High volatility and inflated option premiums during the post-pandemic era presented good opportunities for day traders, particularly for vanilla strategies like straddles and strangles. Things are different now. Covid-19 triggered an influx of new players, particularly day traders, into the market. A combination of technology and social media helped along this surge. Among these newcomers, daily expiry options seem to have emerged as the preferred flavour.
Of straddles and strangles
High volatility and inflated option premiums during the post-pandemic era presented good opportunities for day traders, particularly for vanilla strategies like straddles and strangles.
Straddles and strangles leverage fluctuations in stock prices. A straddle involves employing both a call and put option with identical strike prices and expiration dates, whereas a strangle utilises a call and put option with a shared expiration date, but distinct strike prices. By employing theta decay strategies such as these, day traders could profit from premium decay provided the underlying stock did not move too much. Theta decay, also known as time decay, is a key concept in options trading. Theta measures the rate at which the value of an option declines as time passes, all else being equal. This decay occurs because options have a limited lifespan, and their time value diminishes as they approach expiration.
