Algo Trading in India |
  • March 27, 2020
  • admin
  • 8

Many traders usually buy OTM options near the day end, especially on expiry days, with Hero or zero mentality. Seeing certain volatile movements at times, they think such OTM trades could give exponential returns when market make some significant movement during the last hour. Either they buy Out of the money put options and expect market to crack big time or Out of the money call options and expect market to move up much higher, sometimes people buy both put and call. (Long Strangle)

So we gathered the last 10 years historical data of Bank Nifty and analyzed their last 30 mins Intraday movement, that is between 2:45 PM to 3:15 PM, we wanted to find out how Bank Nifty usually behaves during this period and how it moves specially on expiry day as well. A detailed analysis was carried out.

Three types of data was gathered

  1. Open to Close
  2. Open to High
  3. Open to Low

That is, what’s the actual price movement from 2.45 PM to 3.15 PM.

Then from Open price at 2:45 PM, we check what’s the maximum up move happened.

Then from Open price at 2:45 PM, we check what’s the maximum down move happened.

All these data is gathered and we plotted a normal distribution chart to find where the maximum or frequent movement occurred.

Open to Close:

From the data, we could see that Bank Nifty has moved up +2% at the max and gone down maximum -3% from 2.45 PM, that’s really a very big move in 30 minutes. But how many times such wild occurrences happened? Very less, less than 3% of the time. Most of the time, the movement was flat, where it stayed between -0.3% to +0.3% and as you can see from the below table, 97% of the time Bank Nifty stayed between -1% to +1%, so whoever bought OTM options beyond this level, they are going to lose 97 out of 100 times.

Open to High:

If you think that, no point in waiting till 3:15 pm, there will be some high move that can occur after 2:45 PM, we should make use of that to book profits and get out, fine. Let’s check what’s the maximum up move bank nifty makes most number of time. As you can see, most of the time, the maximum up move was just mere +0.10%, that’s very minimal. And 97% of the time, Bank Nifty has never gone beyond +1% after 2.45 PM.

Open to Low:

Since at times, Market tanks during the last hour of the day, we shall check the probability of that as well. Let’s check what’s the maximum down move bank nifty makes most of the time. As you can see, most of the time, the maximum down move was just mere -0.20%, that’s very minimal. And 97% of the time, Bank Nifty has never gone below -1% after 2.45 PM.

Example:

Today 26–03–2020 Bank Nifty was trading around 19500 at 2.45 PM, statistically the max up move is +2% which is 19700 and max down move from here is -3% which is 18700

19700 CE Strike was trading around Rs.50 today, if someone had shorted it at that time, then he can be 97% sure that it is going to expire worthless and eventually it went to zero.

Conclusion:

It is now statistically proven that, Bank Nifty stays flat most of the time during the last half an hour of intraday session. 97% of the time, all OTM options expire worthless, so chance of making money by buying such OTM options during the last hour is a sure way to lose money consistently. Better get into Option selling with defined risk during the last 30 mins Intraday time frame, which could help you in making consistent returns over the long run.

If you liked this article, please do share share it (WhatsappTwitter) with other Traders/Investors. 

8 comments on “Option Trading Strategy based on Bank Nifty last 30 mins movement

  1. Good article. Small error I think, In The example at the end 2 percent increase from 19500 is 19900.

    1. I believe the historical data should have been not more than 5 years. Mainly due to the volatility the Banknifty has seen in past few years and also the price that’s being traded now is totally different from the price being traded 10 years before.

      However this is a great impressive and statistically proving analysis article to show that the Hero and Zero will mostly be zero.

  2. 2 and 3% in today’s scenario is approx 700-1000 points
    Strikes that far away had already lost their value

Leave a Reply

Your email address will not be published.