Navigation Bar

The AlgoShot dashboard features a sleek and intuitive navigation bar, designed to seamlessly adapt to both desktop and mobile devices. In desktop layout, a left sidebar offers easy access to different sections, while a bottom-bar simplifies navigation on mobile devices.

Backtest Screen

AlgoShot provides a powerful backtesting tool, equipped with user-friendly filters and customizable parameters to help you evaluate trading strategies efficiently. Once you initiate a backtest, it leads you to the backtest result screen.

Backtest Reports Screen

On the backtest reports screen, you can view and analyze all your backtest results in one place. This page allows you to compare different backtest outcomes, providing valuable insights for refining your strategies.

Strategy Screen

The strategy screen serves as your central hub for tracking and managing both live and paper trading strategies. Monitor trades, analyze performance, and gain valuable insights to optimize your strategy execution.

Results Screen

The results screen gives you a comprehensive view of quarterly performance. Filter through results and make informed decisions to stay ahead in the market. Stay tuned for upcoming advanced features on this screen.

With these key features, the AlgoShot dashboard empowers you to transform ideas into actionable strategies and navigate your trading journey with ease. Let’s get started and make your trading smarter!

Note: Certain advanced features and detailed functionalities are exclusively available in the desktop layout. For the best experience, we recommend accessing the dashboard on a desktop device.

What is a Short Straddle (9:20)?

Imagine trying to profit from market calm. A short straddle involves selling both a call option and a put option at-the-money (ATM), capturing premiums from both sides. If the market doesn’t move much, both options lose value, leading to profits.

The 9:20 a.m. entry refines this by targeting the morning's initial market action. By this time, opening volatility has subsided, providing an optimal moment to capture premiums and let time decay do the heavy lifting.

For this analysis, we tested the strategy on BANKNIFTY and NIFTY indices, two of the most traded instruments in the NSE options market. Each offers unique characteristics:

• BANKNIFTY: Known for higher volatility, leading to larger premiums but also higher risks.
• NIFTY: Relatively stable, offering a more predictable environment for straddles.

What Did the Data Reveal?

Let’s dive into the backtested results from the past five years. Here are the highlights:

Banknifty Year Wise Key Metrics

Nifty Year Wise Key Metrics

Trends Observed

It can be seen that win rate decreased substantially in 2023. This could be explained by low premium resulting from low VIX in 2023.

Insights for Today's Traders

• Volatility is the Key to Success: The profitability of the short straddle strategy hinges on market volatility. High premiums are essential for this strategy to thrive, and periods of elevated uncertainty—like elections, the COVID-19 pandemic, or other major events—often create ideal conditions. However, the inherent unlimited loss potential means that systematic execution with proper stop-loss measures is non-negotiable to prevent catastrophic losses.
• The Power of Expiry Day: Thursdays, the weekly expiry day, have historically been the most profitable during periods of high volatility due to faster premium decay. Interestingly, in low-volatility environments, Thursday performance lagged behind other trading days, making it less attractive.
• Fine-Tuning Risk Management: Using independent stop-losses for each leg (call and put) consistently outperformed strategies relying on a combined stop-loss. This nuanced approach ensures better risk control and reduces the likelihood of premature exits.

Conclusion: Has the Edge Faded?

While the Short Straddle (9:20) showed signs of weakening performance in 2023, it remains a viable strategy under the right market conditions. The lesson is clear: the strategy isn’t dead—it’s adaptable. By aligning with periods of high volatility and employing disciplined risk management, traders can continue to unlock its potential.

👉 Ready to explore this strategy? At AlgoShot, you can backtest, paper trade, and live-deploy strategies with precision. Sign up today and take control of your trading journey!

Glimpse Into History

Did you know options trading has its roots in ancient Greece? That’s right—philosopher Thales famously used options to profit from olive oil production, proving the concept’s timeless appeal. Fast forward to modern India, options trading took off after equity derivatives were introduced in 2001 on the National Stock Exchange (NSE). Today, the NSE is a global giant, and options are among its most popular instruments. From a philosopher’s calculated gamble to a cornerstone of modern finance, options trading has come a long way.

