Crafting The Edge Beyond Plain Vanilla: Risk–Return Insights From Advanced Option Strategies Trading Strategies

Abstract

This research examines the comparative performance of advanced options strategies—specifically, the Straddle and Strangle—over a five-year period (2020–2024) using historical data from NIFTY 50 index options traded on the National Stock Exchange of India. The study evaluates profitability across three contract maturities—near-month, next-month, and far-month—under varying market conditions, including bullish, bearish, moderate, and highly volatile phases. Using a back testing approach, both long and short positions were simulated to assess their behaviour in different volatility environments. The findings reveal that Short Strangle consistently outperforms in most market conditions due to the benefits of time decay, whereas Long Strangle proves profitable primarily in far-month contracts during periods of prolonged high volatility. Straddle strategies deliver stable but comparatively lower returns, with Short Straddle outperforming Long Straddle in trending markets.
The study provides practical guidelines for traders and investors in selecting option strategies aligned with volatility expectations, market direction, and expiry horizons. Recommendations are also made for future research into complex multi-leg spreads that combine the strengths of Straddles and Strangles.