created : 1 year ago| | live deployment: 23
This is a positional option buying strategy which buys monthly ITM options in Banknifty based on the trend using basic trend following indicators. Don't ask me what? it is so simple yet effective.
Disclaimer: This is a high risk strategy, deploy less than 20% of your capital. Not for weak hearted and safe players.
Capital Required: 50k. Actual margin required would be around 35k and 15k is buffer capital for managing losses if any. Historical DD is not considered in the capital mentioned.
Entry/Exit time: There is no defined entry or exit time. It works based on signals and takes long or short position any time.
Target: Open target - finding trend is tough and if it is found, why settle for a fixed profit? Ride the trend as long as it goes.
Stop Loss: No stop loss. It is a trend following strategy which is always-in-trade and follows Stop-And-Reverse model.
Trailing Stop Loss: none
1. Can I deploy any time or is there any suggested time?
Ans: Yes, the algo can be deployed any time. It takes the trade when signal is generated. During last week of the month, Theta decay is severe and works against option buying but if the trend is strong, it overcomes the theta decay as well.
2. Can I increase or decrease multiplier when the trade is active?
Ans: By the design of the algo, increase or decrease of multiplier does not impact the positions or sq. off of positions. It is not advisable to increase or decrease the multipliers incosistently. We see that such changes results in lower profit or higher loss as people increase multipliers after profitable entry and next entry may be a loss or vice versa.
3. I have exited manually, how to re-enter?
Ans: New entry cannot be made again until the trend reverses and new signal is generated. You can refer the active strikes in paper trade to verify if the direction matches or not.
4. Is it monthly options or weekly options? Are there slippages?
Ans: This algo deals with monthly expiry options with an idea that the theta decay is slower than weekly options. Since it deals with ITM options, slippages are inevitable.
5. My last 2-3-4 legs are ending up in loss. Why?
Ans: This is not a holy grail but a simple trend following strategy. Based on market behavior, with certain trend following logics, this algo identifies and takes either a long or short trade. But if the direction/trend is not strong and market is choppy, it is bound to get false long/short signals resulting in losses.
6. Can I deploy this algo as the ROI is very high?
Ans: Kindly do not consider only the "ROI". This algo buys option where the value traded is just the premiums which is less than 50k and hence the ROI is higher. Look at the DD as well, it can have severe DD and traders who have the appetite to trade considering the historical DD (87%) are advised to trade this algo.
Philosophy of this algo:
Markets trend for only a limited number of days (30% of the times in a year) however maximum profit potential lies in the system that follows direction. This algo identifies the direction of the market using some simple logics and tries to capture the trend. The fail rate is high but the damage is acceptable to some extent. When it captures a big trend and on winning side, it makes amazing money. Toughest aspect is to find direction of the market, if it is found, lets exploit it to our benefit. Theta decay is an enemy for option buying, but as long as trend is captured, it overcomes theta effect. It is a high risk high reward strategy to play with as the drawdown could be severe. 4-5 loss trades will easily be compensated with one trend which will make it profitable.
Test with paper trade and then go-live if it is interesting.
Although the algo takes care of the entry, exit, adjustments, you are advised to keep an eye over the account to watch for any errors which could be due to margin shortage or technical issue etc.
Disclaimer: I am not SEBI registered advisor or Portfolio Manager. I do not take responsibility for any losses that might occur as a result of deploying this strategy nor do I guarantee any returns. If you are not aware of risks associated with FNO trading, you are strongly recommended to understand, analyse and then trade on FNOs.
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Note for Trend following systems:
Let me clarify about trend following systems and why it is important to know.
As such, market trends only 30% of the year and rest of the 70% of the year is sideways.. but a system following trend has huge potential of making profits which can cover the losses of the 70% of the times. Thats how all large institutions make money (direction based profits).
Many of us (including me) are option sellers to make use of the 70% of the times, earning small and consistent but lose out to the 30% of the times when markets go wild in some direction.
YOB N and YOB V2 are direction/trend following strategies which wins only 30% of the times but when it wins, it Wins like a boss covering the losses made.
There are times when trend following setups failed for 3-4 months consistently but then it picks up and makes profit in large trends... 1000points in BNF is easy and 25x1000 = 25k in one trade will be much better than 20 days of straddle selling