Types of Options

Options come in two main flavors:

1. Call Options: The right (but not the obligation) to buy an asset at a fixed price before a set date.
2. Put Options: The right (but not the obligation) to sell an asset at a fixed price before a set date.

In India, options operate under a European-style framework, meaning they can only be exercised on their expiry date. These versatile instruments are tied to stocks, indices, and even commodities.

Why Options Are Game-Changers

Options aren’t just another trading tool—they’re the Swiss Army knife of finance. Here’s why:

1. Risk Management: Like a safety net, options let you hedge your bets. For example, a put option can shield your portfolio from a market downturn.
2. Leverage: Gain exposure to large positions with minimal capital. Options amplify your trading power without needing deep pockets.
3. Income Generation: Advanced traders often sell options to earn premiums—turning strategy into steady cash flow.

Making Sense of Options: A Real-Life Analogy

Imagine options as a form of insurance. Suppose you own a ₹10 lakh car and pay ₹20,000 for insurance. If your car meets an accident, the insurer compensates you. That’s essentially what a put option does for your stocks—it protects you from losses.

Now picture this: You spot a gold ornament at ₹50,000 and believe its price will skyrocket. So, you pay a small fee to lock in today’s price while deciding later if you want to buy it. That’s how a call option works—it gives you the right to buy at today’s price, no matter how high it climbs.

Your Journey Starts Here

Options trading isn’t as daunting as it seems—it’s a skill, a mindset, and an opportunity. In a growing market like India’s, mastering options can elevate your financial game. At AlgoShot, we’re on a mission to simplify trading complexities and guide you to success. Whether you're looking to hedge risks, generate income, or unlock new possibilities, the world of options awaits.

👉 Next up: Speak Like a Pro: Mastering the Language of Options Trading

Let’s break down the jargon and turn you into a fluent speaker in the language of options trading.

Essential Jargon: Your Gateway to Success

Strike Price
Think of the strike price as the bullseye in a game of darts—it’s the price at which an option holder can buy (for call options) or sell (for put options) the underlying asset. Hitting the bullseye can mean the difference between profit and loss.

💡 Example: If you hold a NIFTY call option with a strike price of ₹20,000 and the index soars above this level, your option becomes “in the money”—it’s payday!

Premium
The premium is the upfront fee you pay to access the potential rewards of an option. Think of it as the ticket price to an exclusive show where the plot is market movement.

💡 Example: If you purchase a stock option with a premium of ₹150, you’ve paid ₹150 per share for the right to exercise that option. Not a bad deal if the show ends in your favour!

Expiry
Options aren’t forever. They have a fixed lifespan, ending on a specific date. The expiry date isn’t just a deadline—it’s the moment of truth.

💡 Pro Tip:
Always keep an eye on expiry dates. Letting them sneak up on you could mean losing your chance to act.

Underlying Asset
This is the star of the show—the financial instrument that the option is based on. It could be a stock, an index, a commodity, or even a currency.

💡 Example: If you’re trading an Reliance option, the underlying asset is Reliance stock. Simple, right?

Holder vs. Writer

• Holder: The buyer of the option, armed with rights but no obligations.
• Writer: The seller of the option, burdened with obligations but no rights.

💡 Example: If you buy a TCS call option, you’re the holder, holding the right to profit. The seller? They’re the writer, hoping you don’t exercise that right.

Avoid These Pitfalls

Even pros slip up sometimes, but you can dodge these common mistakes:

🚫 Mixing up Strike Price and Premium
Remember: Strike price is your target; premium is the cost of admission.

🚫 Forgetting Expiry Dates
Options don’t wait—miss the expiry, and you’re out of the game.

🚫 Misunderstanding Terms
Taking time to understand these concepts upfront can save you from costly mistakes later.

