10 Option Strategies for a Volatile Market

Options strategies for the volatile markets allow traders to make profits despite the current state of affairs. This means that traders will still make money even when prices fall or remain neutral in the marketplace. Some of the option strategies for a volatile market include long strangle, long straddle, strip strangle, and several others that will be available in this review.

The IV rank is one of the best tools for measuring implied volatility rank. According to tastytrade, “The tool gauges whether the implied volatility in the market is high or low based on the IV data provided.” Some standard options for volatile markets include:

1. Long Straddle

This is among the most straightforward options that traders can use to profit from an existing volatile market. This options strategy will develop profits for the trader irrespective of the direction in which security moves. There are only two transactions in this strategy: buying put options and buying call options. This volatile strategy works best for beginners.

2. Long Strangle

This is another options strategy tool suitable for beginners. This tool helps traders generate returns from a volatile outlook, and it generates profits irrespective of the direction the price of security swings in. There are two main types of transactions; there are the long put and the long call. A low trading level is essential for this option strategy.

3. Long Gut

Although this tool is expensive, it is suitable for beginners because of its simplicity. You can use this tool to generate profits when you do not know which direction the price of a security moves in, but you are confident it will move in the right direction. This strategy has unlimited potential profits though it is a limited risk strategy.

4. Strap Strangle

This options trading strategy works best when you expect a volatile shift in the price of a security and you have a volatile outlook. However, it will generate more profits if the price of the security rises than if it reduces. Hence, traders need to use this option strategy when they are sure that a security price will increase in the market.

5. Call Ratio Backspread

This strategy is not suitable for beginners, and it would comfortably fit as a bullish strategy rather than a volatile options trading strategy. This option strategy profits when the price of a security makes a significant price movement in either direction. There are two transaction options; the write call options and the buy call options.

6. Strap Straddle

This trading strategy is suitable for beginners. This strategy will mainly return profits when there is a substantial shift in the price of a security. It works best when you do not know which direction the price of the security will move in. There are two transaction options: Buy puts and Buy calls.

7. Put Ratio Backspread

Traders need to use this strategy if their outlook seems volatile. It works well when you think a price fall will favor you over a price rise. This options strategy is unsuitable for beginners, and it is available in two transactions.

8. Short Condor Spread

This trading options strategy has four types of transactions. It is also among the advanced options for trading strategies in a volatile market. Although it is a complex strategy, it is quite flexible, and you can use it when you expect a significant price move.

9. Short Calendar Call Spread

This options trading strategy has two transactions, and it is an advanced strategy. It is unsuitable for beginners and often involves a credit spread.

10. Reverse Iron Butterfly Spread

This trading strategy will create a debit spread since there are only four transactions. It is suitable for the trader who knows that there will be a shift in direction but is unsure which direction the security price will fall.

The traders need to understand how the market works to learn how the surge would affect their business and make the best option strategy decisions.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes