2 best strategies in F&O trading after election results: Shubham Agarwal

F&O Cues

Shubham Agarwal

While we await the election results of 5 states, the excitement has already started building in the India VIX as it is around the highest levels of the second half of year 2023. As we all know, India VIX composed of indicative Options Implied Volatility of Nifty options suggests the exception of Volatility in the market.

While all of us must have carefully placed bets ahead of the event, it is equally important to be ready for the after effects of the event in our trading strategy.

Following 2 strategies have worked for me during such after-event periods.

#1 Staggered Buying in Options

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Shubham Agarwal

CEO and Head of Research|Quantsapp Private Limited

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Let us say that a direction is defined, and one believes that there is still a long way to go in the same direction. It is advisable to go with Option buying route. Remember some election results have forced markets into upward freeze as well.

In such case going for unlimited profit strategy is always a good idea. However, Buying or Selling Futures could be equally risky. Remember one of the reasons why the moves are so sharp is because traders are buying or selling in rush. This makes the move equally unreliable because the move could be vulnerable.

On the other hand, as we have seen the India VIX go up ahead of the event, the India VIX and the expected volatility would go down after the event. This will put a big pressure on Option Premiums. Without any movement in the stock or index this reduces the premium as the event passes. This could be a loss that one must account for.

Solution: Buy Option at least in 3 parts. Buy the 1st part right with Higher Strike Call/ Lower Strike Put. Only if it comes in profit Buy the next 2 lots.

This will help in getting a bargain along with having a stake in the trade. Waiting will gain us better price in terms of risk premium at least. I have had instances with Calls when both options came at the same price despite of a rise in the index.

#2 Closer Strike Protected Option Writing (Selling)

As discussed, we will see Option Premiums go down for no reason due to reduction in expected volatility. So, writing would be fruitful. However, the direction that was a friend in Option buying now becomes an enemy. But there is a solution.

Instead of selling distant Call or Put, sell a closer Call or Put. At the same time protect it by Buying a bit Higher Call or a Bit Lower Put.

For Example:

With Stock X @ 100

Do not Sell 102.5 Call / 98.5 Put,

Sell 100 Call / 100 Put

+

Buy 105 Call / 95 Put

Benefits:

1. The Premium thus received would generally be same if not higher.
2. The investment will be lower because protection benefits in lower margin.
3. Lastly, in case the direction turns a violent wrong turn, we will always be PROTECTED with Limited Loss.

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