F&OShubham AgarwalWe are little over a fortnight away from announcement of results of Union Election 2024.
#2: Trade Larger Spreads for positional trades instead of Futures.
#3: More Pro- Volatility Strategies:We all know that in case of rise in expected volatility, Options premium will rise.
If one feels that the trade could go beyond election results, then be ready to lose full premium.
These may not make a lot of money out of event led excitement, but these trade improvements would safeguard from losing out of any volatility led losses in Option premiums.
F&O
Shubham Agarwal
We are little over a fortnight away from announcement of results of Union Election 2024. The event itself, once done with could bring surprises but till the event is done, lots of excitement will get built up into both Futures & Options prices. This could be above and beyond normal trend following movements.
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To ensure that we are ready for these known impacts of the upcoming events, the following are some of the trade improvements that one may resort to.
#1 Shorter Horizons:
When event is closer, outcome expectations change very fast making the trend highly unreliable. Betting big in this time could create big damage.
Directional moves in such times are usually fierce but short lived making it difficult to detect if we are trading a trend or just a pull back. This characteristic makes it essential to reduce the horizons of the trades. This modification will safeguard against undue gyrations.
#2: Trade Larger Spreads for positional trades instead of Futures.
When the view is for 5+ sessions, we could resort to spreads. Meaning, along with Buying a Call/ Put close to the market price of the underlying, we also sell a Higher Call or Lower Put to fund the cost of the Call and a part of time value decay of the option bought.
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Now in times of high expectations of Volatility, Option strikes close to each other tend to behave almost similarly with expectation of volatility also impacting the premiums. This makes the Spreads a little unattractive.
A work around to this is larger spreads. Unlike normal times during events, premiums of farther strikes are pricey enough to give better funding. At the same time the distance between strikes would make sure that if the move materialized, there would be decent money on the table.
Profit is bigger when difference between bought and sold strike is higher.
#3: More Pro- Volatility Strategies:
We all know that in case of rise in expected volatility, Options premium will rise. With the event results coming soon, the expected volatility would most likely rise. Hence, while framing options strategies this behaviour of Options where premium moves regardless of directional move must be accounted for.
Work around to this peculiarity is use Pro-Volatility strategies. Trade more single Options. If one feels that the trade could go beyond election results, then be ready to lose full premium.
#4: Avoid Net Sell Options Trades:
As discussed in the earlier point the premiums at least pre-event would be on expected volatility led rise hence one shall try and refrain from net Selling of options.
If one still wants to trade the juicy premiums:
• Every Single Short Option shall have future position with it Buy Future + Sell Call / Sell Future + Sell Put
• If we want to Sell Both Call and Put, make sure at least a distant higher Call & Lower Put is bought against it to keep maximum loss restricted to difference between bought and sold strikes.
These may not make a lot of money out of event led excitement, but these trade improvements would safeguard from losing out of any volatility led losses in Option premiums.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
