This article discusses the results of option trading strategies applied to actual market conditions and explores the possibility of formulating a new strategy, which is a combination of two or more strategies. First, the straddle and strangle strategies are applied to a five-year options data and compared with returns from buy and hold of futures for the same underlying and same time period. Using these results, we first realize the shortcomings of the strategies applied; then we try to overcome these limitations by devising a new strategy that is a result of combination of the earlier strategies.

While trading in options, four possible option selections exist for a trader (1) long a call, (2) long a put, (3) short a call, and (4) short a put. These four can be used independently, together, or in conjunction with other financial instruments to create a number of option-trading strategies. These combinations enable a trader to develop an option-trading model which meets the trader's specific trading needs, expectations, and style, and enables him to anticipate every conceivable situation in the market. This trading structure can be adapted to handle any type of market outlook, whether it is bullish, bearish, choppy, or neutral.

It is common to use these strategies on a daily basis with respect to actual market conditions so as to derive maximum returns on investments. For the study done in this article we shall apply the straddle and strangle strategies to an actual five-year data of Nifty options. We shall then compare the returns obtained from these strategies to those obtained from buy and hold of Nifty futures for the same time period.

Treasury Management Magazine, Trading Strategies, Strategic Management, Stock Markets, Bombay Stock Exchange, National Stock Exchange, Market Changes, Modified Strangle Strategy, Index Movement, Investment Management.