With Budget 2026 approaching and market volatility expected to rise, options traders are rethinking their strategies. Shubham Agarwal explains why calendar spreads are a safer and more efficient alternative to naked option shorts, especially in January ahead of the Budget.
Why Naked Shorts Are Risky Before the Budget
- Budget announcements often lead to sharp, one-sided moves
- Implied volatility (IV) tends to rise before the event
- Naked option writing exposes traders to unlimited risk
- Sudden policy surprises can cause heavy losses
In such an environment, pure option selling can be dangerous, even if premiums look attractive.
How Calendar Spreads Work
A calendar spread involves:
- Selling a near-month option
- Buying a far-month option at the same strike
This structure allows traders to benefit from time decay in the near-term option while having protection from the long-term option.
Why Calendar Spreads Are Better Pre-Budget
According to Shubham Agarwal, calendar spreads offer:
- Reduced risk compared to naked shorts
- Lower margin requirements
- Better handling of volatility expansion
- More predictable outcomes in uncertain markets
Calendar spreads are particularly effective when markets are range-bound before the event but volatile post-announcement.
When to Use Calendar Spreads
- Ahead of high-impact events like the Union Budget
- When IV is elevated
- In sideways or mildly trending markets
Key Takeaways
- Budget weeks bring high volatility risk
- Naked option shorts carry unlimited downside
- Calendar spreads provide hedged option writing
- Better suited for January pre-Budget trading
⚠️ Disclaimer: This article is for educational purposes only and does not constitute trading or investment advice. Options trading involves high risk.
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