Ideal strike price?

Quant Trading Strategies & Ideas
1

I have 5 questions on forward volatility strategy, can somebody guide me:


  1. What strike price is ideal for this strategy atm, itm or otm.
  2. Whats the best time for entering into this strategy?
  3. Do we see the signal everyday morning and take the trade on +1/-1 signal and close the position at the end of the day … is that how 25% monthly return comes?
  4. What is the ideal holding period for this strategy, when to exit this strategy?
  5. Can we apply the same concept on weekly options of nifty/banknifty? Will it be more or less beneficial?
2
  1. The ideal strike price is where
    a) there is sufficient liquidity in near and far dated option
    b) absolute difference in FV and near month IV is high
     
  2. The best time would be the absolute difference between FV and IV greater than some threshold value. This threshold value can vary from instrument to instrument and based on your risk appetite.
     
  3. In the course, the position is carried overnight. The FV and IV are recalculated at close of each day. if there is a change in the sign of (FV - IV), the positions are reversed. Else the positions are continued.
     
  4. The holding period varies on how you construct the strategy and the instrument you are trading. I prefer to enter into this strategy when FV < IV - threshold, long on far dated option and short near dated option. And close the position when FV > IV.
     
  5. Yes, it can be applied on weekly options as well. WIth weekly option, long far and short near option positions will be more beneficial due to theta decay.
Thanks