Short Strangle for NIFTY

Hello Everyone,

I am gonna try this with small amount to see how it works. And people, any advice is welcome.

Most of the out-of-the money options expire worthless. Same goes for NIFTY. So what if I short a Strangle just before expiry.

For example, say NIFTY is trading at 5800 one week before expiry. So it's highly unlikely that NIFTY will go above 6300 or come down 5300. So if I short call option at strike 6300 and put at strike 5300. Most probably they will expire worthless giving profit for the entire premium.

Lets see.

On 23rd June, a week before Expiry on 30th June 2011 Nifty closed around 5300, so as per your strategy we Sell 5800 CE and 4800 PE!! Just see what premium you would get!!! Consider Brokerage and Other charges...!!! Rates are for 23rd June 2011.
The Gross amount received by you would be 0.90 and 1.00 = 2.00 !!! Reduce it by the expenses...!!!

Its just an example. But you get the idea.

Here we have two factors working for us.

1) NIFTY does not move much.
2) NIFTY moves but stays with in the limit specified in call and put.

Guys please use OTM limit according to your perception about NIFTY and comfort level.

Now the probability of this trade can be greatly improved if

1) NIFTY has already moved a good deal.
2) NIFTY is in a channel. Upon break out, you might close the appropriate option or put a stop. Some people might opt for longing straddle or strangle, but with shorting we have the time factor on our side.

We may have time factor on our side but no TIME VALUE to encash!!! Maybe a nearer strike price may work better.... if we can have a look in Nifty what has been the moves in last one week before closure say in last few years and decide which nearest strike is most likely to end worthless!! For 10% away Strikes the returns are not good enough to trade...just my $0.02

Please see the following thread on the Traderji, that has used the strategy similar to what you're suggesting (selling one far-out-of-money call option and selling also one far-out-of-money put on Nifty); see different posts in that thread since the later posts in that thread use that strategy more.

http://www.traderji.com/options/36103-picking-up-nickels-front-steamroller.html

However, the above strategy appears to have failed in September, 2010, when Nifty moved about 600 points from August expiry to September expiry. Probable reason for this failure is explained in my post in the above thread (see following link):

http://www.traderji.com/options/36103-picking-up-nickels-front-steamroller-28.html#post567858

This strategy won't work for a long term. You'll collect 10-20 points in each month for 6-7 months, and then in month when Nifty suddenly makes a move of 500-600 points, you'll lose 200+ points.

Instead, have the courage to use short straddle just out of the money or at the money, where the options values are big and the chances of success will be much greater, more so when the market is likely to trade sideways. Of course, plan properly and cautiously since it can be risky sometimes when big market movements take place. Do dry testing and backtesting on the strategy.

Shorted NIFTY 25 Oct 2011 PE 4500.00 @ 38
NIFTY 25 Oct 2011 CE 5300.00 @ 29.45

how much margin is blocked in this trade of yours