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Deploy Short Strangle in Nifty for gains from volatility, theta decay

Economic Times13-06-2025
Nifty remains structurally in an uptrend, although it continues to trade in a consolidative phase that has persisted for the past few weeks. The swing low at 24,462 (formed on 22nd May) has established a strong support zone, with the 24,500 level marking the lower boundary of the ongoing range.
ADVERTISEMENT Despite the index's range-bound behavior, sectoral trends remain constructive, with Information Technology, Pharma & Healthcare, Energy, and Chemicals showing notable relative strength.
'On the higher side, the 25,350 zone—as suggested by options positioning—acts as a significant resistance, forming the upper boundary for the current week,' said Sahaj Agrawal, Senior Vice President: Head of Derivatives Research, Kotak Securities.
While Nifty50 remains confined within a tight band, even the broader markets have begun to cool off following a sharp uptrend over the past month.Agrawal noted that without broad-based participation, a decisive breakout from the current range appears unlikely in the immediate term.
Given this backdrop, he expects Nifty to oscillate between 24,500 and 25,400 in the week ahead. With consolidation likely to persist, Sahaj Agrawal suggests deploying a Short Strangle strategy, which may be well-suited to capitalize on Volatility contraction, and Time decay (Theta).
ADVERTISEMENT He also noted that the strategy remains profitable as long as Nifty stays within the defined range of strike prices, aligning well with the current market setup.
The strong strangle strategy is an options trading approach where an investor buys both an out-of-the-money (OTM) call option and an OTM put option on the same asset, with the same expiration date. This strategy is designed to profit from substantial price movement in either direction.
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(Based on prices as of June 12) (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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