Nifty50 Weekly Observations to assist with Options Strategy
The insight:
Here's an analysis of 9 years of data of Nifty50, showing that Nifty50 gave a weekly gain >3.5% 19 times (i.e in 19 individual weeks). This is roughly 2 times a year, or 4% of times.
Ideas to apply the insight:
Credit spread, Iron Condor, etcetera etcetera. It helps to know what is the "maximum likely movement" that Nifty50 will give on a weekly closing basis to select the right "Call strike prices" to sell.
Using this insight, one can short Call Option strikes that are >3.5% away from current price at the end of the week (for next week's expiry). This is a simple way to get 1-2% returns a week.
A simple modification is to wait for Monday's day closing, and select a strike price 3.5% away from Friday's closing (to get higher premiums if Monday's closing is higher than Friday's closing).
Why this can work:
Option Sellers (usually) earn when market movements are not wild in 1 direction. Simply put, this is due to options decay (theta) and subsequent Out-of-the-money expiry of the strike price that Option Seller has shorted. We see that Nifty gives >3.5% close only about 2-3 times a year (avg of 9 years). Therefore, in theory, we are likely to make profits for 49 out of 52 weeks in a year if we choose to short "Call" strike prices that are 3.5% away from closing price on Friday.
Word of caution:
Disclaimer:
This is neither backtested on softwares/tools nor tested with live trades. This idea/insight is to help build/improve your strategy based on your trading style.
Trade with poise.
Here's an analysis of 9 years of data of Nifty50, showing that Nifty50 gave a weekly gain >3.5% 19 times (i.e in 19 individual weeks). This is roughly 2 times a year, or 4% of times.
Ideas to apply the insight:
Credit spread, Iron Condor, etcetera etcetera. It helps to know what is the "maximum likely movement" that Nifty50 will give on a weekly closing basis to select the right "Call strike prices" to sell.
Using this insight, one can short Call Option strikes that are >3.5% away from current price at the end of the week (for next week's expiry). This is a simple way to get 1-2% returns a week.
A simple modification is to wait for Monday's day closing, and select a strike price 3.5% away from Friday's closing (to get higher premiums if Monday's closing is higher than Friday's closing).
Why this can work:
Option Sellers (usually) earn when market movements are not wild in 1 direction. Simply put, this is due to options decay (theta) and subsequent Out-of-the-money expiry of the strike price that Option Seller has shorted. We see that Nifty gives >3.5% close only about 2-3 times a year (avg of 9 years). Therefore, in theory, we are likely to make profits for 49 out of 52 weeks in a year if we choose to short "Call" strike prices that are 3.5% away from closing price on Friday.
Word of caution:
- The analysis is for Nifty50 gain (i.e >3.5% move). This does not apply to Nifty50 crash. We should be mindful that crash intensity is stronger than gain intensity (because fear is greater than hope). So strong downside movements (crashes greater than 3.5% will require different analysis).
- It's a fool's errand to sell naked Call Options and hold overnight, as the losses can be huge (even though temporarily). Be gentle on your heart. It is advised to always hedge a Call Option short (which is why strategies like Credit Spread, etc. exist).
Disclaimer:
This is neither backtested on softwares/tools nor tested with live trades. This idea/insight is to help build/improve your strategy based on your trading style.
Trade with poise.