Putting Jargon Into Action

Imagine you’re trading a TCS stock option:

• Strike Price: ₹3,600
• Premium: ₹100
• Expiry: This coming Thursday

If TCS trades at ₹3,750, the option is “in the money.” As the holder, you can exercise your rights or sell the option for a profit. Understanding these basic terms empowers you to act with confidence in real-world scenarios.

Conclusion: Think Like a Pro, Trade Like a Pro

Mastering the language of options isn’t just about sounding smart—it’s about making smarter decisions. With these key terms in your arsenal, you’re ready to decode opportunities, avoid rookie mistakes, and navigate the markets like a seasoned trader.

At AlgoShot, we’re here to guide you through the exciting world of systematic trading. Join us to simplify your journey and unlock success in the Indian stock market.

Ready to take the next step? Let’s talk options!

👉 Next up: Unlocking Call Options: Your Ticket to Bullish Profits

What Is a Call Option?

A call option is like reserving a ticket to a potential profit party. It’s a financial contract that grants the buyer the right, but not the obligation, to purchase an asset at a fixed price (called the strike price) before a set expiry date. Think of it as a calculated bet on the asset’s price going up—one that caps your risk but lets your profits soar.

How Do Call Options Work?

Let’s break it down step by step:

1. Pay a Premium: Like a deposit, you pay a fee (the premium) to secure the option.
2. Price Movement Determines Outcome: If the asset’s price surpasses the strike price before the expiry, you can either sell the option for a profit or exercise it to buy the asset at a bargain.
3. Risk is Limited: If the price doesn’t climb as you expected, the most you lose is the premium—nothing more.

A Simple Analogy: The Gold Necklace Deal

Picture this: You’ve got your eyes on a gold necklace priced at ₹50,000, and you’re convinced prices will spike in the coming month. You pay ₹1,000 to secure the right to buy it at ₹50,000 within 30 days.

• If the price rises to ₹55,000, you exercise your right, saving ₹4,000 (₹55,000 - ₹50,000 - ₹1,000).
• If the price stays below ₹50,000, you walk away, losing only the ₹1,000.

This, in essence, is how call options work—a calculated opportunity with defined risks.

When and Why to Use Call Options

Bullish Strategy
Call options are a go-to for traders who expect prices to rise but want to avoid tying up large amounts of capital.

💡Example: Anticipating a NIFTY rally? Buy a NIFTY call option and ride the upward wave without shelling out the full index cost.

Risk Control
The beauty of call options lies in their built-in safety net:

• Maximum Loss: Limited to the premium paid.
• Unlimited Upside: Potential profits grow as the asset’s price climbs.

They’re also great for hedging short-term market volatility.

Profit and Loss Basics

Imagine you bought a TCS ₹3,600 call option by paying a premium of ₹50. Here’s what could happen at expiry:

This chart highlights key aspects of the payoff structure:

• Break-Even Point: Strike Price + Premium = ₹3,650
• Profit Potential: Unlimited as the price rises above the break-even point.
• Maximum Loss: Limited to the premium paid (₹50).

Let’s break it down further:

• If TCS trades at ₹3,700 at expiry, your profit per share is ₹50 (₹3,700 - ₹3,650).
• If TCS stays below ₹3,600, the most you lose is the premium of ₹50.

This simple chart gives you a clear view of the risk-reward dynamics of call options, empowering you to make informed trading decisions.

What Could Go Wrong

Even the best tools have challenges, and call options are no exception:

• Time Decay: Options lose value as expiry nears, especially if prices don’t move.
• Volatility Misjudgment: Low volatility can mean shrinking premiums.
• High Premium Costs: Paying too much for an option eats into your profits..

Mitigation tips:

• Analyse implied volatility before buying.
• Choose affordable premiums that align with your strategy.
• Always have a clear exit plan to limit losses.

