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1/27/20253 min read
Short volatility strategies are trading approaches designed to profit from a decrease in implied volatility or range-bound market conditions. These strategies are commonly used during Nifty weekly expiries, as weekly options decay rapidly due to the proximity to expiry, making time decay (Theta) the primary driver of profits.
Here are some short volatility strategies with examples specific to Nifty weekly options:
1. Short Straddle
A neutral strategy where you sell both the ATM Call and Put options with the same strike price and expiry.
Objective: To profit from time decay (Theta) when Nifty remains near the strike price.
Risk: Unlimited if Nifty makes a big move in either direction.
Reward: Limited to the premiums received.
Example:
Nifty Spot: 18,000
Weekly Expiry: 2 days away
Sell:
18,000 CE at ₹100
18,000 PE at ₹120
Total Premium Collected: ₹220
Breakeven:
Upper: 18,000 + 220 = 18,220
Lower: 18,000 - 220 = 17,780
If Nifty stays between 17,780 and 18,220 until expiry, the strategy is profitable.
2. Short Strangle
A neutral to slightly directional strategy where you sell OTM Call and Put options.
Objective: Profit from time decay when Nifty remains within a predefined range.
Risk: Unlimited if Nifty makes a sharp move outside the range.
Reward: Limited to the premiums received.
Example:
Nifty Spot: 18,000
Weekly Expiry: 3 days away
Sell:
18,100 CE at ₹60
17,900 PE at ₹70
Total Premium Collected: ₹130
Breakeven:
Upper: 18,100 + 130 = 18,230
Lower: 17,900 - 130 = 17,770
If Nifty stays between 17,770 and 18,230 until expiry, the strategy is profitable.
3. Iron Condor
A limited-risk, limited-reward strategy where you combine a short strangle with long OTM options to cap the risk.
Objective: Profit from range-bound movement with defined risk.
Risk: Limited to the difference between the short and long strikes minus the net premium received.
Reward: Limited to the net premium received.
Example:
Nifty Spot: 18,000
Weekly Expiry: 4 days away
Sell:
18,100 CE at ₹50
17,900 PE at ₹60
Buy:
18,150 CE at ₹20
17,850 PE at ₹25
Net Premium Collected: (50 + 60) - (20 + 25) = ₹65
Breakeven:
Upper: 18,100 + 65 = 18,165
Lower: 17,900 - 65 = 17,835
Risk: Limited to the difference between strikes (50 points) minus premium received (65) = ₹35 loss per lot.
4. Short Butterfly
A neutral, low-risk strategy that profits from low volatility and sharp time decay near expiry.
Objective: Profit from limited movement around the ATM strike.
Risk: Limited to the net premium paid.
Reward: Limited but higher than a strangle or condor.
Example:
Nifty Spot: 18,000
Weekly Expiry: 2 days away
Sell:
2x 18,000 CE at ₹100 each
Buy:
18,050 CE at ₹70
17,950 CE at ₹65
Net Credit: [(100 x 2) - (70 + 65)] = ₹65
Breakeven:
Upper: 18,000 + 65 = 18,065
Lower: 18,000 - 65 = 17,935
If Nifty stays near 18,000, you keep the premium.
5. Calendar Spread (Using Weekly Options)
A slightly bullish or bearish short-volatility strategy where you sell a near-term weekly option and buy the same strike of a later-dated option.
Objective: Benefit from faster time decay of the short position while hedging risk with the long position.
Risk: Limited.
Reward: Limited to the net premium difference.
Example:
Nifty Spot: 18,000
Weekly Expiry: Sell 18,000 CE expiring in 2 days at ₹90.
Next Week: Buy 18,000 CE expiring in 9 days at ₹130.
Net Debit: ₹40
If volatility decreases and Nifty stays near 18,000, the shorter-dated option decays faster, resulting in a profit.
Key Considerations for Nifty Weekly Short Volatility Strategies:
Theta Decay: These strategies benefit from time decay, which accelerates as expiry nears.
Implied Volatility (IV): Enter when IV is high and expected to drop. Avoid short volatility when IV is low.
Risk Management:
Always hedge (e.g., use Iron Condors instead of naked Straddles).
Monitor positions closely, especially near expiry or during news/events.
Adjustments: Roll over or hedge positions if Nifty breaches breakeven levels.
Lot Size: Nifty options have a lot size of 50, so ensure proper position sizing.
By applying these strategies with discipline, traders can profit consistently in Nifty weekly options while managing risk effectively.
Risk Disclosure
The trading strategies and algorithms provided by HVK Trades are intended for informational and educational purposes only. While we strive to offer high-quality strategies and indicator development, past performance is not indicative of future results. Trading in financial markets involves significant risks, including the potential loss of your investment. You should carefully consider whether trading is suitable for you in light of your financial condition and risk tolerance. It is essential to conduct your own research and consult with a qualified financial advisor before making any trading decisions. By using our strategies, you acknowledge that you understand the risks involved and agree that HVK Trades shall not be held liable for any losses incurred as a result of your trading activities.
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