Bank nifty expiry day strategies are becoming famous among the trading community. The reason is the high success probability. Hello Traders! Welcome to my blog. If you are a first time visitor, consider subscribing to our blog for more options strategies. In today’s article, I am going to talk about bank nifty expiry day strategies.
Trading on expiries offers great profits. With those profits comes risk too. Exactly a year before, I published an article called “Bank Nifty Expiry Day Strategy with 71% Success Probability”. It got a good response from the readers. Please read that one before continuing because this article is an update of my previous one. Click here to read it.
In my last article, I asked to place the limit orders at the opening price of the bank nifty. But sometimes, due to fast movements in the markets, orders do not get executed at the opening prices. That’s why I modified the strategy a bit and tested my new strategy and it is working as great as the old one. So, I thought of sharing it here. Today I will explain two new bank nifty expiry day strategies which you can deploy on weekly or monthly expiries.
1. Expiry Day Short Straddle
To build a short straddle, one has to sell call and put options of the same strike price. Remember, both the options should belong to the same expiry. On expiry day, bank nifty doesn’t move much in either direction. It tends to be range-bound and the bank nifty closes at a price that is near to the open price. Why Short straddle? Because short straddles are used if markets are expected to be range-bound.
How to execute it?
As soon as the market opens, if you get a chance to sell ATM (at the money) calls and put options at opening prices sell them. If you don’t get the chance, give the bank nifty some time (like a few minutes) and when the difference between ATM sell call and put options are minimum then sell them. By doing so, you can hedge the positions. There is no need to place any stop losses but to be on the safe side from huge movements, place a stop loss. My stop loss would be double the premiums. Go through the below example for a better understanding
Bank Nifty Options Hedging Strategy with Example
- The market opened at 9.15 and let’s assume that bank nifty opened near to 35000.
- Now, add bank nifty 35000 call (CE) and put (PE) options to market watch.
- Let’s wait till the difference in call and put premiums is minimum. That means if the call option premium is 120 the put option premium should be near 120, (ie.110 to 130).
- When you observe the difference is minimum, sell them. Within the first 5 mins, you will get that opportunity. That’s it.
- Now you have to wait till 1.30 PM or 2.00 PM and exit your positions.
If the market stays in the range, by afternoon most of the premium decay happens. To avoid volatile movements, exit the positions before 2 PM, do not stay till 3.30 PM. To be on the safe side, place stop losses. For the above scenario, put side stop loss would be (120*2 = 240) and call side stop loss would be (110 to 130 *2 = 220 to 260). You can use bank nifty options strategy builder OPSTRA to plan the trades. That’s the end of the first strategy. Now let’s jump into the second one.
2. Bank Nifty Iron Fly Strategy
Build a short straddle and buy call and put options on either side in the same quantities and that’s it, now you have built an iron fly strategy. Iron fly is a combination of bear call and bull put spreads. Wait Wait! I know this is confusing. Let’s make it simple with an example.
In the above short straddle example, we sold one call and one put option of 35000 strike. Now to convert short straddles into an iron fly, we need to buy one call option and one put option at break-even prices.
Now, what is this break-even price? It is a point at which your profit will be in the neutral zone that means no profit no loss zone. When bank nifty crosses this break-even point of any side (either on-call or put side), the positions go into loss. So, to avoid that loss, we need to buy one call option and one put option to hedge our position. When you add these new buy positions, the short straddle will be converted into an iron fly. When compared to short straddles, iron fly gives less profit but it will prevent your trades from going into big losses.
Below is a sample to build an iron fly strategy. (just an example, on expiry day premiums, won’t be as high as below)
- Sold 1 call option and 1 put option of 35100 strike for 225 and 337 respectively.
- Now the break-even points for the above trade are 34508 on the put side and 35692 on the call side.
- Now buy one put option at 34500 (at break-even) for 88 and one call option at 35700 for 104. Above all the positions form an iron fly on the pay-off graph. If you want, give it a try. Using opsrta, you can build and paper trade them, it’s free.
Short Straddle vs Iron Fly
Short straddles offer limited profit and unlimited loss. On the other hand, iron fly offers limited profit and limited loss. In terms of profits, short straddles offer larger profits than iron fly. I personally love to deploy short straddles instead of iron fly. The logic is “on expiry day, bank nifty doesn’t make directional moves, if it does, I will exit as soon as my stop loss hits”. If you are a beginner or conservative trader, it is better to start with an iron fly than a short straddle. But deploying a short straddle is easier than an iron fly. When coming to capital requirements, iron fly demands less capital than short straddles.
It doesn’t matter what kind of option strategy you deploy, do not forget to backtest it. I backtest every strategy I deploy. In the older article, “Bank Nifty Expiry Day Strategy with 71% Success Probability” I provided and backtested the strategy with bank nifty weekly expiry historical data. Over a long period, you will see the above methods as bank nifty no loss strategies.
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