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    Nifty Options Writing Strategy

    Uploaded by

    frank george
    This document summarizes testing of a strategy of writing put options on the Nifty index on a monthly basis over the past 11 years. Key findings include: - Selling slightly out-of-the-money puts each month led to over 100 of 140 trades expiring worthless, generating an average monthly profit of 9 points. However, drawdowns were high, especially in 2008. - Adding a stop loss of 2x the entry price more than doubled profits while significantly reducing drawdowns by limiting losses in down markets. - A combined short/long strategy where long puts were entered when the stop loss triggered led to even higher profits of over 5000 points over 11 years.

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    © All Rights Reserved
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    Nifty Options Writing Strategy

    Uploaded by

    frank george
    295 views8 pages
    This document summarizes testing of a strategy of writing put options on the Nifty index on a monthly basis over the past 11 years. Key findings include: - Selling slightly out-of-the-money puts each month led to over 100 of 140 trades expiring worthless, generating an average monthly profit of 9 points. However, drawdowns were high, especially in 2008. - Adding a stop loss of 2x the entry price more than doubled profits while significantly reducing drawdowns by limiting losses in down markets. - A combined short/long strategy where long puts were entered when the stop loss triggered led to even higher profits of over 5000 points over 11 years.

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    This document summarizes testing of a strategy of writing put options on the Nifty index on a monthly basis over the past 11 years. Key findings include: - Selling slightly out-of-the-money puts each month led to over 100 of 140 trades expiring worthless, generating an average monthly profit of 9 points. However, drawdowns were high, especially in 2008. - Adding a stop loss of 2x the entry price more than doubled profits while significantly reducing drawdowns by limiting losses in down markets. - A combined short/long strategy where long puts were entered when the stop loss triggered led to even higher profits of over 5000 points over 11 years.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    295 views8 pages

    Nifty Options Writing Strategy

    Uploaded by

    frank george
    This document summarizes testing of a strategy of writing put options on the Nifty index on a monthly basis over the past 11 years. Key findings include: - Selling slightly out-of-the-money puts each month led to over 100 of 140 trades expiring worthless, generating an average monthly profit of 9 points. However, drawdowns were high, especially in 2008. - Adding a stop loss of 2x the entry price more than doubled profits while significantly reducing drawdowns by limiting losses in down markets. - A combined short/long strategy where long puts were entered when the stop loss triggered led to even higher profits of over 5000 points over 11 years.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 8

    Nifty Options Writing

    Strategy
    Vikram Kashikar
    We know Stock Market always moves up in longer run, what if we short the Put
    options every month, can we make money in the longer run, as it would expire
    worthless as market move up? So, I tested this logic with last 11 years data,
    including 2008 bear market. Here’s the details.

    I do not want to short deep OTM options, since premiums are too low in it, So i took
    OTM options which are just 2% away from Spot price. I enter the trade on expiry day
    and exit on next month expiry day. Monthly expiry, not weekly.

    I did a scatter plot to find what’s the close price of all trades from 2008 to 2019. As
    you can see, out of 140 expiry, almost 100 expiry, all put options expired worthless.
    near zero ,however there are certain days, where market tanked, and PUT options
    expired deep ITM
    Did Naked Put option selling testing, Short 2% OTM expiry strikes and close it at the
    end of expiry day. No Stop loss. This is how the cumulative returns are, made 1269
    points from 140 expiry, for last 11 years, with avg profit per expiry of just 9 points.

    Obviously the draw down is higher and at times, for months to years, equity is
    underwater, takes more time to recover when market tanks. Its because the put
    options we short at 100 Rs, can move 1000% and end at 1000rs at the end of expiry
    when market tanks, like it happened in year 2008.
    Here’s the yearly profits for naked put writing strategy, year 2008 is the worst period.
    With Stop Loss: Since naked put involves high risk, i wanted to come up with risk
    management to control the loss when market tanks. I do not want to keep checking
    markets and do adjustments, so how do i exit the position when market keeps
    dropping?

    Simple: Keep a stop loss of Entry price*2. If your entry price is Rs.100, stop loss is
    Rs.200. We give enough room for the markets to fluctuate, if it goes beyond this
    level, we book loss and exit the position. If not, we close it by end of expiry. Here;s
    the result, made 3000 points.
    With implementing stop loss, parameter, we not only more than doubled the profits,
    we also reduced the draw down to a greater extent, even it takes lesser time to
    recover, since risk is limited in this strategy.

    Short & Long: Now I got an idea, i see that when market tanks, it drops big, so what
    if I not only close my position, if i also go long in put option when stop loss hits, what
    would be my profits?
    So entry at 100, stop loss hits at 200, exited shorts with loss -100, now go long at
    200, so that if market keeps dropping I make higher returns with my long put options.
    And this has resulted in even higher profits than the last two strategy, yielding 5000
    points profits.

    Though Draw down is higher, its because after market dropping and triggering long
    trades, it can bounce back up and make put option expire worthless, there by losing
    trades in both long and short position. But we have got much higher returns than
    naked put writing.
    Yearly performance of both Short only and Short/long strategy. After analysing the
    11 years, data sets, I can very well say, there is a trading edge in this strategy,
    where people can implement their own risk management rules to control the risk
    even further.

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