Wanted to understand your thoughts on hedging a far OTM strangle? Because a spike in nifty/banknifty shoots these OTM prices sometimes

Question and Answer – ForumCategory: strategyWanted to understand your thoughts on hedging a far OTM strangle? Because a spike in nifty/banknifty shoots these OTM prices sometimes
Raghu Staff asked 2 years ago
1 Answers
Raghu Staff answered 2 years ago

I have been selling far-OTM strangles for the past 1-2 years now. If you write options that are sufficiently far away (2SD) from SPOT, there is nothing much to worry.
You can do one of these to reduce notional loss –

  1. Buy ATM options
  2. Buy/Sell futures so that it compensates you for the notional loss. However, this will work only if the number of sell lots (for options) are quite significant, say 1:5