Option Trading Strategies to Profit from Volatility in Markets

Option trading is very popular with traders and there is a reason for it. The possibility of making huge gains with little capital and in quick time is what makes it attractive. Also, the sheer varieties of strategies that can be used in different market conditions draw the attention of the masters of the stock market to option trading. Shreya Chaware discusses at length the top option strategies that can be used by a trader in the current volatile markets

- Shreya Chaware

As frontline indices and broader markets grab headlines after hitting their all-time highs, several investors and traders are concerned that the current rally may not be sustainable and that the volatility may show its ugly head in the coming weeks. Volatility may be a concern for several investors and traders who are used to trade long and invest for short-term by taking leverage positions; however, increase in volatility is a great boon for option traders who know how to trade volatility profitably. India VIX is at its lowest point in 2021 and the S & P 500 VIX is down by more than 56 per cent in one year.

With the markets at an all-time high and the VIX levels extremely low, one has to be cautious about the possibility of change in market direction in the short term. A pull-back in the markets can create a window of opportunity for those who are willing to enter the markets for long term but it will kill returns for those traders who have positioned themselves for the markets to hit fresh highs in the near term. The only player who will be protected either way will be the option trader who knows how to trade volatility and profit from it by creating a delta-neutral strategy.

Delta Neutral Strategy