✅ 1. Timeframe & Setup
Options writing, or selling, is a powerful intraday strategy when the goal is to capitalize on time decay (theta). In this system, we trade Nifty or Bank Nifty weekly options, focusing on non-directional or mild directional setups where premiums decay over time. The ideal timeframe is a combination of 5-minute and 15-minute charts, and trades are executed between 9:30 AM to 3:00 PM. The best days to implement this strategy are Tuesdays, Wednesdays, and Thursdays, when theta decay accelerates due to approaching expiry.
Key indicators for this strategy include VWAP (Volume Weighted Average Price), 20 EMA (Exponential Moving Average), and optionally CPR (Central Pivot Range) to understand price positioning. It’s also crucial to check the India VIX (Volatility Index) before market open, as it helps determine whether the day favors non-directional or directional setups.
⚖️ 2. Market Bias Identification (Directional or Non-Directional)
Before 9:30 AM, traders should analyze SGX Nifty (now Gift Nifty), global cues, and India VIX. These help define the market environment. If India VIX is low, say between 13–15, we favor non-directional strategies like straddles and strangles since premiums decay well in low-volatility environments. However, if VIX is high, above 16–18, it may indicate a volatile day ahead, and we either move to wider strangles or directional trades.
🔁 3. Strategy Options
There are two primary approaches in this system — non-directional and directional.
📌 A. Non-Directional: Short Straddle or Strangle
If the price opens inside the CPR or shows signs of being range-bound, the best strategy is to initiate a short straddle (selling both ATM Call and Put) or a strangle (selling OTM Call and OTM Put, about 200–300 points apart). The entry window is between 9:30 and 9:45 AM. The goal is to let time decay work in your favor while the market remains range-bound. You typically target a 25–40% decay in the combined premium. The stop loss is either 25–30% per leg or based on a combined premium breach. If volatility increases unexpectedly, you can hedge the position with far OTM options to control risk.
📌 B. Directional: Sell Weak Side Only
If the price shows trending behavior, we shift to directional selling. The direction is identified by observing how price reacts around VWAP and 20 EMA. For instance, if the price is trading above both VWAP and 20 EMA, with signs of an uptrend, we sell an OTM PUT option. Conversely, if the price is below both indicators and trending downward, we sell an OTM CALL. The advantage of this method is that you only expose yourself to the weaker side of the market, reducing directional risk. You may either trail the stop loss or exit based on time.
⛔ 4. Stop Loss & Risk Control
Risk management is critical in options writing. Set a stop loss of 25–30% per leg, and define your maximum loss per day as 1.5–2% of capital. Always use basket orders with SL pre-defined, so execution is automated and quick. For better capital efficiency and reduced margin requirements, you can hedge your position using far OTM options. This not only reduces potential losses but also protects against unexpected events or volatility spikes.
🕒 5. Exit Strategy
All positions should be exited by 3:00 PM, as theta decay slows down near the close and sudden volatility can spike. However, if you capture around 70–80% of the premium early, it is wise to exit the trade ahead of time and avoid unnecessary exposure. Always monitor trend reversals and trail the stop loss manually if price starts breaking out of the expected range.
🧠 Best Practices
To improve results with this strategy, avoid trading during major news events like RBI policy announcements, Union Budget, or global macroeconomic releases. Stay away from selling options when IV is extremely low, as premiums will be poor and risk-reward won’t be favorable. If you’re a beginner, always begin with hedged trades to manage risk. Lastly, maintain a trading journal to track your setups, emotional state, and trade logic — this is essential for continuous improvement.
💼 Example
Let’s say it’s Wednesday and Nifty opens range-bound, staying between CPR levels. The India VIX is at 12, indicating low volatility. You choose to short an ATM straddle by selling Nifty 23,400 CE and PE, each trading at ₹90. Your combined premium is ₹180. You target around ₹120 (₹60 profit), and your SL is if either leg hits ₹115. Throughout the day, you monitor VWAP and ensure no major breakout is happening. If the price remains in range, theta decay will erode the premium, allowing you to hit your target.
Warning: Investments in securities market are subject to market risks. One should back-test the above discussed strategy and understand all the risks involved in options trading. Consult your financial advisor before acting on the mentioned strategy.
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