Options trading strategy of an expert trader interviewed in moneycontrol.com

[Babul]

The preparation for my trading starts a night before. Since I mainly trade in indices, I look at the Nifty and the Bank Nifty charts on various timeframes at hourly, 5 minutes and 15 minutes to give me an idea of the short term trend.

I then go through scenario planning, keeping ready my action plans based on various scenarios. If for instance, I get a trend wrong and the market moves in the other direction, I will have a Plan B ready to tackle the situation.

If by looking at the charts I expect the market to rally the next day, I will be ready with the Put strikes which I will be shorting, keeping in mind the support levels. I will enter the trade when the charts agree, with a stop loss below the support line, depending on the timeframe I am trading on.

Now if the stop loss at the support level is hit, I will trade according to the back-up plan or Plan B. This way I am ready with a plan to act upon the situation, rather than react to it, which helps to avert a panic decision.
Now that the market has taken me out of the long position and if it is falling on good volumes, I will be selling call options keeping my stop loss at the same support level, which now acts as a resistance level.

While trading intra-day, I trade based on price action. Various setups are there depending on the market condition. I also use some overlays on my chart like VWAP (volume weighted average based price), volume, 20-period exponential moving average (EMA) for trailing my trades and the 200-period EMA for support and resistance. At times, I also use open interest.

The important levels to watch out for are the previous day's VWAP close and the previous day's high and low levels. I trade based on how price behaves around these levels.

The chart below of August 31, 2020, explains how I trade based on price actions and the levels lust mentioned.

For overnight trades when the market has moved up sharply, I am ready for it to consolidate. This is the time when I trade by selling Straddles (call and put options of the same strike) and Strangles (OTM call and put options).
But if the market stays range-bound for 3-4 days, I get cautious and prepare myself for a breakout from the range on either side. I will be ready to cut my loss-making trade and add more in the direction of the trend.
As an option seller, it is important to know when to use which strategy. One cannot trade with a one-strategy-fits-all scenario

Q: Can you tell us about your trading statistics and drawdowns?

A. An option seller always has a good win-loss ratio as time plays in favour of the option seller. The problem area is the average win to average loss, which is where the discipline of keeping a hard stop comes into play.