What is your most successful option-trading strategy?



just trading on Thursday weekly expiries in BankNifty (i.e. around 50 days a year), we can easily get an annual return of 80–100% (means you can almost double your capital every year). The profit rate of this strategy is >90%, and even in case of loss, the loss is very limited.

The strategy

At 9:30 AM, create a short strangle of the strikes whose premiums are around 80–100. We choose 9:30 AM because by that time, market gets settled. These strikes will be around 200–300 points away from the spot price. Eg: today i.e. 18th March 2021, at 9:30 AM, BNF was trading at around 34600. I sold 1 lot each of 34800CE (at Rs. 120) and 34300PE (at Rs. 87). To reduce the margin, I also bought deep OTM options (32500PE at Rs. 3 and 36500CE at Rs. 4). On Zerodha, margin required for this setup is around Rs. 40k.

Target

Now, total premium we can get (if market stays in our strangle i.e. between 34300 and 34800) is 200 points (120+87–3–4). However, our objective is not to get full premium, instead we will collect only 30% of the total premium i.e. 60 points. Once we get 60 points, we can exit the trade. Even if you continue the trade, book the profit with at least half quantity. Also at any stage, if sum of the premiums gets under 40, definitely exit the trade as the chances of loss increase after that. Generally, by 11:30 AM, we will get 60 points. 60 points means Rs. 1500 i.e. around 4% returns. Positive things first: we have 4 Thursday's in a month. If we get Rs. 3000, then that gives 8% monthly return, equivalent to 96% annual return.

Stop-loss

Ofcourse, things can go wrong, so we should always trade with an SL. The SL for both CE and PE of the strangle will be sum of the premiums i.e. in our example, it will be around 200. This stop-loss will get hit if market moves by at least 300 points.




Adjustment

Suppose our stop-loss gets hit. Suppose CE side hits 200, then at that time, PE would have been around 30 i.e. we will be seeing 30 points loss on our screen. However, the benefit of our strategy is that we can easily adjust accordingly to turn this loss into profit. As soon as our stop loss gets hit, we sell the same side option having premium of around 100. In our case, CE hit 200, so we sell another CE of premium around 100 (like 35000 CE if 34800 CE hit SL). Also, exit the other side of the strangle, and sell the option having premium around 40–45. The idea is that market has already moved up by more than 300 points, and there is a high chance that it will reverse. Our total premium now becomes around 140, however our target can be more now (because we have increased the range of our strangle now). We can set our target to be around 80 points so that we get net 50 points profit. Our SL for this adjustment would again be the sum of the premiums i.e. 145 points. If SL hits, we repeat the adjustment. We repeat this for at most 3 SL hits. If 3 SL hit, then we exit with loss.

Results

Now coming to main part of the strategy: how often we will be profitable, how often our SL gets hit. For this, I have back tested (using Opstra) last 32 expiries (around 7 months). Here is the screenshot of the excel sheet:

We can see that out of 32 trades,

(i) SL was hit only in 8 trades.

(ii) Only 3 trades had a loss, out of which only 1 trade had a significant loss (60 points).

So this strategy has a very very high chances of profit and can easily get you around 100% annualized returns. Please apply this, and let me know how it worked for you.