Mastering Option Strategies: How Strangles & Straddles Work in the Nifty Option Chain

Option trading has become increasingly popular among traders looking to profit from market volatility. The Nifty option chain offers a structured view of available call and put options, helping traders make informed decisions. The strangle and straddle strategies are two of the many popular option trading strategies. These strategies are designed to profit from market volatility, even when the direction of the price movement is uncertain.

This article will explain how strangles and straddles work and how to execute them using the Nifty option chain. Whether you’re a beginner or someone looking to sharpen your trading skills, understanding these strategies can significantly improve your options trading approach.

Understanding the Nifty Option Chain

Before diving into strangles and straddles, it’s important to understand the basics of the Nifty option chain. The Nifty option chain is a real-time listing of available call and put options for the Nifty 50 index. It provides key data points like:

• Strike Price – The price at which the option can be exercised.
• Premium – The cost of buying the option.
• Open Interest (OI) – The total number of outstanding contracts for a particular strike price.
• Volume – The number of contracts traded during the day.
• Implied Volatility (IV) – The market's expectation of future volatility.

For example, if the Nifty 50 is trading at 21,500, the option chain will display available call and put options for strike prices above and below 21,500. Traders can use this data to select the right combination of strike prices when creating a strangle or straddle strategy. Now that you are familiar with the basic terms, let’s understand what a strangle and straddle is.

What is a Strangle Strategy?

A Strangle is an options strategy where a trader buys or sells an out-of-the-money (OTM) call option and an out-of-the-money (OTM) put option with the same expiry date but at different strike prices.

• A Long Strangle profits from large price movements in either direction.
• A Short Strangle profits when the market stays within a narrow range, benefiting from time decay.

Example of a Long Strangle in Nifty Option Chain

If Nifty 50 is at 21,500, a trader could buy a 21,700 Call Option at ₹120 and a 21,300 Put Option at ₹100. This brings the total cost to ₹220.

The strategy profits if Nifty makes a sharp move in either direction. If Nifty rises to 22,000, the call option will gain enough to cover the put’s loss and exceed the premium cost. Similarly, if Nifty drops to 21,000, the put will gain value and offset the call’s loss, resulting in a profit.

However, if Nifty remains near 21,500, both options may lose value due to time decay. In this case, the maximum loss is limited to the total premium paid of ₹220.

Example of a Short Strangle on Nifty

If Nifty 50 is at 21,500, a trader could sell a 21,700 Call Option at ₹120 and a 21,300 Put Option at ₹100, collecting a total premium of ₹220.

This strategy works best if Nifty stays between 21,300 and 21,700, as both options would lose value over time, allowing the trader to keep the premium.

However, if Nifty rises above 21,700 or falls below 21,300, one option could generate large losses, which may exceed the premium received. While the maximum profit is capped at ₹220, the downside risk is potentially unlimited if the market moves sharply.

What is a Straddle Strategy?

A Straddle is an options strategy where a trader buys or sells a call option and a put option at the same strike price and same expiry date.

• A Long Straddle profits from large price movements in either direction.
• A Short Straddle profits when the market stays close to the strike price, benefiting from time decay.

Example of a Long Straddle on Nifty

If Nifty 50 is at 21,500, a trader could buy a 21,500 Call Option at ₹150 and a 21,500 Put Option at ₹140, bringing the total cost to ₹290.

The strategy benefits from high volatility. If Nifty rises to 22,000, the call option will gain enough to offset the put contract’s loss and exceed the premium. Likewise, if Nifty falls to 21,000, the put will gain and cover the call’s loss, resulting in a profit.

If Nifty stays close to 21,500, both options may lose value due to time decay. In this case, the maximum loss is limited to the total premium paid of ₹290.

Example of a Short Straddle on Nifty

If Nifty 50 is at 21,500, a trader could sell a 21,500 Call Option at ₹150 and a 21,500 Put Option at ₹140, collecting a total premium of ₹290.

This strategy works best when Nifty remains near 21,500, as both options would lose value over time, allowing the trader to keep the premium.

However, if Nifty makes a sharp move in either direction, one option could generate large losses, which may exceed the premium collected. While the maximum profit is capped at ₹290, the downside risk can be significant if the market swings widely.

Strangle vs. Straddle – Which One to Use?

The key difference between a strangle and a straddle lies in the strike prices and cost. A straddle costs more since both options are at-the-money, but it offers higher profit potential if the market makes a strong move in either direction. In contrast, a strangle is cheaper because both options are out-of-the-money, but the market needs to move more significantly to turn profitable. 

Traders seeking higher potential returns despite a higher premium generally prefer straddles, while those looking for a lower-cost way to benefit from volatility tend to choose strangles. Both strategies require solid market analysis and risk management, as stagnant markets can lead to premium loss or substantial downside in short positions.

Common Mistakes in Trading Nifty Strangles and Straddles

• Misjudging Implied Volatility: High IV inflates premiums; low IV reduces profit potential.
• Holding Too Long: Time decay (theta) can erode premiums quickly near expiry.
• Overleveraging: Entering large positions without managing risk can lead to big losses.

Tips for Trading Strangles and Straddles on the Nifty Option Chain

To improve your chances of success with strangles and straddles, keep these key points in mind:

• Start with small trades to understand market movement.
• Monitor implied volatility and adjust strike prices accordingly.
• Avoid holding positions to expiry unless the market is moving strongly in your favor.
• Use stop-loss orders to manage downside risk.

Conclusion

Strangles and Straddles are powerful options online trading strategies that allow traders to profit from market volatility. While a strangle is ideal for uncertain market moves with lower cost, a straddle works better when a major breakout is expected. The Nifty option chain provides valuable insights into market sentiment, helping traders execute these strategies effectively. With proper risk management and understanding of volatility, these strategies can help enhance profitability in options trading.

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