We have always said that the options market is highly volatile, and thus every trader needs to be careful before entering options contracts. For option sellers, high volatility can be a good thing as they can earn high profits; on the other hand, for the options buyer is not that good, as they have to pay higher.
Every option seller desires the market to be highly volatile. Still, they should also know how to enter the low-volatile market and what strategies to use in the low-volatility market.
On this page, we shall see some of the strategies used in the low-volatility market. So, if you are holding stocks with no or little price fluctuations, learn these options strategies and try options trading to earn some profit.
Let us look at the below strategies that work completely fine in the low volatile market, and you must know them.
1. Put debit spreads and call debit spreads:
In this strategy, you should bet on the overbought or oversold stock.
Put debit spread: Here, you can buy a put option with the one-in-the-money strike price and sell an out-of-the-money put option with the same expiry date. You will need a low amount of capital to create a put debit spread, and most importantly, the risk is well-defined in this strategy. Consider the expiry date of 30 to 60 days to give the stock more duration for movement. Maximum profit is seen when the options approach the expiry, but try to exit from the position with a small profit a few days before the expiry to avoid uncertain risk. You have created a put debit spread.
Call debit spread: To enter into the call debit spread, buy a call with one strike price in-the-money and sell a call with one strike price out-of-the-money having the same expiry date. Maximum profit is visible at the time of expiry, but you must exit the trade before its expiry with whatever profit you have gained till that date. In creating this call debit spread, the requirement for capital is low, and the risk is pre-defined.
2. Ratio spreads:
You can use ratio spreads strategies when your assumptions regarding the directions are strong. You can use the call backspread and put backspread to make a profit.
In the call backspread strategy, you sell one call option and buy two call options at a higher strike price. As you are two times long than the short, a rise in volatility will give you twice the benefit.
3. Put and call Calendars strategies:
Calendars can be the best strategy for the low-volatility market. You have to be extra cautious about your direction, and most importantly, experts suggest using the put calendar more than the call calendar spreads. The reason for using the Put calendars more is when the market falls, volatility rises.
To enter into the Calendar, buy a back month out-of-the-money call and sell a front-month call having the same strike price. This strategy's requirement for capital is very low, and the risk is well-defined. Consider the short options expiring in 25 to 40 days and the long options expiring in 50 to 90 days. Check for that profitable Calendar that has the potential to stay at the same price till the expiry of the front month option and has a 1.5 times profit if the stock stays at the strike price during the expiry.
So, the above listed are the most used options strategies in the low volatile market. Apart from the ones listed, there is one neutral strategy that a trader may choose - short straddle.
To enter into the short straddle strategy, traders need to sell one at-the-money put option and one at-the-money call option. The major disadvantage most traders do not use is it requires a high amount of capital. Furthermore, it has the potential for unlimited loss, and thus traders having a high-risk tolerance implement this strategy.
We all must admit that the duration of the low volatility is very hard to pass, especially when your actions are based on price movements. But when this happens: low movements in the market, experienced traders will try these strategies to seek any smallest opportunity for profit.
So, this was all about what to do when there are no or low-price fluctuations in the market. We have seen various options strategies to use even in such times, which makes the options very popular among the traders as it has limitless potential to earn.