An innovative strategy to make money by trading bank nifty of India

All day traders in India love Bank Nifty. It is a very volatile index and is easily manipulated. Prices of a few banks decide the fate of the index. Any Tom, Dick and Harry could create a crash in Bank Nifty in a minute. The recoveries too are very quick. Thus, almost all traders are losers most of the time.This index does not obey technical analysis and prices move in a random manner.

To make money from this beast is not easy. The strategy I am posting below is meant for people with a business sense. Those who believe that day trading is a business should only attempt this strategy.

Most derivative traders have heard of Iron butterfly and Iron Condor. Those who have not must read my articles on LinkedIn before trying this strategy.

I am writing this article on 6/2/2024. It is a Tuesday. Weekly derivative contracts expire of 7th Wednesday.

The day of weekly expiry is a tricky day. Interested parties will steer the index to the required level at the end of the day. No one knows where the index will close.

This uncertainty creates volatility in the markets and option prices will be high.

For example Bank Nifty closed at 45690.8 on 6th.

Create an at the money (ATM) short iron butterfly for next week ending 14-2-2024. One needs below Rs50000 margin to execute the same.

Buy a 46000 call and 45000 put,

The call costs Rs450 and the put costs Rs215.

The total cost is Rs665.

After executing these trades sell a 45500 call and 45500 put.

Call can be sold at Rs728 and put at Rs 360.

The trader gets 728+360=1088

He gets a net premium of 1088-665=Rs423.

Usually he gets a net receipt near Rs400.

His maximum loss is limited to 500-423= Rs77.

This amounts to 77*15= Rs1115.

There are many possibilities here.

If Bank Nifty closes at 45500 on 14th (Expiry Day) his profit is 423*15=6345.

This is a rare outcome.

Most of the time Bank Nifty moves around 1000 points up or down during the week.As he has only Rs473 with him If bank Nifty closes more than 473 points above 45973 or moves down 473 points below 45500 trader loses Rs1115.

This is a small lose. As maximum loss is limited and known trader has no fear after executing this strategy.

But, he does not have to bear this lose.

There are two possibilities here.

1. Bank Nifty moves above 46000 one day during trading. The premium of 45500 call will rise to 728+300=1028. The premium of 46000 call will rise to 360+200= 560. These rates may change. It does not matter. Buy a 46500 call paying Rs 300. Cover the short position at 45500 and sell 2 calls at 46000.This creates a short position at strike 46000. The loss incurred on covering the short at 45500 is very limited. The trader has now shifted his position to a short call at 46000 getting Rs660. His net receipt is 560-300= 260.His position selling 45500 put and buying 45000 put yields him 360-215= 145. Thus he is in receipt of 260+145=405.
2. The traders has now created a short iron condor.Now he will have no loss if Bank Nifty remains below 46405 and 45095. If Bank Nifty rises 500 points more, the same steps cold be initiated. There will be no loss.
3. If Bank Nifty falls, trader should shift his position to 45000 to 44500.
4. A trader should never create other positions. It needs a lot of discipline to do that.The rates below belongs to 8th closing.Bank Nifty has crashed unexpectedly by around 1000 points.The short position of 45500CE now has a premium of 260.95. It was sold at 728 on 6th. This creates a notional profit of Rs467.05. 46000 call was bought at Rs450 on 6th. It closed at 127.15, creating a loss of -322.85.45500PE was sold at 360 on 6th. Its price rose to 650.25. This results in a notional loss of -290.25.45000 put was bought at 206. It closed at 389 creating a profit of 183The net result is 467.05+183-322.85-290.25=36.95.It can be seen that a crash of 1000 points in Bank Nifty did not create any loss.
5. On 9th Bank Nifty may fall further in the morning. The trader can then cover his 45500 put after buying a 44500 put. He sells his 45000 put and go short again at 45000. He can do that by selling 30 puts at 45000 strike.

As expected Bank Nifty fell below 45000 on 9th. Therefore 45500 put was covered at 730 creating a loss of 730-360 =370. 45000 put which was bought at 389 on 6th was sold at 423. This created a profit of 423-389=34. The call at 45500 sold at 728 has a premium of 266. It has a notional profit of 728-266=462. The call at 46000 bought bought at 450 has a premium of 127. This produces a notional loss of 450-127=323. The net is (462+34+127)-(370+323)=-70. It can be seen that the maximum loss has not increased even after a fall of around 1000 points.

