Best 3 Intraday Option Selling Strategies in Nifty & BankNifty

Trading on the stock market is a time-consuming process. It can take weeks or even months before you see the fruits of your labor. However, there are ways to trade for a shorter period of time. One way to do this is through option trading. In this post, I will show you what it takes to be successful at intraday trading and provide you with the best Intraday Option Selling Strategies. From understanding what an option is to select the best Intraday Option Selling Strategies and making a profit, read on for all you need to know about option trading.

What is an option?

An option is a contract that gives the owner the right, but not the obligation to buy or sell a stock at a specified price. As you probably know, there is an expiration date for the option to expire. When the expiration date approaches, the option price will increase or decrease based on the price movement in the underline asset and the time to expire.

Once the expiration date comes near, the options expire and the owner has the right to buy the stock at the strike price. Some options allow you to buy or sell at any time.

What are good options? There are two types of options you can choose from. One is the “Call option” and the second is the “Put option”. You can choose a call option if you think the stock price will increase in the near future and a Put option if you think the stock price will decline in the near future.

What is Intraday trading?

Intraday trading refers to trading on the stock market whenever the stocks are trading. While many people think of intraday trading as trading between the hours of 9:30 a.m. and 3:00 p.m., it can occur anytime the market is open.

The idea behind intraday trading is to trade stocks for short periods of time and then close the trade out before the stock’s price changes. This is to avoid triggering a stop loss or time limits, which would prevent you from making a profit.

There are two ways to trade options for Intraday. The first is to enter a Buy order when the stock is opened if you expect the price will move in a particular direction. The other is to enter a Sell order if you expect that price will move in a range only.

The benefits of intraday trading

For many traders, the temptation to make profits on the stock market is too strong to resist. With this in mind, intraday trading makes sense. You can make a quick profit in the stock market by trading options for a short time period.

By doing this, you can avoid missing out on the peak highs of the market or the price decline of the stock. However, like any investment, it is possible that you could make a loss if you make a huge mistake in choosing the wrong option. One of the best ways to avoid such a scenario is to be smart about the types of options that you trade in. For example, if you trade in small-cap stocks, the stocks that you invest in can vary greatly in price volatility. In fact, the price swings can be quite extreme.

Trading options for short-term gains

To win an intraday trading contest, you need to find the right stocks and options to trade. When you pick an option to trade, you must analyze the liquidity of the stock and learn about its price movement before you decide to buy or sell it.

Consider the following points before making a decision:

1. Is it liquid? Before entre in a script, consider whether its options are liquid or not. In other words, do the stock options have a lower Bid/Ask spread? In order to make this determination, it is essential that you study the script’s option chain. By knowing the difference between Bid/Ask prices, you can determine whether the options are liquid or not.

2. Is the script trading range-bound or it’s in a trending mode? If it’s in attending mode, consider buying options only. and selling options are only advisable in a range-bound script.

How to select scripts for Options trading?

When you pick scripts for options trading, it is important to first understand what an option is. This will give you an idea of the strategy to be used. An option is a contract that gives the holder the right, but not the obligation, to buy or sell a given stock at a set price at a certain date in the future. Trading an option is like buying options with cash.

An option buyer gets a chance to make a profit by buying a certain stock for a specific price and selling it at a later date at the price of the option. But unlike a trade on the stock market, the buyer can still be forced to sell the option if the price goes up beyond the agreed price. When trading options, you can buy either call options or put options.

Why Option selling is more profitable than option buying

Option writing is a bit more complicated than buying, but it offers the potential for greater profits. We should understand the main difference between an option writer and an option buyer.

An option buyer pays a premium to purchase coverage against the risk that the value of a specific commodity may change in relation to a given movement of price. So in Option buying, you are making money only with the delta i.e. price movement but losing money due to theta decay.

An option writer provides this same coverage, but because he receives a premium when he sells the contract rather than paying one, he exploits his opportunity to profit from favorable changes in price. Now because the option writer has sold the option, premium decay due to theta will be in his favor. So the option writer will make money through delta i.e. price movement and the theta decay.

As we know that 70% time market consolidates in a range. That’s the main drawback of option buying. Due to range-bound activity premiums will erode due to theta decay. In weekly expiry, this reduction in premium would be more quickly than the monthly expiry due to high theta decay in weekly expiries.

So if you keep theta decay in your favor, your chances to make money are much higher in option selling than options buying. In the next section, I will show you the best Intraday Option Selling Strategies.

Best Intraday Option Selling Strategies

Nowadays when information is just one click away it’s difficult to believe which one to follow. The best solution to overcome this problem is: to backtest your strategy with historical data and try to analyze its behavior in different market scenarios.

A strategy that has a proven record on historical data can be a good candidate for the best Intraday Option Selling Strategies.

Now there are so many tools available on the internet that can help in backtesting. One of the tools I’m using to backtest my strategies is stockmock.in. I have used this tool to backtest different strategies with different parameters. After spending hours on backtesting I have come up with 2 baskets of Option strategies. One basket is for Nifty and the second is for BankNifty. Let’s us look at both baskets one by one.

The best Intraday Option Selling Strategies in Nifty

Nifty has a different behavior compared to banknifty. So the strategies that are working in banknifty would not work in Nifty. I have done the backtest on both indices and then optimize it based on the results. Let me share the backtest result of the Nifty basket.

