy OTM (Higher) strike Calls with the same expiration.
 Stepping In: Try to concentrate on stocks with news events and earnings
reports about to happen within two weeks and where the implied volatility is
very low.
 Choose high liquid stock.
 Selecting the Options:
 Put Strike: Just one or two strike below the spot price.
 Call Strike: Just One or two strike above the spot price.
 Expiration: Use the same expiration for both legs.
 Start observing annualized volatility and Option implied volatility of ATM
strikes one to two weeks before budget or quarterly results or election results
and monetary and fed policies.
 If implied volatility is less than the annualized volatility, then that is best time
to enter the long strangle strategy.
 Appropriate Time Period to enter: 3 to 4 (6/8 days for IT stocks) days before
events. Look for the implied volatility is low. Compare it with annualized
volatility.
 If the stock has not moved decisively, sell your position well before expiration.
 Selecting a stock: Choose from a stock with adequate liquidity.
 Consolidating chart patterns.
 Exiting the trade: Either exit the trade once the news is over or exit the trade if
you are in expected profit.
 You can also exit only your profitable leg of the trade and hope that the stock
retraces to favor the unprofitable side later on.
 Mitigating losses: Sell the both the positions if expiry is very near and you are
not expecting any movement in the stock.
 Stepping Out: Exit either a few days after the news event occurs when there is
no movement or after the news event when there has been profitable
movement.
 If the stocks thrusts upwards (consolidates at resistance), sell the call and wait
for a retracement to make profits from the put.
 If the stocks thrusts down (Consolidates at support), sell the put and wait for
the retracement from the call.
 Try to avoid holding till expiration.

 Example: Bank of Baroda’s quarterly results is on 11 th November 2016.

Steps to Trade:
 Start observing ATM strikes’ implied volatility from 1st November.
 Compare it with annualized volatility.
 If ATM’s implied volatility is less than annualized volatility that means options
prices are fairly valued.
 This is the right time to buy the strangles.
 Prices must be in consolidating pattern.
 Buy CE Just one strike above the spot price.
 Buy PE just one strike below the spot price.
For example, if Bank of Baroda is trading at 150 just 3 to 4 days prior to the
quarterly results, Buy 155CE and 145PE or you can buy strikes with equal delta
value.
Example: 145PE has a delta of 0.30 to 0.40 and 155CE has a delta of 0.30 to
0.40. Buy 145PE @₹ 5.50 and 155CE @₹ 6.50; Total investment will be ₹12 per
pair of one lot.
 Exiting the trade: Before Result
 You can exit the trade if you are in profit anything in the range of 10%
to 30% before the result.
 If you are in a profit with only one leg, you can exit only one leg. For
example if 155CE is now trading @ ₹ 16 (Your total investment is ₹ 12).
You can exit only CE and wait for the PE to make some profit.
 If 145PE is now trading @ ₹ 16 (Your total investment is ₹ 12). You can
exit only PE and wait for the CE to make some profit.
 At any cost, do not square off only one leg if you are not in total profit.
  Exiting the trade on Result day
 If result is declared before 9.15 am on result day and if you are in good
profit (total profit) with any one of the legs, exit the leg which is in
profit and later on you can exit the other leg.
 For example, if you are in a total profit with CE, exit call side and wait
for the put side to recover some amount. Or if you are in a total profit
with PE, exit the put side and wait for Call side to recover some amount.
(This can be done only if you are in total profit).
 If you are in total profit with both the legs, then exit both CE and PE at a
time.
 If result is declared at 9.15 am and if you are not in profit or if you are in
loss you are suggested to wait till 3.15 pm, when mostly you will be in
profit and thus book the same profit.
 If result is declared during market hours and if you are in total profit
with both the legs, then exit both the legs. If you are in total profit with
only one leg i.e. CE side or PE side, exit those respective legs only. You
can exit the remaining leg later.
 If result is declared after market hours:
(a) If you are in total profit with only one leg before the announcement
exit that leg wait for the other leg to recover some amount.
(b) If you are in profit with both legs exit both the legs before the result
announcement.
(c) If you wait till next day morning you should the judge the stock and
profit and take the decision as per the profit/Loss.
 If you are not sure about the direction of the stock, exit both legs
irrespective of profit or loss at any cost.
 If you are not sure about the direction of the stock, do not hold the
position for more than 2 to 3 days if expiry is very near.
 Remember, after the announcement of the result, the volatility of the
stock will subside. So, it is better to exit with profit before the result
announcement.
2. Long Straddle
 There is no change in the trading rules of strangle and straddle.
 Straddle is buying ATM CE/PE of the stock.
 Look for the recent high and recent low ( look for the one week before high
and low) if that straddle’s cost is less than average of recent high and recent
low then you can trade this straddle.
 For example, consider that a particular stock (Bank of Baroda, in this case) is
trading at 150 and 150CE/150PE total cost is ₹ 20.00

 Check the historical values of 150CE/PE. If present cost is more than average
of recent high and recent low, then you should not trade this straddle.
 Bank of Baroda trading at 150.
 150CE’s recent high 10 and recent low 5rs
 150PE’s recent high 11 and recent low is 5.50.
 If 150PE/CE is trading @ ₹ 14-15 then you can buy this straddle.

Exiting the trade on Result day

 If result is declared before 9.15 am on result day and if you are in good
profit (total profit) with any one of the legs, exit the leg which is in
profit and later on you can exit the other leg.
 For example, if you are in a total profit with CE, exit call side and wait
for the put side to recover some amount. Or if you are in a total profit
with PE, exit the put side and wait for Call side to recover some amount.
(This can be done only if you are in total profit).
 If you are in total profit with both the legs, then exit both CE and PE at a
time.
 If result is declared at 9.15 am and if you are not in profit or if you are in
loss you are suggested to wait till 3.15 pm, when mostly you will be in
profit and thus book the same profit.
 If result is declared during market hours and if you are in total profit
with both the legs, then exit both the legs. If you are in total profit with
only one leg i.e. CE side or PE side, exit those respective legs only. You
can exit the remaining leg later.
 If result is declared after market hours:
(a) If you are in total profit with only one leg before the announcement
exit that leg wait for the other leg to recover some amount.
(b) If you are in profit with both legs exit both the legs before the result
announcement.
(c) If you wait till next day morning you should the judge the stock and
profit and take the decision as per the profit/Loss.
 If you are not sure about the direction of the stock, exit both legs
irrespective of profit or loss at any cost.
  If you are not sure about the direction of the stock, do not hold the
position for more than 2 to 3 days if expiry is very near.
 Remember, after the announcement of the result, the volatility of the
stock will subside. So, it is better to exit with profit before the result
announcement.

Created and Written by:

Murli Deshpande
M-Cube Classes.
Mobile: (91) 9890907096.
Email: mcubeclasses@gmail.com

I wish you a very happy and profitable trading.

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practice these they will become very easy strategies after some
experience.

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