Bank Nifty Expiry Day Trading Strategy

An expiry day trading strategy for BANKNIFTY →

Hey there 👋🏼

Today in less than 5 minutes:

1) The power of theta decay
2) A BANKNIFTY trading strategy for expiry days
3) Example trade

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The power of theta decay

When you buy an options contract, you're essentially purchasing the right to buy or sell a stock at a certain price by a certain date. Just like the refundable amount on a canceled flight decreases as the flight date comes closer, options also lose their value as their expiry date nears.

This happens because of theta decay.

💡 Theta decay is the phenomenon of the value of an option decreasing as time passes and expiration approaches. This decay happens because as time goes on, there's less time for the stock price to move in a way that would benefit the options holder.

And this presents an excellent trade opportunity, especially for expiry days 🤩

Let’s learn how ↓

Bank Nifty Expiry Trading Strategy

Profiting from theta decay

Theta decay can be particularly useful on expiry days for option sellers. As options approach their expiration date, theta decay accelerates, meaning the rate at which the option loses value increases.

Selling an out-of-the-money option can be particularly useful since their theta decay is rapid, losing value as the time to expiry runs out.

Let’s learn a BANKNIFTY expiry day strategy that is based on the same logic.

The strategy

We will be using the following indicators & time frame for this strategy:
- Supertrend (ATR length: 10; Factor: 2)
- Parabolic SAR (default settings)
- Time frame: 15 minutes

You can find these indicators on TradingView, a freely available charting software. Learn to make the most of it with our How to Use TradingView course, a full guide on how to use multiple tools to draw on charts and build your trading set-up.

Here’s how we will enter and exit a trade using this strategy:

LONG TRADE

1) First, the Supertrend indicator should turn green, indicating bullish momentum.

2) There should be a confirmation from the Parabolic SAR. In this case, the dots should form below the candles.

3) Once the trend is confirmed, sell a put at a strike price that is nearest to the recent swing low.

4) The Supertrend can act as a trailing stop loss.

5) Wait till a 1% profit is made, stop loss is hit, or the option expires.

SHORT TRADE

1) First, the Supertrend indicator should turn red, indicating bearish momentum.

2) There should be a confirmation from the Parabolic SAR. In this case, the dots should form above the candles.

3) Once the trend is confirmed, sell a call at a strike price that is nearest to the recent swing high.

4) The Supertrend can act as a trailing stop loss.

5) Wait till a 1% profit is made, stop loss is hit, or the option expires.

This is an intraday strategy, and can be deployed on a 5-minute time frame as well.

Read on to see an example of this strategy deployed on 21st Feb 2024, which yielded a profit of ~1%!

Starts 18th March
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Ask us anything!

Do you have any doubts related to this strategy, or want to learn something else? Reply to this email & let us know!

Example on BANKNIFTY

Here’s an example of the strategy playing out:

On 21st Feb 2024, a short signal was generated (bearish Supertrend and confirmation by Parabolic SAR) at 10:15 a.m. Selling a call at a strike price as per the strategy (47,400) yielded a 1% gain within a few hours.

Expiry day trading strategy for other indices

This combination of indicators is most suited for BANKNIFTY call and put options. However, strategies exist for other indices as well. If you are interested in knowing expiry day strategies for other indices as well, then reply to this email by saying “EXPIRY DAY” and we’ll release another expiry day strategy soon!

Note that we are not SEBI-registered advisors and none of the above trades are intended as recommendations. Do your own due diligence before trading/investing.

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