Thread by @GordunGekko

Friends,
Did some number crunching on excel using the last 10-year data of #Nifty and #BankNifty. What I found out is that, if you take any 5-day period (I mean, any... not necessarily Monday-Friday or Friday-Thursday...take any combination, but it should be consecutive 5 days)

then, #BankNifty gives an average move of ~4% from high to low (meaning, high of that 5-day period to low of that 5-day period). This is the "average" move over last 10 years. The maximum has been (and this will blow your mind) 33% 😮 and minimum has been 1%. See table below

In the above table, there are 2 columns. High-Low means from high point (of any 5-day period) to low point (of any 5-day period). Similarly, the second column shows the same data, but instead of high-low, it looks at only the daily close - daily close (during that 5-day period)

The same data for #Nifty is below.

My real objective was to look at BankNifty data, because that is the more volatile index. I looked at Nifty just for the sake of completeness, since many of you would have asked, "then, what about Nifty?".

So, coming to the point, what's the purpose of doing all this analysis?

The point is, if you have an index (and more importantly, something which has sufficient liquidity in options), which, on an average, gives ~4% move during any 5-day period, and in more than half of the cases, even greater than 4%, then why shouldn't we explore a strategy

benefiting from such big volatility??

Therefore, I am just trying to do an experiment. I have not backtested this. But I am trying to see how this strategy performs in real-market, for which I am planning to trade with very small quantity (since, this is an experiment, and I may

fail, so, why not lose only a small capital on it.

So, basically, the strategy is that I will buy a straddle of next week expiry (not the current week which is going on, but the next one). The reason for buying next week is that, given the risk of theta decay, I want to have

sufficient days at my disposal. When I do next week, then, at minimum I have 7-10 trading days left. Now, here's where our analysis helps us. We know that, in any 5-day period, BN gives a large enough move (on average 4%, but sometimes much more, sometimes less).

By buying next week straddle, we definitely have more than 5 trading days with us, so we are reasonably certain that we will get a big move in these 5 days, all we have to do is wait. Sometimes the move will come immediately, the very next day, sometimes after 2-3 days, sometimes

on the 5th day.

When to exit the long straddle ?? Get out as soon as you see 100-point profit on the straddle.

In my view, it should not be too difficult to get a 100-point profit. Typically, a 500+ point move on Day 1, or a 700+ point move by Day 2, or 800+ point move by

Day 3, or a 1000+ point move by Day 4 should be enough for you to get out. These are rough estimates. May vary slightly depending on VIX etc.

You don't need to do any excel analysis to figure out that such types of moves are nothing uncommon for BankNifty.

So, as I said, we are not here to wait till expiry. Buy a straddle, get out as soon as you have 100+ point profit, and keep repeating.

I have a feeling this strategy should work. But, I won't trust my feeling. Hence, trying to first test it out with very small capital and then

see.

If any of you have any more insights on this, or already doing something similar, or have done any research on this, please share.

Thanks
GG