One of the widely popular option trading strategy is 920 short straddle strategy, but do you know more than 75% of its overall profits will come from trades when one sided stop loss gets hit. Since we are shorting both call and put option with minimal stop loss, once side we are coming out with a minimal loss and other side of the leg tends to decay as long as market moves in one sided direction. But if we can figure out with higher probability which side of the option leg is going to get hit with stop loss in advance, then we can make it as a directional option selling strategy by placing trades only on one leg with a fixed stop loss.
For example, consider Bank Nifty trades at 35000, as per the 920 short straddle strategy, we will short 35000 ce and 35000 pe. Consider market is bullish and started making up move and our 35000 ce stop loss is hit, so our put leg will continue to decay and make profits. But what if we could say that CE option has higher probability of hitting stop loss and hence don’t place CE order, place only PE order. Based on option data if we can figure this out in advance, then we can avoid placing the trades which is going to get hit with SL. Though we can’t be 100% sure, but still we went ahead and did a option data analysis with 920 straddle live results.
From Nov 2021 to April 2022, this is how 920 straddle with 25% fixed stop loss worked, for one lot it made around 17500 profits.
And the max drawdown during the same period was around Rs.20,000.
Now we analysed the last 6 months of option tick data and tried checking what’s the overall trend looks like by end of every day, we will conclude if the day end data shows if its bullish trend or bearish trend. Then next day around 9:20 am, we shall again check based on real time option data, how is the trend looks like, if the trend remain bullish, then we will only short ATM put option, if the trend looks bearish, then we will short only Call option. Thus instead of taking a short straddle trade, we will end up taking a directional trade with 25% stop loss.
And when we tested this condition and checked the results, the over all returns were three times higher than normal 920 straddle
Even the over all drawdown is lesser than the 920 short straddle drawdown during the same period
We have implemented this as a new trading bot to all our https://squareoffbots.com users. Its been running live since June 2022.
This can act as an uncorrelated system to our existing 920 BNF Straddle trading bots since it makes a directional trade.
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Excellent Kirubhai..!
Now even you are Keeping Secrets . Earlier you said all strategies in Square off are not kept in a Black Box , logic of the system is said openly . But now you have not explained how to select direction based on OI data .
Earlier there were not much platforms to execute the strategies, so we explained every rules and provided our execution platform but now with rise of many execution platforms every strategy gets copied easily and gets replicated by many third party sellers, hence we explain the core logic of the trading system and rest of the details we with held.
ML bot already takes directional trades. How is this different from ML BOT?
ML bot can keep changing trades if direction changes, but this one is just one trade per day
On what parameters the option data is being checked at end of the day and at open of next day?
All data points are checked like IV, VOLUME, OI
How to read option data to determine the trend on a given day ?
Regards, Somesh
Good one.. one question.. if the bullish/bearish decision is made based on the real time option data at 9.20 AM, what is the point of checking the previous day EOD data?
We just reconfirm previous day option data with todays option data, since positional traders holding overnight positions tend to change their option positions after market opens, which generates new data/patterns.
Thank you for the response.. follow up question.. what if the outcome of the analysis of the current day open is different from the previous day EOD? which one do you go with? OR do you skip the day as the signals are contradicting?
Dear Kiru,
How do you determine the trend with 5 min of market opening ..
We just reconfirm previous day option data with todays option data, since positional traders holding overnight positions tend to change their option positions after market opens, which generates new data/patterns.
Is this DOS Strategy, exactly same as what Vishal Mehta also tells?
Is this a Automation of his DOS Strategy?
No, both are different strategy
What is the recommended capital to trade this bot?
3 lacs per lot recommended
What is the stop loss keeping sir.
its 25%
where is back testing results ? as you said we should judge a strategy based on backtested results for a long period of time and see quarterly returns.
please refer this link http://performance.squareoffbots.com/dbss
Is a far OTM option option also bought for margin benefit while taking position?
No
Hi Sir, i would like to check is their any way to combine multiple strategies and check p&L.
For eg i would like to go with 4 diff strategies and i want to know average requirement of capital for 4 strategies and avg draw down, avg loss and avg profit in a day, week, Month
Yes, you can do that in this link https://performance.squareoffbots.com/admin/default
Interesting, will wait for at least 2 years data to compile in this bot before deciding to go ahead with it.
is it available for free users also ?for referral clients??or only for paid users?
users who open a broking account under our referral get three bots free of charge(restricted to 1 lot).
The following are the list of bots you get free access to
1. Machine Learning bot
2. Auto adjustment Strangle Bot
3. Rolling Straddle bot