| Underlying | NIFTY Spot → Weekly ATM Options |
| Signal TF | 5-minute chart |
| Indicators | Bollinger Bands (20, 2) |
| Structure | Naked ATM short (CE or PE) with SL |
| Style | Intraday — squared off by 15:20 |
| Lot Size | 65 qty per lot |
| Max Trades | 1 per day |
| Stop-Loss | 1.5× entry premium |
1 Strategy Overview
A mean-reversion option-selling strategy on NIFTY. It waits for price to stretch beyond a Bollinger Band on the 5-minute index, then for a candle to close back through the prior candle's range (the reversal), and sells the ATM option to collect premium as the extreme fades. One trade a day, protected by a fixed 1.5× premium stop-loss.
2 Entry Signal (band pierce + reversal)
A two-step trigger-then-confirm on closed 5-minute candles:
- Standard Bollinger Bands: 20-period average ± 2 standard deviations of the 5-minute closes
- The first 5-minute candle (09:15–09:20) is ignored for signals
- One trade per day — after the first confirmed setup, no further entries
Bullish → sell ATM Put
A candle's LOW pierces the LOWER band (trigger). A later candle then CLOSES ABOVE the previous candle's high (reversal up). We sell the ATM Put.
Bearish → sell ATM Call
A candle's HIGH pierces the UPPER band (trigger). A later candle then CLOSES BELOW the previous candle's low (reversal down). We sell the ATM Call.
3 Exit Rules
- Stop-loss = 1.5× the entry premium → bought back if the option premium rises 50%
- 15:20 hard cutoff → squared off regardless of P&L
- The 1.5× stop is placed as a broker stop order the moment the short fills, so the loss per trade is bounded from the outset
4 Risk Management
- One trade per day — disciplined and low-churn, so transaction costs stay small
- Intraday only — no overnight risk; everything is closed by 15:20
- These are naked ATM shorts (no hedge) — margin ~₹1.75 lakh per lot — but unlike a stop-less strategy the 1.5× premium stop caps the loss on every trade
- Backtested across ~23 months with a near-symmetric CE/PE split (203 / 207), so the edge is genuine mean-reversion, not a one-sided directional accident
Backtest Results
410
Trades
54%
Win Rate
₹71,600
Net P&L (1 lot)
~₹1.75L
Margin / lot
~41%
Return on Margin
+₹9,831 / −₹9,274
Best / Worst Trade
⚠️ These are naked ATM option shorts needing full short-option margin (~₹1.75 lakh per lot, SPAN+exposure), so ~₹71,600 net over ~23 months is roughly ~41% return on that margin. Unlike a stop-less strategy the fixed 1.5× premium stop bounds the loss per trade (worst backtested trade −₹9,274). Hypothetical backtest on historical 5-min index + option data, with no slippage modelled, entries at the confirmation candle's close and the stop assumed to fill at the 1.5× level. The CE/PE split is near-symmetric (203/207), but backtested and past performance are NOT indicative of future results and are not a promise of returns. Options trading carries a high risk of loss. For educational purposes only — not investment advice.
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