Reports of the death of 920 Short Straddle are greatly exaggerated

F&O
1

I wrote a Python bot to test some basic option strategies using 1-minute data. Here are the backtest results for a “dumb” Short Straddle in NIFTY for the month of December 2024. The bot sells the cheapest straddle at 9:20 AM and holds till 03:15 PM.

Date Expiry Entry Price (09:20) Exit Price (03:15) Net PNL
2024-12-03 2024-12-05 307.30 (145.30 + 162.00) 281.05 (187.55 + 93.50) 26.25
2024-12-04 2024-12-05 254.65 (108.30 + 146.35) 231.20 (92.90 + 138.30) 23.45
2024-12-05 2024-12-05 221.15 (101.50 + 119.65) 231.80 (231.35 + 0.45) -10.65
2024-12-06 2024-12-12 474.80 (236.85 + 237.95) 361.05 (182.95 + 178.10) 113.75
2024-12-09 2024-12-12 347.00 (157.25 + 189.75) 306.40 (101.95 + 204.45) 40.60
2024-12-10 2024-12-12 278.20 (120.20 + 158.00) 240.85 (91.30 + 149.55) 37.35
2024-12-11 2024-12-12 196.50 (96.50 + 100.00) 132.50 (87.00 + 45.50) 64.00
2024-12-12 2024-12-12 81.20 (33.45 + 47.75) 99.60 (0.15 + 99.45) -18.40
2024-12-13 2024-12-19 349.40 (166.85 + 182.55) 381.20 (328.30 + 52.90) -31.80
2024-12-16 2024-12-19 298.45 (125.80 + 172.65) 330.55 (102.80 + 227.75) -32.10
2024-12-17 2024-12-19 322.65 (139.35 + 183.30) 359.55 (38.00 + 321.55) -36.90
2024-12-18 2024-12-19 236.45 (109.35 + 127.10) 218.75 (31.05 + 187.70) 17.70
2024-12-19 2024-12-19 170.05 (69.20 + 100.85) 1.85 (1.20 + 0.65) 168.20
2024-12-20 2024-12-26 407.60 (203.30 + 204.30) 487.05 (57.60 + 429.45) -79.45
2024-12-23 2024-12-26 286.80 (138.90 + 147.90) 196.50 (86.75 + 109.75) 90.30
2024-12-24 2024-12-26 162.60 (67.20 + 95.40) 135.40 (48.85 + 86.55) 27.20
2024-12-26 2024-12-26 125.30 (62.50 + 62.80) 99.25 (0.15 + 99.10) 26.05
2024-12-27 2025-01-02 358.70 (160.40 + 198.30) 277.15 (119.00 + 158.15) 81.55
2024-12-30 2025-01-02 258.45 (110.15 + 148.30) 304.00 (62.05 + 241.95) -45.55
2024-12-31 2025-01-02 256.65 (113.20 + 143.45) 284.00 (192.95 + 91.05) -27.35

I called it “dumb” because it doesn’t look at anything other than the price and time for entry and exit. Still profitable days far outnumber the loss days and the losses are generally small and can be reduced if someone is actively managing the position.

Why do many people on YouTube or Twitter say that straddle isn’t viable anymore? Am I missing something here?

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2

I dont trade it, dont trade options, and have never tested it.

  1. Make sure to include costs + slippage estimate. Even if its very liquid, some slippage will be there because bar close prices are not real ( probably half the time). Its only one of B/A. Probably not a factor here, but just saying.

  2. People usually have a stop. Perhaps you found that it works without one, so test it with one or atleast with some kind of risk control.

  3. One month is very small sample. Check for last year, last 2 years at least to get initial idea on whether its working recently.

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3

is with 25% SL or 30% Sl?

only tested with Premium 100 Rs with 25% Sl, it works, very well but now days its problem with margin requirement,. so stopped to do Short straddle

4

No SL at all in this backtest. But most people would add SL or buy far OTM Call and Put to limit losses.

The margin needed for a near ATM Short Straddle (1 lot) for current week is around 2.4 lakhs:

Strike Type Qty Premium Span Exposure Total
23600.00 PE SELL 75 -12457.5 160621.5 35405.03 196027
23600.00 CE SELL 75 -16031.25 165506.25 35405.03 200911
TOTAL -28488.75 165506.25 70810.05 236316
MARGIN BENEFIT 160622

But this margin can be brought down to under 1 lakh if you make it into an Ironfly (which will also limit your losses as well as profits):

Strike Type Qty Premium Span Exposure Total
23600.00 PE SELL 75 -12457.5 160621.5 35405.03 196027
23600.00 CE SELL 75 -16031.25 165506.25 35405.03 200911
23300.00 PE BUY 75 5186.25 0 0 0
23900.00 CE BUY 75 6322.5 0 0 0
TOTAL -16980 22930.5 70810.05 93740.6
MARGIN BENEFIT 303197
5

In my own backtests, straddle works only in certain situations. Straddle alone is not a viable strategy, but together with various strangles (neutral, bullish, bearish) it’s good :100:

6

I don’t think these strategies are completely dead.

I trade options for a living (Mainly options buying). I’ve been back testing and then live testing a modified version of 930 strangle. It’s working very well for me. Now I’m getting it automated (I don’t know coding, so relying on others to code it for me) and plan to deploy the automated version from next week (Hopefully).

8

Small sample size, Clearly December looks like an outlier, suggest you check for entire year 2024 before coming to any conclusions, and another big miss is it’s entirely possible straddle double or triple during the day but by eod it may come back so can you handle such mtm swings

9

Backtesting always looks good on paper. If you really want to see how this will work out, is do it in real life. Or if you can create a bot to place and close orders, do that.

Reality is different.

That aside - always think in terms of percentage. How much %age you make on each trade. i.e. what is the risk reward ratio? How much is the %age win/loss rate.

Since ur not keeping SL, try how the percentages would change with an SL, and when you do this in real life, you’ll see things like SL Hunting happen.

Do this for 1 month, even better 3 months and share your findings here.

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