Top Options strategies for a short trading week: Shubham Agarwal

F&O Cues

Certain months in the year are just filled with trading holidays. This fosters volatility and also makes trading  time-sensitive Options instruments more difficult. But there are both risks and opportunities in such situations.

Let us understand the best strategies for managing weeks with fewer trading days.

We often feel that there will be  a big gap-up or gap-down opening right after a long trading holiday due to a number of reasons.

In such situations, we feel that the Options premium could drop due to the passage of time. This is true across the entire Options chain. Especially if the Call Options are of strikes around or higher than current market price (CMP), or if Put Options are of strikes lower than the CMP.

However, it's a slightly different story if it’s an ITM (in-the-money) Option . ITM Options are basically lower strike Calls or higher strike Puts compared to the CMP.

Since the drop in premium is not only dependent on the passage of time but also on the probability of the Option expiring with a profit, ITM Options are relatively less impacted by the passage of time compared to the rest of the Options chain.

Protected Options selling is the best option. This is true regardless of the trading breaks.  One way to do this is through an Iron Condor, which can be executed in two steps.

We've already seen above that higher strike Calls and lower strike Puts are more likely to lose value due to the passage of time. So, if we want to sell Options taking advantage of big holidays, they are the one to sell.

Then, to optimise and protect margins, we go somewhat higher in Calls and lower in Puts and buy those.

No doubt buying Options will eat up some of the profit, but it will also protect your margins, thus compensating for the compromise made.

This popular strategy involves buying and selling Options of the same underlying asset and mostly of the same expiry and type. This strategy should be adopted only if one is largely confident about the outcome.

Here we  take our chances on the likelihood of big trend-changing movements, where if we don't participate now we will not be able to  after the movement.

Debit spreads can be created by buying Calls / Puts around the CMP and selling higher strike price Calls / lower strike Puts against them.

This buy + sell approach reduces the impact of time on the buy Option as the Option bought closer to the CMP allows one to benefit from a possible gap move.