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Option buying strategy Bank Nifty
  • June 8, 2021
  • admin
  • 28

With the increase in margin requirement due to SEBI rules, there has been an increasing demand for Option Buying Strategy. In this article we will cover about a Bank Nifty Intraday option buying strategy that can be either traded alone or clubbed with Short straddle intraday strategy.

In one of our earlier article, we explained how Option seller has more advantage over option buyer.

Now consider, you did some analysis on the market movements and finalize that Market is bearish now, and it is expected to go down in the coming days.

As an Option buyer, he would buy the put option since his view is bearish and the Option seller would short the call option.

We know that there are only three possible scenarios in markets.

  • Uptrend
  • Downtrend
  • Sideways
    Market tends to be in uptrend in few days and downtrend in some days and most of the time it stays in range bound.

Option Buyer:

  • Who bought the put option based on his bearish view in markets, if the markets starts moving upwards, then he would lose money.
  • If the market goes down as expected, then the option buyer who bought the put option makes money.
  • But if the market neither goes up nor goes down, the option buyer losses money as the premium decays when there is no trend.

So option buyer can make money only one out of three scenarios. Only when the direction is right and the movement is swift, he makes money.

Option Seller:

  • Who shorted the call option based on his bearish view in markets, if the markets starts moving upwards, then he would lose money.
  • If the market goes down as expected, then the option seller who shorted the call option makes money.
  • If the market neither goes up nor goes down, the option SELLER makes money as the premium decays when there is no trend.

So option Seller can make money two out of three scenarios. Statistically, over the longer run, the option seller tends to make higher returns.

However, if we could initiate Option buying only when there is a higher probability of making money, then there is a chance that option buyer will also make money in long run.

Let’s consider the rules; As per our Short straddle strategy, the rules are straight forward, we short the ATM ce and pe at 9:20 am based on Bank Nifty spot price. We use 25% stop loss based on executed price, when that is hit, we exit one leg and continue to hold the other leg till eod. So when trending move happens in Bank Nifty, we exit one leg with minimal loss, but other leg continue to decay, and we end up making higher profits.

This short straddle strategy has yielded very good profits, you can check the live profits made by this strategy in last 8 months here http://performance.squareoffbots.com/

Now let’s discuss the option buying rules: We need to observe the ATM call option and put options premiums at 9:20 am. Consider, if ATM call option trading at Rs.100, then when it hits 25%, that is if it crosses Rs.125, then we buy this call option with 25% stop loss. If SL not hit, we exit by eod.

Consider this live example Bank Nifty trades at 31495 at 9:20 am, so ATM strikes are 31500 ce and 31500 pe. So as per short straddle we short both these options.

It got executed around 31500 ce at Rs.356 and 31500 pe at Rs.365 respectively. Now as per option buying rules, when any of these two strikes hits 25% SL, we will initiate the option buying. So buy trigger for ce is Rs.445 and pe is Rs.457. The moment it touches this level, we buy the respective options with 25% stop loss from executed price.

When tested this option buying strategy in stockmock, it generated around Rs.5.6 lacs gross profits from 2017 to till date.

Users who want to trade this double top option buying strategy has to give input to this bot daily as per the recommedned capital.


And the good thing is, if combine Bank Nifty short straddle with this option buying setup, then the total gross profits made is more than Rs.12 lacs in last 4 years. Soon all our existing paid bot subscribers (https://squareoffbots.com/) will be able to execute it through our trading bots. We will add this option buying setup to the trading bots, so users just have to enter the lot of size as input, the bot will automatically place entry and stop loss.

28 comments on “Option buying strategy Bank Nifty

  1. What happens if there is SL hit on both side of straddle. First entry of option buying would have it SL during that time. Do we take second option buying trade on second SL side of straddle ? Or only one trade for option buying ?

  2. How much capital will b required considering max drawdown of short straddle + option buying if sl of sold option hit i.e. what is capital required + max drawdown

  3. Good article. Can you let me know how to backtest this on Stockmock? I am not able to find the selection to put a Buy trade upon any of the legs hitting a SL. Any help is appreciated. Thanks.

  4. Could you make a video on option buying strategy shared above.. with backtest and live test !

  5. Thanks and well explained.
    For the above explained strategy, how much should be the total capital (including margin) be available in Trading Account?
    Appreciate, if you can tell by some example… like for 1Lot : keep allocate ‘X’ amount to bot…
    That will really help in making a informed decision

    1. Option buying setup has -75k drawdown, so we recommend min 4 lacs capital to trade both buying and selling and 2 lacs capital only for option buying

      1. There is no such thing In stockmock to backtest options buying after short straddle hits 25% sl. How did you do that???

  6. Is this bot available only for paid members? Could you make it available for referal users also plz?

  7. Hey team,
    How is %return of each bot calculated in daily PNL report published in telegram channel?
    Is it profit per capital employed?
    Will not be more appropriate to provide PNL per lot of each bot?

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