Is your 920 Straddle not working this year? Your trading system which did well in the past is not doing good this year? Your drawdown already crossed historical max drawdown this year? Thinking what really went wrong in the year 2022? Then check this detailed data analysis 🧵
This is the yearly returns of 920 straddle system. Enter at 9.20, ATM, 25% Stop loss on individual leg, exit by 3:20 pm. No targets, No TSL. A simple 920 system as example. This year has given the worst performance in last 6 years. Let's find out what went wrong.
Many assume that market regime changed, its due to high no of frequent gaps many trading systems are suffering, many believe that since more traders are using 920 straddle variation, it stopped working. So the basic complaint every one facing is "920 Straddle stopped working".
Before we dig deep on data analysis, let me share you a small story. During 1920-30s, General Motors launched a car model Pontiac. It was best selling at that time, people loved it. One day a customer raised a complaint that "My Pontiac car doesn’t like vanilla ice-cream"
Such a strange complaint, The car refused to start whenever he bought vanilla ice-cream. If it was any other flavor, there wasn’t a problem. Car starts without any issues, but whenever he goes to near by store to purchase Vanilla ice, car doesn't.
General Motors decided to send an engineer to his house anyway. Customer and the engineer went to the ice cream store together, first day they bought chocolate flavour and came back, customer tried starting the car, it started. No problem.
Next day, customer and the engineer went to the ice cream store together, second day they bought strawberry flavour ice cream and came back, customer tried starting the car, it started. No problem.
Third day, customer and the engineer went to the ice cream store together, this time they bought Vanilla flavour ice cream and came back, customer tried starting the car, it did not start. Now the engineer himself is shocked to see how can a car be allergic to Vanilla Ice cream.
But Engineer can't accept it, he wanted to approach this problem logically. So he wanted to collect as many data points as possible to find the root cause of this issue. So he collected all data related to this incident,
at what time he goes to the store,
how long it takes to buy the ice cream
what's his fuel tank level
how frequently he visits the store
Every single data related to the customer car was collected for next 30 days and he started analysing it.
how long it takes to buy the ice cream
what's his fuel tank level
how frequently he visits the store
Every single data related to the customer car was collected for next 30 days and he started analysing it.
Finally after many days of research, he found the solution. Whenever the Customer goes to the store to buy ice cream, it takes more time to come out of the store when he purchases Chocolate n Strawberry flavour but when he buys Vanilla flavour it takes less time.
Vanilla being best seller, the store keep it ready most of the time, other flavours they need to prepare it and give it to customer. Because of which he restarts the car in less time interval. This time duration causes Vapour lock in this car model, due to which it fails to start
Even though the complaint looked ridiculous initially, after a detailed data analysis, General Motors was able to find the root cause of a very big problem and able to fix it. That's the same approach we need are going to follow when we say 920 straddle stopped working.
Here's the historical VIX data, day wise from 2017 to 2022. The average VIX value is mentioned below. Year 2017 has seen the lowest VIX and year 2020 has seen the highest VIX level. But 2022 was neither at extreme low nor at extreme high. Throughout it was hovering at 20 levels
Here's the historical Straddle premiumdata, day wise from 2017 to 2022. The average straddle (cep combined) value is mentioned below. Year 2017 has seen the lowest and year 2020 has seen the highest premiums. This year average premium wasn't bad at all, in fact its second best.
When does the stop loss gets hit most of the time? Data shows that historically most of the time, stop loss gets hit before 10am. More than 50% of the time, one leg hits SL during the 1st hour of trading session.
So does it mean, this year 920 straddle not doing well because stop loss is getting hit very frequently? No, not really. Here's the data that shows no of stop loss hits on day wise. Thursdays are the days where stop loss gets hit frequently than all other days.
When we analyse gap days, we found that gap days are good for 920 straddle systems. When day open is greater than prev day high or low, it makes good returns. But day open is in between prev day range, then those days are not profitable. Non gap days has given loss of -40k
If we check volatility, High-low doesn't give you true picture. You need to check Day open to Day high, how much it has moved up from day open, shows volatility on up side, Tuesdays average move is the highest in year 2022. BankNifty moved up most of the time on Tuesdays
Similarly You need to check Day open to Day low, how much it has moved down from day open, shows volatility on downside side, Thursdays average move is the highest in this year. That's why BNF expiry trading has become lot tougher, because most down moves occurred on Thursdays
Check Day open to Day close, it shows us if the day has closed on trending upwards or trending downwards. If market closed almost near the day open level, kinda dojo pattern, it shows lack of momentum. Surprisingly this year has seen the lowest average move on day open to close
So this year, on most of the Tuesdays it moved up on the higher side and on Thursdays moved down on the lower side, but ended up closing flat on most of the days without any momentum. When there is lack of intraday momentum, any strategies that lies on directional move fails.
This data shows clearly Tuesday has been the worst day for this year 2022. If we exclude Tuesdays, it would have been a positive returns. Last year Friday was the worst year.
The plain 920 BNF straddle system has been underwater since Feb 2022, with a max drawdown of -40K. But if we ignore Tuesday, the drawdown has been reduced to half. What's special about Tuesdays this year? Answer lies in FINIFTY.
In Jan total traded value of FINNIFTY was just 4k crores, but by Oct, it surpassed both Nifty & BankNifty, becoming the highest traded derivatives on Tuesdays. Rise of FINIFTY expiry traders could be one of the reason for bad returns of 920.
The main cause of concern for bad performance of most of the option selling systems are due to lack of proper intraday movement & the BankNifty behaviour on Tuesdays is changing due to FINNIFTY. So build a profitable FINNIFTY expiry system n trade it together with 920 straddle.
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