Near Expiry Range Analysis of Nifty

Trend is your friend until the end where it bends – Ed Seykota

And before bending, it remains in range bound for quite a time. Overall, the markets remain range bound for more than 75% of the time. Thus, plain Vanilla option Strategies like Short Straddles and Strangles may perform better in these range bound days.

The risk that we have in short straddles and strangles is that these strategies have unlimited risk. This means that if we do not manage risk, it will take only one or two trades to blow up our capital. Risk Management should be the sole purpose of the trader, Money comes as a by-product of good risk Management.

In this post, we will try to analyze Nifty range when it is near expiry.

Daily Range Analysis

We analyzed the daily range of Nifty in this post. I would recommend you to read that post in order to better understand this post.

Let us find out the probability of Nifty breaching 1% range on a daily basis from 2011 to 2019. We will also see if the Open to High and Open to Low range data supports this analysis or not.

ConditionsProbability
Range (High – Low) <= 1%49.79%
Range (High – Open) < =0.5%63.77%
Range (Open – Low) <= 0.5%48.39%

Range Analysis – Wednesday and Thursday

We know that Theta decay is maximum on the last two days of Expiry. Thus, it becomes very important to analyze how the above probabilities change when it is analyzed only on these two days.

ConditionsProbability
Range (High – Low) <= 1%51.76%
Range (High – Open) < =0.5%65.87%
Range (Open – Low) <= 0.5%48.57%

Range Analysis – Expiry Day

Thursday, being the expiry day has the highest theta decay among all the days. So let us find the probabilities on the expiry day itself.

ConditionsProbability
Range (High – Low) <= 1%49.08%
Range (High – Open) < =0.5%62.55%
Range (Open – Low) <= 0.5%49.08%

Conclusion

Form this comparative analysis, we can conclude that probability (though not by a heavy margin) of range less than 1% is more on Wednesdays and Thursdays. So, it is always better to trade non-directional strategies on Wednesdays and Thursdays rather than trading it daily or only on expiry day.

The Strategy

We, at MarketScanner have built TSS options strategy using the range analysis of Nifty.

The Strategy is backtested since the inception of Nifty Weekly options and we have been Forward testing it live for the last 4 months.

The strategy would be taught in the Webinar on 8th Nov, 2020. You can register for the Webinar right away.

Stay Tuned!

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About the author

Akshay Satpaise

Akshay Satpaise is an Electrical Engineer who loves data crunching. He has interests in personal finance, stock market and data analysis.

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