Introducing the Straddle MTM Strategy: A Comprehensive Approach to Options Trading

Options trading offers various strategies to match market behavior and individual risk tolerance. The Straddle MTM Strategy is a nuanced approach that builds on the principles of the Short Straddle but implements a combined loss threshold.
Here's a guide to this strategy:

  • 1. Understanding the Market's Behavior

    Range Bound vs. Trending: Similar to the Short Straddle, this strategy takes advantage of the market staying within a specific range about 70% of the time.
    Utilizing Combined Loss Threshold: Unlike the Short Straddle, which sets individual stop losses for each leg, Straddle MTM employs a combined loss threshold for both legs.

  • 2. What Is the Straddle MTM Strategy?
    This strategy involves selling (shorting) both Call and Put options at the same strike price (ATM), but with a key difference in how losses are managed. Instead of setting separate stop losses for each leg, a combined threshold is used.

  • 3. How Does It Work?
    Selling Options: As with the Short Straddle, you sell one lot of ATM options with weekly expiry at 9:20 am daily.
    Setting a Combined Loss Threshold: You determine a combined loss level for both the Call and Put options. If this combined loss is reached, both options are exited.
    Example: If the combined loss threshold is Rs.1000, and the sum of losses from both the Call and Put options reaches this level, you exit both legs.

  • 4. Why Does This Strategy Work?
    Unified Loss Management: By considering the combined loss from both legs, this strategy allows for a more holistic view of risk and can offer different risk-reward dynamics.
    Profiting on Range-Bound Days: As with the Short Straddle, you can profit from premium decay on range-bound days.
    Controlling Risk on Wild Days: The combined loss threshold helps manage risk on days when the market moves significantly.

  • 5. Who Is This For?
    This strategy might be suitable for options traders who prefer a combined view of risk across both legs, rather than managing each leg separately.

  • 6. A Word of Caution
    The Straddle MTM Strategy requires careful monitoring and a clear understanding of the combined loss dynamics. It involves risks that must be weighed against potential rewards.

  • 7. Final Thoughts
    The Straddle MTM Strategy is a unique approach that builds on the principles of Short Straddle but offers a different risk management perspective. It may suit traders looking for a more unified way to manage their options positions.

    As with all investment strategies, it is essential to consult with a financial professional to ensure that this approach aligns with your specific financial goals and risk tolerance.