Implied Volatility Estimation
Bank Nifty witnessed 2,915 points upside swing in favor of the buyers today. The index bounced back from the low of 46,447 and registered a high of 49,363 after closing in the decent zone from yesterday. There are three critical questions that we shall cover today.
1. Is this simply a swing backed by euphoric expectations from NDA?
2. Can we identify these day swings?
3. Is it possible to trade these big swings?
Truth be told, Bank Nifty expiry swings can be captured and traded with the help of Implied Volatility Estimation. These big swings are mostly positioned in the direction of the news or events prevailing in the current scenario. Take for example today; the NDA will be taking an oath to form the government. This is a massive platform for Bank Nifty to trigger a swing. The question is how do you capture it?
How Can Retail Traders Execute Bank Nifty Expiry Swings?
Bank Nifty attracts uneven expansion in volatility on the day of the event. This triggers explosive theta decay on the option's strike that is on the opposite side of the trend. Based on this simple principle, the 3D Delta system tracks the covariance factors between the Theta and Vega of specific strikes. The data points are then correlated with the future time curve to identify where the index is likely to move. The most important factor here is the “Time Of Execution”. Retail traders can also use these methods to capture the Bank Nifty day trades with ultralow risk exposure to the market.
Bank Nifty Trade Execution With Ultra Low Risk
In today’s session, the 3D delta system used IV estimation and concluded that the index had an 85% possibility of settling around 48,500. To check the accuracy of the system, the 47,200 Put options were sold and hedged appropriately. Traders here must take note that “time is of the essence” since the Call option should ride the volatility swing and the Put option need to be crushed by the weight of the theta decay. The 47,200 Put option was sold @ 275 and booked @ 2. This trade generated 90% returns at the same time.
P.S – There was no Institutional Buyer today, mere Short Covering.