I have been toying with idea of selling straddle and strangle and paper trading for few weeks and I have few questions.If anybody can help me clear out few problems I will be grateful.
The whole idea of say selling strangle/straddle is to earn Premium.Time decay works in favour of Option sellers.Now when we sell credit spread the idea is to neutralise Delta (by various mean).Suppose I am neutralising delta by selling future.
Now as an option seller I am looking for volatility to decrease.If I am Sell options when volatility is high and gradually Vola decreases I make profit since both put and call decrease Value.But After taking a position if Vola increase I am going to get hurt(Since Vega is negative in selling spreads)
Now my questions are,-
1.Suppose I sold a strangle/straddle and Vola increases what can be done?(I am neutralising delta already).
Even when we avoid times when we are anticipating increased Vola ,there are times when Market suddenly moves (down 100 point in 15 minutes) and vola jumps up.What to do in that time??
2.There are certain time when Vola probably will go up (e.g 2nd June RBI announcement) and come down after that.Now should I avoid that time altogether or sell just after Event like that.
3.Is it right to avid Expiry Week?What are good strategies for Expiry week?
4.Sometimes Volatility goes up for three to five days (April 20-24).Do I get out quickly or neutralising Delta can help me through that time.Any Past experiences will help me.
5.If you neutralise Delta in a credit spread how often do you do that? like once a day or twice a day? or more?
( I am here assuming I sell Nifty 200 units Call/200 units Put there by giving Theta of 2000 approx and neutralising delta (keeping it within 20-25 Range) but Short Vega is making me worried.
Thanks in advance.
The whole idea of say selling strangle/straddle is to earn Premium.Time decay works in favour of Option sellers.Now when we sell credit spread the idea is to neutralise Delta (by various mean).Suppose I am neutralising delta by selling future.
Now as an option seller I am looking for volatility to decrease.If I am Sell options when volatility is high and gradually Vola decreases I make profit since both put and call decrease Value.But After taking a position if Vola increase I am going to get hurt(Since Vega is negative in selling spreads)
Now my questions are,-
1.Suppose I sold a strangle/straddle and Vola increases what can be done?(I am neutralising delta already).
Even when we avoid times when we are anticipating increased Vola ,there are times when Market suddenly moves (down 100 point in 15 minutes) and vola jumps up.What to do in that time??
2.There are certain time when Vola probably will go up (e.g 2nd June RBI announcement) and come down after that.Now should I avoid that time altogether or sell just after Event like that.
3.Is it right to avid Expiry Week?What are good strategies for Expiry week?
4.Sometimes Volatility goes up for three to five days (April 20-24).Do I get out quickly or neutralising Delta can help me through that time.Any Past experiences will help me.
5.If you neutralise Delta in a credit spread how often do you do that? like once a day or twice a day? or more?
( I am here assuming I sell Nifty 200 units Call/200 units Put there by giving Theta of 2000 approx and neutralising delta (keeping it within 20-25 Range) but Short Vega is making me worried.
Thanks in advance.
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