Short Straddle Strategy:
We know that market trends only 30% of the time and remaining 70% of the time it stays in range bound, which immensely helps the option sellers because the more market stays in range bound, higher the decay of premiums.
The above chart is the daily return distribution of Index, we could see more number of times Nifty and Bank NIFTY moved between -0.30% to 0.30% on daily basis, only lesser number of days it has moved wildly on either side, if we follow ATM short straddle strategy, with a fixed stop loss, then we can control our risk when market moves wild and also we can continue to make profits when market stays in range bound.
Bank Nifty:
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.
When tested with one lot, the returns are wonderful.
It has ended up in profits almost every month
Nifty short straddle:
We tested the same with Nifty as well with same rules. We short one lot of ATM options at 9:20 am every day with 25% stop loss on each leg, 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. Here’s the gross result
Returns are perfect with Nifty options as well
On monthly basis, returns are consistent as well
The live profits of Short straddle bot can be checked here http://performance.squareoffbots.com/
Most of the days are profitable days for Bank Nifty Straddle bot users
Here’s the live performance metrics for one lot, from July onwards due to increased SEBI margin, we recommend users to trade with 3 lacs per lot.
Re-Entry:
We have added Re-entry option now, along with lot size input, users can select if they want to opt for re-entry or not. Reenter the original leg at previous entry price. For example, if we sell an ATM call, entry price was Rs 100, SL is 25%, so SL price is Rs 125. Now if SL is hit, we will choose the same ATM call strike to enter and wait for its price to come back to Rs 100 before we re-enter the same option. SL will remain 25% upon re-entry.
The potential profits are much higher if you select re-entry.