Short Straddle & Short Strangle

As a novice trader, Short Straddle and Short Strangle are my favorite strategies for the time being.
The major challenge that I am facing is how to adjust the trade when my view is going wrong due to high volatility. What is the ideal time frame for Short Straddle, namely, weekly, monthly or far month. Is monthly straddle is comparatively safer than weekly?
Besides, I would like to know the comparison of Short Straddle and Short Strangle and which one is easy to manage in an volatile market. In short, trade adjustment is a great concern for beginners.

Hi @5LB5SW -
With options, you need both the underlying and volatility to work in your favor. This is even more relevant for strategies like straddles and strangles. I know you mentioned short straddles but here is a quick example if you went long: If you are long straddles/strangles, you want the underlying to move up or down significantly. The challenge is that if you bought the straddle/strangle when volatility (IV) was high, then you may still not break-even because you overpaid for the strategy (the movement was “baked in”). When it comes to volatility, this isn’t necessarily intraday price movements but rather implied volatility. Sometimes the two aren’t correlated. For example, the Nifty may move up or down a hundred points within a day but still end up flat close-over-close. While it is ‘volatile’, that isn’t implied volatility.

In terms of trade entry: You need to think about volatility (implied) relatively to understand how much of a move is possible. So, if you are selling a straddle when the Nifty IV is 10%, volatility likely won’t go down much further. When volatility goes down when you are short a straddle/strangle, then the value of that strategy goes down which means that you could possibly take profits early. If you sell when IV is low, you just have to wait for time to pass in order to lock in your gains. In addition, when IV is low, the premium you will collect will be smaller. For expiration dates, there are definite trade-offs. With near-term expirations, you have time decay really working for you. The price to buy-to-close the strategy could be portion of your collected premium in just a few days if the underlying stayed relatively flat. However, if volatility spikes and/or the underlying moves, you have less time to make a decision on how to manage the position. A further out expiration allows you to collect more premium and more time to work the position if the underlying moves against you. If I was a beginner, I would probably opt for further out expiries because if something goes wrong, you will only take a hit on delta and vega rather than those two as well as theta. Basically, your losses won’t be compounded by time decay.

In terms of trade management: You should also think about risk management. With short straddles/strangles, you are exposed to significant loss potential. While more complicated (and with higher commissions), butterflies and condors will eliminate the risk of massive downside loss. Now, let’s say that the trade isn’t going in your favor. At this point, you need to decide: do I still believe in my original thesis and the underlying will return to its original position (in the original timeframe), will it return to its original position but it will do it in the coming weeks, or have things changed? Based on your answer to this, you can:
• Roll out to the next expiry (if you believe the underlying will return to your strikes and time is short)
• Roll to wider strikes (if you believe that the underlying will mean revert but may not return to the center strike)
• Convert to a spread – close one short leg and go long a call or put corresponding to the remaining short leg (if you believe that your thesis is now wrong and the underlying is now trending)
• Close the position (best if there is limited time remaining, uncertain if the underlying will swing back or stay trending)

Any additional thoughts @Dr.ChiragShah ?