Strategy description

This is a directional, positional options strategy designed to capture short-term directional momentum during the last week of the monthly expiry cycle.

The strategy dynamically switches its underlying based on the phase of the expiry cycle:

1. During the last week of the current monthly expiry, the strategy trades Bank Nifty (BNF) options.
2. During all other weeks of the month, the strategy operates on Nifty 50 options.

This structure allows the system to optimally utilize each index based on liquidity, volatility behavior, and premium responsiveness across the expiry cycle.

The strategy is intentionally deployed in Bank Nifty only in the final phase of the monthly series, when option premiums become more sensitive to directional moves and adjustments can be executed more effectively.

Strategy Overview

The system dynamically identifies and aligns with the prevailing market direction. It maintains option-writing positions with close hedges, creating controlled directional exposure while retaining flexibility to adapt as market conditions evolve.

Positions are generally carried until the respective expiry, with no fixed stop loss or predefined target. Risk and profit management are handled through adaptive hedging and systematic banking-based adjustment logic, rather than rigid exits.

Key Highlights

1. Instruments:
   1. Bank Nifty Options – only during the last week of current monthly expiry
   2. Nifty 50 Options – during all other weeks of the month
2. Strategy Type: Directional / Positional
3. Entry Window:
   1. Bank Nifty: Last week of monthly expiry
   2. Nifty 50: Remaining weeks
4. Exit: Expiry day (index-specific)
5. Position Structure: Option writing with close hedging
6. Risk Management: Dynamic hedge and banking-based adjustments (no fixed stop loss or target)
7. Objective: Capture late-stage monthly directional momentum with controlled risk

Mechanism of Banking-Based Adjustments

When the market moves favorably, the strategy books partial profits from the profitable side. These banked gains are then utilized to adjust, hedge, or defend the adverse side if market direction changes.

This approach:

1. Helps smoothen the equity curve
2. Controls drawdowns during adverse moves
3. Allows positions to be sustained till expiry without additional capital infusion

Risk in Case of Opposite Gap-Up or Gap-Down

As the strategy does not use a fixed stop loss, it remains exposed to overnight or opening gaps against the active directional bias. Such gaps, especially during the expiry week in Bank Nifty, can lead to sharp premium expansion on the adverse side, resulting in temporary drawdowns.

While the strategy is structured to recover losses through subsequent adjustments and hedging, large one-directional gap moves can still cause significant interim drawdowns.

 Adequate capital buffer, disciplined execution, and strong risk tolerance are essential. 

Share Code

eeb429aa-f756-41bb-81a1-3158ff489ed2