“In this world nothing can be said to be certain, except Death, Taxes & Theta Decay” – Vishal Mehta
Directional Option Selling (DOS Strategy) is one of the few strategies that has been consistently giving great results since the time we started to run it live in our portfolio of strategies.
With the sole aim of helping the Trading Community get acquainted with Systematic Trading, MarketScanner teamed up with ElearnMarkets to open source this Trading strategy.
You can go through and watch the rules of the strategy in the YouTube video below.
DOS Strategy FAQs
Q : Can it be used in Nifty rather then BNF ?
A : When you develop a system, understand the characteristics of strategy and instrument. BNF is more trending then Nifty as it encompasses only banking stocks. Having said that you can apply it NF but do back test before trading.
Q: Should I follow BNF Spot or Future?
A : We follow Future price and not Spot price on both days.
Q : Why Martingale? Is it not dangerous?
A: Martingale in stock is very dangerous. Here we are doing on options, intraday, wed/thurs because there is continuous theta decay and when you reach 3rd trade theta decay could be at peak and that’s why it gives benefit
Q : How should I trail my stop loss?
A : There are 2 stop losses you need to have 1 fixed and 1 trailing . Fixed stop loss will be in system depending on day of the week say on Wednesday it can 50% of premium sold and 100% premium on Thursday and other one is Supertrend (10,3) which is trailing so once Supertrend value is below your initial fixed stop loss use SuperTrend Trailing. Let there be close above SuperTrend in option chart. You can close the position and remove the fixed stop loss
Q: I am worried there could be a big spike above Supertrend in option chart but does not close above what should I do?
A: First of all there is risk in everything but if you are not comfortable with big spike in option premium, you can put 10 point above super trend value as trailing but it’s not back tested yet so trade on your discretion but if you are out of position you can use low of the candle where you got stopped out for reinitiating of the trade.
Q: How do I increase my quantity in Martingale?
A : You need to increase your lot size bu initial lot. Mean if you start with 1 lot then you should follow 1-2-3 and if your initial lot size was 3 then you can 3-6-9
Q: What will be the margin required to trade this strategy?
A: You will need margin for 5Lac so you will need at least 5 Lots for 1 set that’s around 3.30 Lac with Margin Benefit
Q: What if there is a reversal in BNF SuperTrend but not in option?
A: You will need to continue with your position till there is no close in Super Trend of option chart and some time specially on Thursday you will have 2 position running simultaneously
Q: Can this strategy run for overnight Algo?
A : We have not back tested it so really can’t comment on it
Q : Can I run the same strategy on stocks?
A : As we are running this strategies near expiries you may run a risk of options becoming in the money and that dangerous as you will either need to give delivery or take delivery
Q : When would you close the position?
A : If no stop loss is hit then 3.15 PM before the broker squareoff timings for MIS position
Q : Why are you closing your position at 70% on Wednesday and 100% on Thursday?
A : Because Option decay on Wednesday can not go to 0 so it make sense to book at 70% but on Thursday all OTM expire 0 and hence we keep it till 100%
Q : Should I wait for candle close above SuperTrend on Option chart for trailing or just touch will trigger?
A : We wait for the close.
Q: Why there is a strike price difference between your trades and my trades?
A : There are few reasons for this:
1) ChartIQ and Trading View Charts SuperTrend Varies
2) We have coded SuperTrend in Java so there could be small difference (we nearly match with Chartiq)
3) Even in ChartIQ, it might vary from Broker to Broker
Q : How can I automate your strategy?
A : We are soon launching our own product called Discipline Trader to help automate this strategy.