In the above image, I have created a basket of Nifty with two strategies. One strategy we have initiated is at 9:30 AM, and the second one is at 12:30 PM. I backtested this basket with weekly expiries from February 15th, 2019 to February 17th, 2023. Both strategies have predefined entry, exit, and stop-loss rules. We have initiated the strategies based on the time and entry rules and are holding them until 03:15 PM. If a one-stop loss occurs on one leg, close that leg and keep the other leg open until 3:15 PM.

Now look at the performance of this basket with both strategies:

So the overall profit you can see is almost 19 Lakhs in 3.5 years. The capital required is around 6 Lakh (for 3 lots) which means almost 300% return in 3.5 years with an accuracy of 63%. What do you say? Isn’t it a good profit?

Few things you have to analyze here: Max drawdown which is around ₹80000, Max loss in a single day (when both stop losses hit) is ₹8720, and the most important Expectancy which is at 0.40.

Pro Tip: Expectancy is the value that describes how fast your strategy can recover from drawdown. Any value greater than 0.25 is good and here expectancy ratio is 0.40 which is quite impressive.

Now look at the monthly profit/loss statement:

If you look at the above table, you will see that only 6 months in the last 4 years ended in a loss. and that too is very nominal with respect to the capital of 6 lakh. Now look at the Cumulative PnL over time and the drawdown chart below:

Now, based on the above statistics, what you thought is a good strategy or not? Do let me know in the comment box.

Bow if you want to learn both strategies with predefined entry, exit, and stop-loss rules, you can enroll in our Option Strategies: A Mentorship Program where you will get proper handholding support until you are not able to initiate these strategies in a proper way. Click on the below button for more details:

If you don’t want to spend time learning and wanted readymade alerts, You can subscribe to our premium telegram channel. Click on the below button to subscribe:

In case if you have any queries about the best Intraday Option Selling Strategies in Nifty, feel free to chat with us or leave a comment below.

The best Intraday Option Selling Strategies in BankNifty

BankNifty has different volatility and behavior compared to Nifty, so we have optimized the strategies based on the bank nifty behavior. Based on the backtest results, we have selected 3 sets of rules. The first is on Monday, Tuesday, and Wednesday. The second set of rules is for expiry and For Friday we have a different set of rules. Now look at the below stats:

If you look at the above image you will find that we are creating the same strategy for Monday, Tuesday, and Wednesday. For expiry day i.e. on Thursday, we have a different set of rules and initiate 3 legs at different times. And on Friday, because theta decay is very slow, we have backtested with a different set of rules. Now look at the performance:

So the total profit over the next six years (January 2017-February 2023) is close to Rs. 25 lakhs. The required capital is approximately 6 lakhs (3 lots), implying a nearly 400% return in 6 years with a 62% accuracy. What do you say? Isn’t it a good profit?

There are a few things to consider here: the maximum drawdown, which is around 64000; the maximum loss in a single day (when both stop losses are hit); and, most importantly, the “expectancy,” which is 0.34.

Pro Tip: Expectancy is the value that describes how fast your strategy can recover from drawdown. Any value greater than 0.25 is good and here expectancy ratio is 0.34 which is quite impressive.

Now look at the monthly profit/loss statement:

If you look at the above table, you will see that only single months in the last 5.5 years are closed in a loss. and that too is very nominal with respect to the capital of 6 lakh. Now look at the Cumulative PnL over time and the Drawdown chart below:

Now, based on the above statistics, what you thought is it a good strategy or not? Do let me know in the comment box.

Now if you want to learn both strategies with predefined entry, exit, and stop-loss rules, you can enroll in our Option Strategies: A Mentorship Program where you will get proper handholding support until you are not able to initiate these strategies in a proper way. Click on the below button for more details:

If you don’t want to spend time in learning and wanted readymade alerts, You can subscribe to our premium telegram channel. Click on the below button to subscribe:

In case if you have any queries about the best Intraday Option Selling Strategies in BankNifty, feel free to chat with us or leave a comment below.

Performance of the complete portfolio of Intraday Option Selling Strategies

If we deploy all the strategies and make a basket, It required around 12 Lakh capital. Now look at the performance of this whole portfolio that can run on automation completely:

With a capital of around 12 lacks, the total profit was around 46 lacks. That is a 400% return in 5.5 years.

• The expectancy ratio is: 0.47

• Return/ MDD = 6.31

• Max Drawdown is just around ₹100000

Now, based on the above statistics, what you thought? Is it a good strategy or not? Do let me know in the comment box.

Now if you want to learn this whole basket with predefined entry, exit, and stop-loss rules, you can enroll to our Option Strategies: A Mentorship Program where you will get proper handholding support until you are not able to initiate these strategies in a proper way. Click on the below button for more details:

If you don’t want to spend time in learning and wanted readymade alerts, You can subscribe to our premium telegram channel. Click on the below button to subscribe:

In case if you have any queries about the best Intraday Option Selling Strategies in BankNifty, feel free to chat with us or leave a comment below.

DISCLAIMER: – we are not a SEBI research analysts. previous return is not a guarantee of future performance. There is no liability whatsoever for any loss arising from the use of this product or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods.  This information should only be used by investors and traders who are aware of the risk inherent in securities trading.