If you have your money invested in the stock market, you would certainly look to make profits and reduce your losses. But when you are in such a risky game, you cannot expect profits all the time. But what if there is an effective strategy that can help you make profits from market volatility? If you are in for it, then resort to the straddle options strategy. This simple strategy is all about pacing bets that the market would move, without worrying about its ups and downs. One of its variations is the 9:20 0 DTE straddle strategy, wherein traders set up the trade in the morning and simply watch for price changes. Let’s dive in and learn more about this straddle options strategy, how this strategy works, what the key adjustments are, and how to manage risks along the way.
What is a Straddle in Options?
A straddle in options is when you buy both a call option (betting the price would go up) and a put option (betting the price would go down) at the same strike price and expiration. The best part of this strategy is that you do not have to predict where the market will go. All you need it to do is move significantly in one direction.
The 9:20 0 DTE Straddle Strategy: Mechanics and Timing
The 9:20 0 DTE straddle, as mentioned earlier in the introduction, is a type of straddle strategy wherein the trader enters a straddle at 9:20 AM in Indian markets, soon after the market opens. Here, 0 DTE stands for “zero days to expiration”. And this means the options you buy expire on the same day.
So, here’s how it would work:
- At 9:20 AM, you buy a call option and a put option with the same strike price. These options would expire by the end of the day.
- As you are betting on same-day price movements, this strategy works well in volatile markets where prices fluctuate a lot during the day.
If you want to capitalise heavily on intraday volatility, then this strategy is perfect for you. However, keep in mind that if the market does not move, then it comes with high risks due to the rapid loss in value.
Also Learn: How Implied Volatility (IV) Functions in Options: A Guide with Examples
Key Adjustment During the Trading Day
Now, what happens if the market is not moving as you expected? If something like this happens, then you can make certain adjustments to protect your money or to register profits. Here are these techniques:
- Exit the Losing Leg Early: If the market starts trending strongly in one direction, you can consider selling the losing option. This way, you would be able to stop further losses on that leg and let the winning option run its course.
- Roll Your Position: If the market shows signs of reversing, you can close the current straddle and open a new one at a different strike price that is closer to where the market is now trading. This would be helpful to you if the market has moved away from the original strike price.
- Partial Close: If you want to reduce your risk, you can close half of the position, either the call or the put.
Greeks Analysis: Gamma Burst and Theta Decay
The success of the straddle options strategy heavily depends on the Greeks, specifically Gamma and Theta.
Gamma Burst
On days with big market moves, Gamma can burst, thereby, causing a rapid increase in the value of the winning leg (either the call or put). This is what traders aim for in a 9:20 0 DTE straddle. They hope the market moves sharply and triggers a Gamma burst that pushes the winning option's value higher.
Theta Decay
As only a few hours are left before expiration, the value of the options decreases rapidly as time passes. So, if the market does not move significantly by noon, both options would start losing value fast. Theta decay is often considered the biggest enemy in this strategy if the market stays flat.
Risk Management Strategies
When in the trading market, you must be aware of risk management strategies so that you know what to do when you are expected to face losses. So, here are some simple risk management techniques:
- Set Stop Losses: Always set stop-loss levels to limit your downside.
- Don’t Risk More Than You Can Afford to Lose: With 0 DTE strategies, there is a high chance of losing the entire premium you paid for the options. So, only invest an amount you are comfortable losing.
- Watch the Market Closely: As this strategy relies on intraday movements, you need to actively monitor the market throughout the day.
- Hedge Your Position: If you are not feeling good about the risk, you can hedge your position with another strategy like a calendar spread wherein you buy longer expiration options as protection.
Conclusion
Undoubtedly, the 9:20 0 DTE straddle is an exciting strategy using which you can generate profits even when the market is volatile. Now that you know what to do, how about finding the right trading platform to stay ahead of the market?
If yes, download the user-friendly CubePlus App by Tradejini. Tradejini offers a smooth trading experience and allows you to track the market and adjust positions quickly, all from your phone.
So, sign up today and trade confidently!
Also Read: Understanding the Protective Put Strategy: Functionality and Examples