Next step is to create a short iron condor.

A 45000 put was sold at 423. A 44500 put was bought for Rs 227. This produces a net 423-227= 196. The trader has a net receipt of 728-450=278 from his call spread.

His total receipt is 278+196=474. His maximum loss is now limited to 500-474=Rs26. He incurs a loss of 26 only if bank nifty falls below 44500 +16=44516 or above 45000+474=45974.

It can be seen that the trade has become safer.

The End of the day rates on 9th is given below. Bank Nifty recovered and closed above 45600.

45000 put sold at 423 in the morning has now traded at Rs104.95. This results in a notional profit of 423-104.95=318.05

44500 put bought at 227 in the morning has a premium of 49.50. This results in a loss of 177.50.

The call at strike 45500 sold at 728 on 6th now trades at 508.7 resulting in a profit of 728-508.7=219.3.

The call at strike 46000 bought on 6th at 450 has a premium of 230. This results in a loss of 220.

Net premium with trader is (318.05+219.3)- (177.5+220)=139.85.

This is a profit of 140*15=2100. Brokerage may be Rs600. The net is Rs1500.

Now there are 3 more trading days. There is no risk in continuing with the trade.

The trade is safe till Bank Nifty moves above 45974.

When Bank Nifty moves above 46000, buy a call at 46500 and the trader can cover 45500 call and sell two 46000 call.

It can be seen that Bank Nifty moved down from 46000 level to 45000 level and is now trading near 45600.

Here volatility has no effect on the trader.

Let us keep the position till expiry. There will be no loss.

Opening rates on 11th at 9.35 AM are given below

45500 call sold at 728 now trades at 412. This produces a notional profit of 728-412=316

46000 call bought st 450 now trades at 150 creating a loss of 300.

45000 put sold at 423 now trades at 105 creating a profit of 318.

44500 put bought at 227 now trades at 58 creating a loss of 169

The net comes to (316+318)-(300+169) =165.

This is profit of 165*15=2475.

It can be seen that there was no loss so far.

Let us see what happens the rest of the time.

On 12th Bank Nifty closed 752.30 points down.This was a surprising fall of 1.65%

45500 call sold at 728 closed at 105.5. This produced a profit of 728-105.5=622.5

46000 call bought at 450 trades at 38.65 creating a loss of 450-38.65=411.35

45000 put sold at 423 trades at 375. This produces a profit of 423-375=48

44500 put bought at 227 trades at 160.05 creating a loss of 227-160.05=66.95.

The net is (622.5+48)-(411.35+66.95)=192.2.

This is a profit of 15*192.2=2883.

The rates at 9.50 AM on 13th are given below

45500 call sold is trading at 135. It was sold at 728. This position now has a notional profit of 728-135=593

46000 call bought is trading at 40.90

It was bought at 450 creating a loss of 409.1

45000put sold at 423 is trading at 240. There is a profit of 423-240=183

44500 bought at 227 is trading at 95 creating a loss of 227-95=132

The net is (593+183)-(409.1+132)=234.9

The closing prices on 11th is interesting

45500 CE sold at 728 traded at 196.90. It produces a notional profit of 728-196.90=531.1.

46000 CE bought at 450 traded at 38.10. This creates a loss of 450-38.10=411.9

45000 put 423 traded at 62.2. This gives a profit of 423-62.20=360.8

445000 put bought at 227 is trading at 23.4. This creates a loss of 227-23.4=203.8

The net is (531.1+360.8)-(411.9+203.8)=276.2. The profit is 276.2*15=4143

Bank Nifty opened 500 points down on 14th

45500 call sold at 728 trades at 20 creating a notional profit 708

46000 call bought at 450 trades at 6 producing a loss of 444.

45000 put sold at 423 trades at 220 giving profit of 203

44500 put bought at 227 trades at 53 giving a loss of 174

The net is (708+203)-(444+174)=293.

One can book profit here and initiate positions for next week ending on 21-02-2024.

The profit booked is 293*15=4395. Brokerage needs to deducted.

We had very volatile week. But there was no loss on any day.

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