Suppose we bought banknifty option long strangle before some big eventOr After a long tight range.Bought 8800 call in INR 300 premiumBought 8600 put in INR 300 premiumTotal investment 600 points*lot size 75=INR 45000
We are ready here for any big movement either side.Now banknifty moved from 8700 to 9000 due to some positive trigger.
So call premium increased300 to 520.Put premium reduced 300 to 120 only.Total is 520+120=640now.
I expect banknifty to go 9400-9600 from today 9000 level in near future.But there will be profit booking after every upside move.So if there is a technical correction of 150-300 points only(0.5 to 1%)
What will happen?Call will reduce to 50-60%520 to 230Put will increase by 50-70%130 to 200Because now put has become far out of money.So total is 200+230=430 now.210points less than previous day total.
We need to re balance the position.So sell that long strangle,both call put in640.And buy a new combination with latest perspective.So there was a bull run in Nifty for last 3 days .So a selling is expected more than further buying.So we can buy a bigger put with smaller OTM call now.So at 9000,We bought 8900 put in INR 250 premium& Bought 9300 call in INR 200 premium.
If there is a 200pt downfall Put may rise 250 to 380Call may reduce 200 to 120.
Now total is 500.You can sell the combo &Rebalance again.
Call & put are chosen on basis of premium,Not on basis of strike price.
If you are following 5 day hi/lowAndMid-day breakout strategy daily,Parallel to such long strangle,You will be safe in any sudden reversal.