Conclusion: Your First Step in Options Mastery

Call options are your ticket to capitalizing on bullish market trends with limited risk. They empower traders to participate in price movements without hefty investments, making them an ideal choice for beginners.

👉 If you’re curious about the counterpart to call options—put options, which allow you to profit from falling markets—check out our detailed blog: Unlocking Call Options: Your Ticket to Bullish Profits. Together, call and put options form the cornerstone of options trading.

What is a Put Option?

A put option gives its buyer the right—but not the obligation—to sell an underlying asset at a predetermined price (known as the strike price) on a specified expiry date. Think of it as an insurance policy for your investments, providing protection against declining prices.

How Do Put Options Work?

Let’s simplify this concept into three easy steps:

1. Pay a Premium: Like a deposit, you pay a fee (the premium) to secure the option.
2. Price Movement Determines Outcome: If the asset’s price falls below the strike price, you can either sell the option for profit before expiry or exercise it to sell the asset at the higher strike price at the time of expiry.
3. Risk is Limited: If the asset’s price stays above the strike price, your loss is capped at the premium paid—no surprises.

A Simple Analogy: Locking the Price of Mangoes

Imagine it's the peak of mango season, and mango prices can be unpredictable. You’re worried that the price of mangoes might fall sharply in the coming weeks, which could lead to losses if you're a mango seller.

To safeguard your income, you make an agreement with a buyer to sell 100 kg of mangoes at ₹100 per kg, no matter how much the market price drops. You pay the buyer ₹5 per kg as a fee for this agreement (just like the premium for a put option).

The key here is that you have the right—but not the obligation—to sell the mangoes at ₹100 per kg. If prices drop, you can exercise the agreement. If prices rise, you can let it expire and sell at the higher market price instead.

• If the price of mangoes falls to ₹80 per kg, you can still sell your mangoes at ₹100 per kg, saving you ₹20 per kg in potential losses (minus the ₹5 fee).
• If the price stays at ₹100 or rises to ₹120 per kg, you don’t use the agreement. Your only cost is the ₹5 per kg fee, and you can sell at the higher market price.

When to Use Put Options

Put options shine in specific scenarios:

1. Bearish Market Outlook: If you expect a stock or the market to decline, buying puts lets you profit from the downturn.
2. Portfolio Protection: Investors can hedge against potential losses in their portfolios by purchasing puts on key assets.
3. Strategic Speculation: Puts are a cost-effective alternative to short selling, offering predefined risk limited to the premium paid.

Profit and Loss Basics

Imagine you bought a TCS ₹3,600 put option by paying a premium of ₹50. Here’s what could happen at expiry:

This chart highlights key aspects of the payoff structure:

• Break-Even Point: Strike Price - Premium = ₹3,550
• Profit Potential: Unlimited as the price drops below the break-even point.
• Maximum Loss: Limited to the premium paid (₹50).

Let’s break it down further:

• If TCS trades at ₹3,500 at expiry, your profit per share is ₹50 (₹3,600 - ₹3,500 - ₹50).
• If TCS stays above ₹3,600, the most you lose is the premium of ₹50.

This simple chart gives you a clear view of the risk-reward dynamics of call options, empowering you to make informed trading decisions.

What Could Go Wrong

While put options offer compelling opportunities, they come with risks:

• Premium Costs: High premiums can eat into potential profits or make trades unattractive.
• Time Decay: As expiry approaches, the option’s value erodes, especially if the underlying price stays stable.
• Market Misjudgement: If the stock price doesn’t decline as expected, the option expires worthless, and you lose the premium paid.

Conclusion: Puts vs. Calls

Put options are essential for bearish or protective strategies, helping traders mitigate risks or profit from market downturns. Unlike call options, which thrive in bullish scenarios, puts are your go-to tool for hedging and navigating falling markets.

Understanding these differences is crucial for informed trading. In our next blog, we’ll dive deeper into the maths of options trading and explain how to calculate break-even points for both call and put options. Stay tuned to sharpen your trading strategies!