As explained in our article here
We short one lot of ATM options at 9:20 am every day with 25% stop loss on each leg,we will choose weekly expiry not monthly expiry as the decay is more with weekly options.
For example, if we short ATM CE options at Rs.100, then our stop loss is 125, when that is reached we exit ce, if not we exit by EOD only. Please note that we exit only the strike that hits the stop loss, not both legs.
Based on the live trade data analysis, we could see that in last 65 live trading sessions, only 5 days stop loss was not hit on both the sides, 48 days stop loss was hit either side of the direction , either CE SL was hit or PE SL was hit. Inspite of that it ended up in profits, because as mentioned above, when the stop loss is hit, we exit only the strike that hits the stop loss, not both legs. So after stop hit, market kept moving in one sided direction due to which premium decay happens on the other leg where stop loss was not hit. That’s it is important to held on to the position till end of the day for maximum benefit.
And only 12 days in the past 4 months, stop loss was hit on both sides.
Upon further analysis, we realized that we could build a new directional option selling strategy. As per the data, the short straddle bot was able to make around 3200 points profits in last 65 days. But the maximum profits was made when Bank Nifty short straddle one side stop loss was hit and market kept on moving one side.
Double Top Strategy:
So the rules of the strategy here is to wait for Stop loss to get in Bank Nifty Short straddle, check which side stop loss was hit, if CE stop loss was hit in Short straddle bot, then we initiate directional Short Position on Put option with 25% stop loss. Similarly, if PE stop loss was first hit in short straddle bot, then we initiate Short position of Call option with 25% stop loss. If SL is not, we simply exit by EOD.
We checked what would have been the total returns looks like, if we had applied this strategy during the same period. It made almost 2000 points profits in last four months.
We are able to make such higher returns because of one single fact, we wait for stop loss to get hit on Straddle bot, and then decide on the direction where market might move and then taking the trade with perfect risk management. So we are able to make stellar returns with least drawdown, because if stop loss is hit with this strategy, we can lose only once, also from the above data we could see Stop loss getting hit on both the sides in Short straddle is very rare.
Even the drawdown from this new strategy is lesser than the Short Straddle drawdown.
By combining Bank Nifty short straddle + this new strategy, we are able to make higher returns, where total Bank Nifty points changed from 3200 to 5000+ points, without change in any additional capital requirement.
The combined strategy has max drawdown points of 800 vs its previous short straddle drawdown of 600 points, so max dd did not change much.
We will be implementing this as new bot soon, where users just have to input lot size to the bot in the morning, this bot will automatically monitor the short straddle movement and take positions when SL is hit in straddle.
Bank Nifty short straddle bot user, once his stop loss is hit, the margin gets released, not utilized throughout the day, but by trading this new bot additionally, when his stop loss is hit in short straddle bot, instantly his margin will be released and new position can be created by this new SL straddle bot.
So all our existing BOT users who subscribed to ALL BOTS, will get access to this new SL straddle bot as well without any additional cost.