In this article, I am going to explain the rules of an option buying strategy that has given almost 500% returns in the last 6 years, from 2017 to 2022. All you have to do is spend just 5 mins of your time executing this strategy on budget day. No Complex rules. No need to sit and monitor throughout the day. Just one trade, initiate it on budget day and close it on Expiry day.
This is a positional trading strategy, not an intraday Strategy. Let’s see why its not recommended to trade with the Option buying system on expiry days.
This is how the Intraday movement of Bank Nifty looks like in the last 6 years. As you can see, except for the year 2021, all the years were extremely volatile where Bank Nifty was moving either side but at the end of the day it closed flat most of the times. It is really hard to predict the direction of Bank Nifty on expiry day. And also IV will be extremely high before the event, so if we buy options before the budget ends, then option buyers tend to pay higher premiums, so option buyers might lose money if they buy options before such an event.
But what I have observed with this last 15 years of data is, Market has always moved in one side direction with huge trend once the budget session is over.
Compared to intraday movement in the above table, you can see how much Bank Nifty has moved post budget in that month. The movement is almost 3.5 times higher than what we see during intraday move in a budget day.
I have shared the detailed analysis about it last year in this article
In order to build option trading strategy to make use of budget volatility, we need to find out what has happened in…squareoff.in
We need to make use of this huge trend post budget and also the IV drops after the budget event, hence when we enter the trade after the event, option premium will be relatively lower. So the best strategy that can favor option buyers is to buy options on budget day after 3:20 PM, near the day close.
Rules: Buy ATM Call and Put options (Monthly expiry — Long Strangle) near day end on budget day & hold it till expiry. The max risk is the premium that you pay, that’s all.
Investment Required: Rs.50,000
So on budget day check what’s the level of Bank Nifty near closing time. Accordingly Buy ATM Call and Put, continue to hold it till monthly expiry.
Since market trends in one sided direction post budget, either call option or put option will gain massively and the other one will go to zero. As you can see in the table below, in 2017 the market rallied upwards, so the Call option moved from our entry price of Rs.400 to Rs.878 by expiry, whereas the put option which we entered around Rs.290 went to zero.
In the year 2018, the market went down post budget, so Put option which we entered at Rs.393 went to Rs.2236 by expiry, giving us more than 180% on that budget expiry year.
In the year 2019, market again went down post budget, so Put option which we entered at Rs.409 went to Rs.2450 by expiry, giving us more than 200% on that budget expiry year.
Year 2020 is the only muted year where the market moved up initially and then went down, so the Call option moved down from our entry price of Rs.640 to Rs.386 by expiry, whereas the put option which we entered around Rs.674 went to zero.
Year 2021 was spectacular, as the market rallied big time from budget day onwards, where the call option which we entered at Rs.1144 went to Rs.3448 and put option which we entered at Rs.795 went to zero, still giving us 78% returns on that budget expiry.
Year 2022 market went down big time after budget day, where the call option which we entered at Rs.1030 went to zero and put option which we entered at Rs.818 went to Rs.3251, still giving us 76% returns on that budget expiry.
Likewise, this strategy has returned over all 500% returns in the last 6 years. This strategy is really suitable for all kinds of traders, especially for working professionals who do not have time to monitor the trades, all you have to do is, just execute the trades on budget day and forget about it. Close it on expiry days.
Here’s the total risk is the premium we pay, so no matter where the market moves, your risk is capped. Also keep in mind that, do not put all your capital in this one trade, because if a year like 2020 happens, where the market did not trend post budget, we might lose higher. So plan your trades accordingly.
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2 comments on “Budget 2023 Bank Nifty Trading Strategy”
Can this be applied for Nifty