ICM-S&P STRANGLES is a negative volatility option strategy using short-strangles on the S&P 500.
Since equity or futures prices do not always move upwards and downwards regularly, the trader benefits from the volatility fluctuations with "ICM - S&P Strangles". According to this option strategy, call and put options should be sold at the same time in order to limit a specific future trading band in advance. If the price of Standard & Poor's 500 remains within a certain band upon expiry of an option, the option expires worthless and the option premium is collected. In practice, the positions are already closed when a satisfactory profit is reached. The manager assumes that the underlying will stagnate or be subject to fluctuations ranging from slight to medium. The maximum potential for profits results from the sum of the option premiums received.
Under the trading strategy "ICM - S&P Strangles", the manager focuses on a single market, the Standard & Poor's 500 (S&P500) and its volatility. The S&P500 is a large basket consisting of the 500 most important US stocks. Due to its huge trading volume and high liquidity, this market is ideal for trading in options and futures.
This strategy has been developed to act as counterparty of the option buyers and therefore to collect the premium.
With this strategy, investors benefit if the market
- falls slowly
- rises slowly
In contrast, investors must expect losses if the market
- falls sharply
- rises sharply
Due to their many years of experience in trading futures and options, our managers have found out that the best time for selling options (short call or put) is one to two months before their expiry. As an option matures, its time value declines at an increasing rate so that the strategy can benefit therefrom also if volatility stays the same.
This trading strategy is not just based on pure mathematics. The "ICM - S&P Strangles" is a combination of mathematics and the many years of experience of our managers. The strategy is adjusted to the current requirements of the market on an ongoing basis in order for the strategy to take account of as many (also external) factors as possible.
In order for the trading strategy to benefit from various market scenarios, tactics are adapted to respond to specific situations. The "ICM - S&P Strangles" strategy is sometimes expanded by buying or selling futures contracts or additional options. All option strategies and further combinations of these strategies can be used to respond to market requirements.