Trend credit spread

An iron condor bets the index stays in a range. This bets on only one side of it, the side the trend is already favouring. When NIFTY has been rising, it promises the index will not fall below a level well under today's price. When NIFTY has been falling, it promises the opposite.

Like the condor, the promise comes with insurance, so the worst case is a known figure. Unlike the condor, it has a view: it wants the trend to continue, or at least not reverse hard.

It reads the trend from two averages. When the 20-period average of the index is above the 50-period average and the ADX says the move has some strength, it treats the trend as up and sells a put spread: a put sold below the index, and a cheaper put bought further below as insurance. In a downtrend it sells a call spread above the index instead. It never holds both.

The index can rise, drift, or fall a little, and the spread still expires worthless and the premium is kept. Only a fall past the sold strike costs money, and the bought strike puts a floor under that cost.

Illustrative prices with NIFTY at 24,000 in an uptrend, three days before expiry, one lot of 75 units.

Sell the 23,700 put

collect ₹38 a unit

Buy the 23,500 put

pay ₹18 a unit

Net collected

₹20 a unit, ₹1,500 a lot

Most it can make

₹1,500, if NIFTY ends anywhere above 23,700

Most it can lose

₹13,500, if NIFTY ends below 23,500

Break-even

NIFTY at 23,680

The worst case is nine times the best case, which looks alarming until you remember how often each happens: the index has to fall about 1.3% in three days for the trade to lose anything at all. The strategy also leaves well before the full loss, when the sold put's delta reaches its exit level.

These are the real rules, in the order the strategy checks them. Nothing here needs you to be watching.

1. 1

   Takes the profit early

   Closes once it has earned a set share of the premium, a little over half, rather than holding for the rest.

2. 2

   Leaves when the sold strike comes under threat

   If the sold option's delta reaches the exit level, the index has moved against the trade and it closes, well before the insurance strike.

3. 3

   Stops when the premium doubles

   If buying the spread back costs twice what it collected, it buys it back.

4. 4

   Stops trading for the day after a set loss

   A daily loss cap, a small percentage of your account, ends trading for the session.

5. 5

   Closes everything by 15:10

   Nothing is carried overnight.

Adjustments, and why it does not make them

The classic adjustment is to add the other side when the trend reverses, turning the spread into an iron condor, or to roll the spread down and out. Both add exposure to a trade that has just been proven wrong.

This robot does neither. It closes, and if the trend has flipped it will sell a spread on the new side at the next clean entry, as a new trade with its own risk cap.

Each strategy comes as conservative, balanced and aggressive. They share the idea and differ in how much they risk once in.

• The loss cap is real but large next to the premium. A run of three or four losing weeks can erase months of small wins; the exits exist to make full losses rare, not impossible.
• Two legs, so charges are lower than a condor's but still a meaningful share of a ₹1,500 credit.
• Needs margin, though less than an open-ended sale, because the insurance leg limits what the broker has to cover.

Premium

The price of an option. A seller receives it up front and keeps it if the option expires worthless.

Strike

The index level an option is tied to. A 24,000 call pays its owner only if the index finishes above 24,000.

Expiry

The day an option stops existing. NIFTY and BANKNIFTY have weekly expiries, and these strategies use the current week's.

Lot

Options trade in fixed bundles. One lot of NIFTY is 75 units at the time of writing, so a ₹40 premium is ₹3,000 per lot. Check your broker for the current size.

Delta

Roughly, the chance an option finishes in the money. A 0.15-delta option is about 15% likely to; the lower the delta, the further from today's level the strike sits and the smaller the premium.

Implied volatility (IV)

How big a move the market is pricing in. When IV is high, options are expensive, which is when selling them pays best.

Margin

Money your broker blocks while you hold a sold option, because you may have to pay out. It is returned when the position closes.

EMA

An average of recent prices that leans towards the latest ones. Price above its EMA is drifting up; below, drifting down.

ADX

A number from 0 to 100 that says how strongly price is trending, in either direction. Below 20 is drifting sideways; above 25 is a trend worth following.