Table of Contents
Introduction:
The 9:20 AM short straddle strategy involves selling an at-the-money (ATM) call and put option simultaneously. It is commonly used by traders for positional as well as intraday trading. In this article, we will explore the “9:20 Short Straddle” strategy specifically designed for India’s Bank Nifty options. This strategy aims to capitalize on the high volatility and uncertainty during the market’s early trading hours.
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Execution and Timing:
The strategy is executed at 9:20 AM, which is 5 minutes after the market opens in India. For other countries, the execution time would be 5 minutes after their respective market openings. The choice of 9:20 AM is based on the availability of high premiums during this period due to the market’s initial volatility and traders’ uncertainty.
Risk Management:
To mitigate the risk of large one-sided moves, it is important to implement risk management measures. In this strategy, a 30% stop loss is applied to both the call and put options. This means that if the loss on either leg reaches 30%, it is closed to limit potential losses. This stop loss percentage can be adjusted within the range of 25% to 35% based on individual preferences.
Performance and Backtested Results:
Over the past six years, this strategy has shown promising results. Here are some key statistics:
- Total capital deployed: Approximately 2 lakh Indian Rupees
- Overall return: 370% (equivalent to more than 4 times the initial capital)
- Annualized return: More than 50%
- Return after excluding brokerages: More than 45%
Please note that these results do not account for reinvesting profits, and the figures provided include a 0.7% price slippage but exclude brokerage fees. Compared to index funds or mutual funds, this strategy has the potential to deliver higher returns.
Equity Curve and Monthly Profit:
The equity curve of this strategy demonstrates a smooth and upward trend, indicating consistent profitability. However, the last year showed a flat performance, and this can be attributed to the changing market dynamics since 2022. The increased occurrence of volatility in the market during that year affected the win rate and average profit of the strategy.
Conclusion:
The 9:20 AM Short Straddle strategy for Bank Nifty options has proven to be a successful trading strategy over the years. It takes advantage of the initial market volatility and uncertainty by selling ATM call and put options. By implementing a stop loss and managing risk, traders can mitigate potential losses. However, it is essential to adapt the strategy to changing market conditions to maintain its effectiveness.
Disclaimer:
Please note that this article provides information based on back tested results and historical data. It is always recommended to conduct thorough research, consider personal risk tolerance, and seek professional advice before implementing any trading strategy.
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