✅ 1. Timeframe & Setup
When it comes to intraday options trading, following a structured system is key to managing risk and capturing opportunities. This particular strategy is focused on buying options, specifically CALLs or PUTs, based on a combination of momentum indicators and price action patterns. The instruments we focus on are Nifty or Bank Nifty options, preferably either At-the-Money (ATM) or one strike Out-of-the-Money (OTM). The ideal chart timeframe is the 5-minute, and trades are initiated between 9:20 AM and 2:45 PM — avoiding the first 5 minutes (due to opening volatility) and the last hour (to avoid whipsaws before market close).
To identify trade setups, we use key technical indicators like the 20-period Exponential Moving Average (EMA) and VWAP (Volume Weighted Average Price). You may also use the Central Pivot Range (CPR) for better directional bias, though it is optional.
📈 2. Trade Entry Conditions (Buy CALL or PUT)
In this strategy, a CALL option is bought when the price is trading above both the 20 EMA and VWAP, and a bullish breakout occurs from a consolidation pattern — such as a box breakout or flag pattern. The breakout must be accompanied by a strong volume spike, confirming momentum. Also, the option premium chart should reflect strength, indicating no signs of theta decay.
On the other hand, a PUT option is bought when the price breaks down below both the 20 EMA and VWAP, again following a tight-range consolidation. The breakdown should be backed by strong volume and momentum, and the option premium should not show signs of time decay — this helps avoid entering a theta trap.
🎯 3. Entry & Strike Selection
The trade should only be entered after the breakout candle closes on the 5-minute chart to avoid false signals. The selected strike should be ATM or one strike OTM for the current week’s expiry. It’s important to avoid taking trades near high-impact news events like RBI policy announcements, the US Fed meetings, or major earnings, as these can cause unpredictable price movements.
⛔ 4. Stop Loss & Target
Risk management is a cornerstone of this strategy. The stop loss can be either a fixed 25–30% on the option premium or placed just below the breakout candle’s low. As for the profit target, we aim for around 40–50% returns, or we use a trailing stop loss based on the 5 EMA on the option premium chart. Regardless of the trade’s performance, all open positions must be exited by 3:10 PM — this is a non-negotiable, time-based exit rule designed to protect profits and limit risk near market close.
📋 5. Rules & Risk Management
This system limits you to a maximum of two trades per day, with each trade risking only 1–2% of your capital. It’s crucial not to average into a losing position if your stop loss gets hit. Instead, treat each trade independently and with discipline. Maintaining a trading journal is highly recommended — log your entry and exit points, the logic behind each trade, emotional responses, and outcomes. This habit not only improves discipline but also helps identify patterns and areas for improvement.
🧠 Tips for Better Execution
Some tips to improve your win rate include focusing on days that show trend continuation, such as strong openings followed by directional moves. Keep an eye on Open Interest (OI) analysis — for example, if both price and OI are rising together, it confirms a trend. Before the market opens, always review Gift Nifty (formerly SGX Nifty), global market cues, and the India VIX to gauge overall sentiment and volatility.
💼 Example
Let’s say it’s 10:15 AM and Bank Nifty is consolidating just below the day’s high, trading above both the 20 EMA and VWAP. A strong green candle breaks out of this range on the 5-minute chart with high volume. This is your entry signal to buy an ATM CALL option. Your stop loss is placed just below the breakout candle’s low. As the price continues moving upward, you trail your stop loss using the 5 EMA on the premium chart. You book partial profits at around 30%, and the rest at 50%, or exit fully by 3:10 PM, whichever occurs first.
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.
For more information, read our full disclaimer.