What is Intraday Trading & why should we learn it?
- No Overnight Risk as all the positions are closed on the same day before the market closes.
- Traders can focus only on technicals as the holding period is so small that fundamentals barely impact the trades.
- Stoploss can be small but at the same time targets are also comparatively smaller. However, risk/reward can still be good depending on the strategy.
- The capital is not blocked for a longer time hence multiple strategies can often be traded with the same capital.
- The results of the decisions are very quick (Can help when you are learning as you will be able to see the results of the trades quickly).
Short Straddle Payoff
We are going to see 2 strategy examples. Both the strategies consist of executing the short straddle strategy under different circumstances. Hence first of all, we will learn the basics of a short straddle strategy.
This is one of the simplest options strategies. To execute this strategy, we need to sell the call and put options of the same strike in equal proportions. Usually the ATM strikes are sold.
Impact of Time And IV on short straddle
The value of Short Straddle increases as the time passes or Implied Volatility declines. That means, your short straddle position makes money with passage of time and/or decline in Implied Volatility.
Important Greeks for Intraday Short Straddle
|Delta 𝚫||Vega 𝓥||Theta 𝝷|
|The delta remains close of 0 when the underlying is close to strike price. Above the strike price, the delta keeps getting negative and below the strike, the delta keeps getting positive.||Vega is negative. If the underlying moves away from the underlying, the delta moves closer to zero.||Theta is positive. If the underlying moves away from the strike, theta moves towards zero.|
Strategy Example 1
Strategy Link: bit.ly/shortstraddle-1
Strategy Example 2
Strategy Link: bit.ly/shortstraddle-2
Scanner Example 1
Scanner Link: bit.ly/sidescan2
Scanner Example 2
Scanner Link: bit.ly/highvix
Things to keep in mind while trading short straddle
- The strategy shouldn’t be traded on highly volatile instruments.
- Should not be executed when the Implied Volatility is very low. Historical Values of VIX can be referred for comparison.
- The strategy should be avoided ahead of any announcement that could make the market volatile. E.g right before or on the day of RBI polity.
- Intraday traders have no Overnight Risk as all the positions are closed on the same day before the market closes.
- Short straddle is simple to execute by selling an at-the-money call and an at-the-money put option.
- The approximate margin required to trade 1 lot short straddle on NIFTY is and for BANKNIFTY it is: 1,00,000 and 1,50,000 respectively.
- Short straddle position makes money with passage of time and reduction in implied volatility.
- Strategies can be developed, backtested and optimized on the Streak platform. You can also paper trade the strategy to check the live market performance without risking any real money.
Disclaimer: The information provided is solely for educational purposes and does not constitute a recommendation to buy, sell, or otherwise deal in investments.