Optimized “920 Straddle Strategy” To Get More Than 80% Return Annually
The goal was to modify few parameters of the “9:20 AM Short Straddle” strategy so that the V, N and M shape movements in market could be avoided.
If you are from India, you might have heard the famous 920 Straddle strategy used by many traders to earn consistent return year on year. In this strategy, we sell ATM call and put every day at 9:20 AM with a fixed stop loss (generally 25% or 30%) on both the legs.
However, this strategy stopped working after the 2020 crash as the market has become more volatile and stop loss of both the legs are hit most of the time due to V, N or W shape recoveries.
I optimized this 920 Straddle strategy to fit in every market condition. The logic behind this optimization are as follows:
- On Mondays, the market is mostly trending. We want to take advantage of this trending day. So, putting a smaller stop loss will give you full advantage of trend. One leg will cutoff early while the other leg will keep adding in your profit. The optimum time of entry and stop loss which I got are 9:30 AM and 15% respectively.
- Rest of the days are range bound or slight trending. We want to capture the theta decay on rest of the days. To get theta decay and to avoid V, N or W shape recoveries, I tried putting larger stop losses. After trying many stop losses, the optimum number I got is 70%. Also, the optimum entry time is 9:18 AM. This entry time will give us larger premiums as the market is very volatile in starting phase.
The exit time is 3:15 PM for both the conditions.
We will now see the backtested results for this strategy. For back-testing, I have used Algotest platform and Bank Nifty instrument. The first image is about statistics of the backtesting for the last five years. The average capital requirement for this strategy is 0.9 lakhs.
As you can see that the overall profit is 5.34 Lakhs in Indian Rupees which is 593% of the capital. The profit has not been re-invested in this backtesting. Otherwise, the return would have been much higher.
The win rate is 69% which is quite good. The max drawdown is 17000 Rs approximately.
The equity curve is always up-trending despite market crashing or up-trending.
If we see the monthly break up of profit, only 9 months were in loss and that too not big.
I hope this research will help you in gaining consistent monthly return on your capital. These returns are much more than what you get on Mutual Funds or any other investments instruments.
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Backtesting platforms: Algotest. It provides 25 credits each week for free to backtest the strategy. They charge only 1 credit for a backtest of any duration.
