A Simple Option Trading Strategy With 98% Win Rate This strategy is based on statistical data and can be used to generate an average return of around

A 100% winning strategy is not possible in share market. However, we can increase our winning probability by applying right strategy at right time based on right information. I will give you the backtested result of last two years where, by trading weekly options, you can make around 40% returns annually with 98% win rate.

For backtesting, I took the post Covid data as the market was normal. This strategy will not work for Covid like crash which happened in 2020.

So, let’s start with the strategy description first. Later we will see its limitations.

Strategy This is a simple option selling strategy which has to be deployed just for three days in a week. It starts two days before the weekly expiry and last till the end of expiry. I will take India’s example where I will be using Bank Nifty index options.

As many of you might be knowing, an index remains in a certain range in a week. The Bank Nifty index remains in the range of 3–4% in a week more than 90% of the time. I utilized this information to test my strategy.

In India, the weekly options expire on every Thursday. So, the trade will start at 9:30 AM on Tuesday and will end at 3:15 PM on Thursday.

At 9:30 AM on Tuesday, we have to sell a call and a put which are 1700 strikes away from the spot value. So, if the Bank Nifty is trading around 34000, we have to sell 32300 put and 35700 call. If the market remains in the range of 32300 and 35700 till the expiry, then we get the maximum profit equal to total premium received. Let’s directly go on the backtested results. For backtesting, I have used Stockmock platform.

Results First, we will see the statistics of the results. The total capital deployed on this strategy is around 1.3 Lakhs.

Statistics of option strategy As you can see, the winning rate is very high. Only 2 losses in last two year. The expectancy of 1.17 is considered very good in any strategy. It will ensure you fast accumulation of profit.

Till October 2022, we have generated around 90% return which is much higher than any investment instruments. Now we will see the monthly breakup and equity curve of this strategy.

Monthly breakup

Equity curve As you can see, there is not a single loss month in this strategy in the last two years. Last year, it generated around 50% return, while this year, it has generated around 40% return till now. The equity curve is also very smooth.

However, it will not work in Covid like situations when market used to move 3–4% in a single day. You can stay away in these situations.