Option Strategies for Low Volatility: Low VIX Trading Strategy

-

 

Trading in the option can be highly profitable if the market is volatile, however, for the option buyers for option sellers low volatility is more beneficial. As, the option premium price fluctuates at a very high speed when the volatility index (VIX) is very high.

On the other hand, the option premium price remains stable when VIX is low making it difficult for the traders to choose the right strategy for trading. Trading in low volatility becomes difficult for traders, especially for option buyers. So, today we brought here the best option strategies for low volatility that you can apply when the market is trading with low VIX.

What Happens When Market Volatility is Low?

Volatility refers to the potential of price range that can go to high and low during trading. When market volatility is low, the price of the underlying security can be potentially spread out within a limited trading range giving limited room for trading.

It means the price of the underlying security will not have significant movement in any direction for a short duration (till the expiry). Hence, you need to choose the right optionstrading strategies to trade profitably in a low-volatile market.

Top 10 Best Option Strategies for Low Volatility

Though, most of the options choose to trade with long calls or puts, as these option strategies can generate returns if the market is volatile. If the market is less volatile you need to trade with multi-leg strategies, which are more complex than buying calls and puts. Trading with such complex option strategies will potentially be beneficial for low price movement.

  1. Iron Condor for Low Volatility

This option strategy is very popular because of the low volatile market conditions. In this option strategy, you have to sell an out-of-the-money put option and an out-of-the-money call option at the same time and buy out-of-the-money options in both directions to balance the impact of losses.

Owing to low volatility, the price movement of the underlying security keeps trading within a specific range allowing a profitable opportunity in trade. The time decay in this strategy will benefit you from the premium you earned from the option selling.

2. Butterfly Spread for Low VIX

This strategy is also suitable for low volatility in which you can earn profits from restricted price movement within a narrow trading range. In this strategy, you have to buy one option with an intermediate strike price and sell two options — one with a higher strike price and another with a lower strike price.

You will benefit from the price hovering around the middle strike price allowing you to earn the maximum profit. However, you have to be very careful while selecting the strike prices and selecting the expiration date of the contract.

3. Long Straddle for Low Volatility

This strategy can be applied when volatility is low. In this strategy, you have to buy the call and put an option with the same strike price and expiration date. You can earn profit from significant movement on either side movement that might happen during the phase of expiry. If volatility unexpectedly increases,the price of one option can offset losses in another.

4. Ratio Spreads for Low VIX

This strategy for low volatility involves entering the long and short options positions in uneven numbers. When volatility is low, you can sell multiple out-of-the-money options either calls or put at the same time you can buy a smaller number of options at near strike price.

This option strategy for low volatility can generate premium at the same time also allowing the potential profits if the market moves with significant changes. Trading with this strategy will limit your losses when the stock price goes down and also create an opportunity to earn profits with unlimited upside making your trade profitable.

Comments

Post a Comment

Popular posts from this blog

IPO allotment for retail: how are shares allotted for the retail category

-
Image
  IPO allotment refers to the process of allocating shares to investors who have applied for them during an initial public offering (IPO). It is a crucial step in the IPO process as it determines how many shares each investor will receive based on various factors such as demand, availability, and regulatory requirements. The IPO allotment is typically conducted by the underwriters or syndicate members, who carefully assess the applications and allocate shares accordingly.   The importance of IPO allotment for retail investors The IPO allotment is particularly important for retail investors, as it allows them to participate in the offering and potentially benefit from the company's growth. It provides an opportunity for individual investors to own a stake in a publicly traded company and potentially generate returns on their investment. Additionally, the fair and transparent allocation process ensures that all investors, including retail investors, have an equal chance of rece...
Read more

How to Deploy Strategy in Algo Test with Moneysukh Trade Radar

-
Image
In Algo Trading software like Algo Test or Trade Radar, you can choose from existing strategies or create your own strategy as per your expectations from the market. However, choosing or creating the strategy would be not enough to make it successful. The right deployment is equally important to make your strategy effective and work efficiently. To execute your option strategy while trading through Algo trading you need the right approach to deploy the strategy in your  Algo trading  software. Here we are going to discuss, how you deploy your option strategy efficiently with strategy deployment features with stepwise guidance to deploy the strategy through your broker’s trading account. Key Requirements to Deploy Strategy To deploy the strategy you need certain details to log into your trading account etc. Let's find out what are other details required to deploy a strategy in Algo. Algo Account to Login First of all, you need a trading account through which you can get access ...
Read more

How to Decide Best Entry & Exit Points in Intraday Trading?

-
Image
  Intraday Trading also known as Day Trading is the one-day game in which you have to buy and sell or vice-versa on the same day before market close.  Intraday trading  is not easy, especially for inexperienced traders who find it difficult to select the right stocks or don’t know where to enter into trade and exit timely. Also Read:  How to Do Intraday Trading: Best Stocks, Charts & Strategies Entering and exiting at the right points in  intraday trading  is one of the most crucial decisions to make your day trading successful. Today in this article we will tell you how you can decide the entry and exit points in intraday trading. What are the Entry and Exit Points in the Trading or Day Trading? In long trade positions or buying, the entry point is the best possible level at which you should  buy the stock  so that there are fewer chances of hitting the stop loss and there is a possibility of movement in the stock to give you some profits. Co...
Read more