I recently came across an interesting options strategy that works well in low implied volatility environments, particularly when you expect variance to increase. The structure is elegant in its simplicity and offers some attractive risk characteristics.

The Setup

The strategy involves three components. First, you sell a put option which provides the initial short volatility position. Then you sell futures of a far-away month to add directional exposure and collect premium. Finally, you buy a call option of the same far-away month to hedge the futures position.

This combination creates a straddle-like structure with some key advantages.

Why It Works

The beauty of this setup lies in how the components interact. Time decay works in your favor since both the sold put and the short futures position benefit from the passage of time. The call hedge limits your upside risk — while short futures would expose you to unlimited upside, the long call caps it. And perhaps most interestingly, the overall gamma of the position is remarkably low, meaning your delta stays relatively stable even as the underlying moves.

The far-away month options provide more stable, less reactive pricing, which contributes to this low-gamma characteristic. You’re not constantly adjusting and fighting the position.

The Caveat

Here’s what you need to know though: when IV falls, this strategy will go into a loss. The sold put loses value as IV decreases, and the overall straddle-like structure suffers from volatility contraction.

This means the strategy works best when IV is currently low but you expect it to rise, when you have a clear thesis for increasing variance, and when you’re comfortable with that volatility risk.

Practical Considerations

This isn’t a set-and-forget strategy. Even with low gamma, you’ll want to monitor changes in your variance thesis, shifts in the forward curve, and any dislocations between the options and futures legs. But the low gamma characteristic means you won’t be whipsawed by every small move in the underlying, which reduces trading costs and emotional stress.

Source: This post was derived from 2026-03-23 – Journal

Have you experimented with similar structures? I’m curious how others manage the IV risk in low-vol environments.