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Options Selling in Consolidating Markets

Consolidating markets can be an opportunity to make returns from selling options. A consolidating market with high relative IV and high relative IV percentile can be an opportunity for weekly options on the Index. For more info visit us at: https://www.quantsapp.com/learn/articles/Selling-Options-in-a-consolidating-markets-110

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Options Selling in Consolidating Markets

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  1. Selling OptionsIn A Consolidating Markets

  2. Options Selling requires shorting options without owning one. The risk profile of selling naked options is unlimited, however, depending on the risk preference hedged writing can also be initiated with a trade off to reward and risk. What is options selling?

  3. The best time to sell options are generally when market or instrument is sideways and within the consolidation, if there are mean-reverting implied volatility opportunities. • A good technical indicator to establish the regime would be plotting the ADX technical study and if the value is less than 20 it generally indicates a consolidating behavior. When to Short options?

  4. IV plays a very essential role in option pricing hence, it should be an input to decide a trade. • Unlike stocks, IV has an inherent characteristic of mean-reversion which means, it generally consolidates in a range. • For example, if the IV of Nifty is ranging from 16 to 25, it will generally hold true for a good time till an extraordinary force changes the regime. • Naturally, the strike rate is in favor as the regime changes are less frequent. Looking at the recent few months IV range can give a clue of the current regime. Understanding Implied Volatility for Selling Options

  5. In a short strangleone sells an OTM call for a level which is expected to be the upper resistance for the underlying and at the same time selling an OTM put for expected support. SHORT STRANGLE

  6. Iron condors are short strangles with a hedge. So, you buy a deep OTM option for each calls and puts sold. This keeps the risk limited with a trade-off of reduced return. An active stop loss might not be required as the strategy is hedged. IRON CONDORS

  7. Read full article here: https://www.quantsapp.com/learn/articles/Selling-Options-in-a-consolidating-markets-110 Source: MoneyControl

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