The Option Selling Strategy That Needs 0 Adjustments | ft. Kundan Prajapati

Finance-focused summary (option selling / risk-managed, rule-based system)

Strategy overview (called “HAI” / High Net-worth Individual strategy)

• Position type: Positional option selling (holds positions longer than intraday; aims to avoid “adjustments”).
• Core claim: “Zero adjustments” and no chart analysis/data-driven discretion—a fully rule-based system with a predefined hold window.
• Market environment assumption: Focus is on managing gap risk (especially gap up/down) and volatility shocks (IV/Vega risk, IV spike; mentions gamma spike as an expiry-day risk).
• Return/exit framework:
  • Target: ~1% on deployed capital
  • Stop-loss: ~1% (emphasizes cut immediately if stop is hit; “no hope”)
  • Holding period: up to 5 days maximum; otherwise exit
  • Exit timing: example includes exiting at 3:00 PM on the exit day (or earlier if target/SL hits)
• Trading cadence: Weekly strategy
  • Entry day: Monday 9:45 AM
  • Expiry concept via DTE:
    • Mentions “8 DTE” meaning the option expires next Tuesday if entered Monday (i.e., not the current weekly expiry for that entry day).
• Position timing rule (strong):
  • If the trade doesn’t hit within the defined window, exit on rules and don’t trade until next Monday (mentions a ~3 days off concept in one place).

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Instruments / tickers / assets mentioned

• Index (primary): Nifty 50
• Other indices mentioned for possible variant testing: Bank Nifty, Fin Nifty, Sensex
• High-weight event weeks examples: Reliance, HDFC Bank, ICICI Bank
• Stock options: No specific single-stock option trades were detailed; mostly index-based option structures.
• Options structures referenced (context): Straddle, Strangle, Iron Fly, Iron Condor, Calendars

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Key risk issues the strategy tries to address

1. Black Swan / circuit-gap events
   • Defines “Black Swan event” as a day when the market hits upper circuit (~5% or 10%) and/or opens sharply (gap up/down).
   • Strategy aims to have lower exposure to such events.
2. IV spike (short vega problem)
   • As an option seller, IV spikes can inflate option premiums against the seller.
   • Strategy claims it works where there is no or very little IV spike risk (especially avoids downside IV shocks).
3. Gamma spike (expiry-day risk)
   • Mentions avoiding/neutralizing gamma risk by structuring the trade so that expiry-day “spikes” are not a problem (includes “last exit day” logic; Tuesday expiry mentioned alongside Friday-exit logic in examples).
4. Gap direction probability
   • States opening gap down probability is higher than gap up, so the design biases toward the call side being sold rather than the put side.

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Options structure (main “call ratio / ratio spread” concept)

• The HAI setup is a call-side ratio using strikes based on the spot level at entry time.

Strike selection rule

• Use a spot reference (example uses around ₹24,000 spot).
• Choose strikes ~200 points apart from spot.

Example with explicit legs (calls only)

• Buy 1 OTM call at ~200 points above spot
• Sell 3 calls at ~400 points above spot (call ratio 1 : 3)

Hedging / margin control via ratios

• Notes that pure 1:3 can create margin concerns, so it adds another layer:
  • Sells additional legs at a further strike so the effective exposure is hedged and margin becomes “fixed”.
• Emphasis: converts potentially unlimited risk into bounded risk (claims loss is fixed / max loss defined).

Why calls, not puts (explicit reasoning)

1. Higher gap-down probability → worst scenario aligns with put-side risk; selling calls is positioned to handle expected gaps better.
2. IV behavior with market moves: when market moves up, IV may drop; since the strategy is short vega-ish, a drop in IV helps the seller.

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“Ideal strategy” checklist (methodology criteria)

The presenter lists characteristics an “ideal” scalable strategy should have:

• Reduced risk of Black Swan events (circuit-gap days)
• Low IV spike risk (or IV free of spikes)
• Limited downside risk
• Reduced need for adjustments (to lower STT/fees impact)
• High Probability of Profit (POP)
• Consistent returns (avoid frequent small wins/losses that grind emotionally)
• Low screen time / low emotional stress (exit rules fixed)

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Target sizing / operational guidance

• No emotional trading: enter and exit strictly per rules.
• If stop-loss hits (~1%): exit immediately (explicit caution against waiting “hoping it comes back”).
• Weekend stress is addressed by rules:
  • Position management is described so it doesn’t create heavy stress over weekends.

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Performance metrics / backtest claims (numbers explicitly stated)

• Backtest sample: ~24 trades / 24 weeks (about half a year)
  • 22 profitable, 2 stop-loss hits
• Reported return: around 11% on ₹10 lakh, including the worst stop-loss outlier
• Worst-case outlier described:
  • Mentions ~₹53,000 loss (around 3rd Feb), linked to an upper-circuit open scenario of ~4.86%.
  • Claims even the stop-loss rule may not fully prevent loss due to gap/slippage and open behavior.
• POP / probability claims:
  • Example cites POP ~86%
  • Another example shows POP ~78%
• Max credit cap:
  • Strategy sets maximum credit around ~0.6%
  • Repeated emphasis: “max credit should be 0.6%” (not higher)
  • Mentions debit filtering: avoid trades when debit exists beyond acceptable levels.
• Max loss example given:
  • Mentions ~10.3% max loss in an upper-circuit open scenario.

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Explicit framework / step-by-step procedure (as stated)

Pre-checks (rule-based, “no-data” approach)

• Do not do chart analysis
• Do not adjust after entry
• Trade only when the max credit constraint is respected:
  • Max credit target ~0.6%
  • If conditions produce debit or insufficient credit, skip the week

Entry rule

• Monday 9:45 AM
• Use Nifty spot reference
• Pick strikes based on distance from spot (examples use ~200-point increments)

Position construction (call ratio concept)

• Buy calls at a defined OTM distance
• Sell multiple calls at higher strike distance(s) to create a bounded-risk ratio structure

Management rule

• Take profit: when +1% on deployed capital is reached
• Stop-loss: exit immediately at -1%
• Time stop: if not resolved within 5 days, exit
• No trading until next Monday (skip defined rest period)

“Worst-case thinking”

• Repeated emphasis on planning for the absolute worst gap scenario and sizing/eligibility so the portfolio survives it.

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Additional cautions / practical execution notes

• Stop-loss may not work on gap opens: emphasizes slippage and open-price effects (upper-circuit open example).
• Avoid “fat risk” strategies, especially on the down side (per their view).
• Debit weeks: avoid trades when credit constraints fail; implies some debit cases can degrade performance (mentions a “debit tolerance” threshold).
• Overfitting warning: notes testing/avoidance of overfitting in backtests.
• News/event no-trade windows: mentions skipping around major events like budgets and election results, plus weeks where large constituents have results.

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Disclosures / disclaimers

• Standard disclaimer included:

  “Investment in securities markets are subject to market risk. Read all related documents carefully before investing.”

• No explicit “not financial advice” phrase appears in the provided subtitles, but the end disclaimer is present.

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Key presenters / sources

• Kundan Prajapati (primary speaker/author of the strategy)
• Shashank / Shashank Bhai (podcast host/interviewer; participates in Q&A and prompts)