Intraday Compounding Experiment Analysis – Part 2


It has been close to 2 years since I started this experiment to show the how compounding works and here is a quick update !!

To get a fair idea of what happened so far in this experiment, you can read it in the blogpost below.

Intraday compounding experiment analysis

I had some downtime during the last several months and was able to do some observation/backtesting on weekly ‘Options Buying’ only. I noticed that around 1/3rd of Overnight decay happens in Weekly options intraday but if one can get the direction right (preferably a good move once in a while), is long options the way to go in intraday for directional Index trading? There is only one way to find that out – BACKTESTING

Backtesting of options

I did the following backtesting on options intraday (data can be bought from GDFL or Truedata):

1. Backtesting on Nifty Monthly data from 2014 and Nifty weekly data from 2019
2. Backtesting on Banknifty Monthly options from 2014 and BNF weekly options from mid 2016

(Many might know already that i stopped BNF futures trading back in 2015 due to liquidity/slippage issues and trading only NF in both positional/intraday so far – this is gonna change as you might see)

Based on the popular opinion, my expectation was that weekly options would do fairly poor compared to monthly options. To my surprise, the weekly options fetched similar (if not more) points than monthly options over the long run and it is prudent to note that the weekly has atleast 8-10x more liquidity than monthly options at any given point of time.

This backtesting analysis led to the conclusion that if one is doing directional (trend following) Index trading intraday, then weekly options buying is the best choice. It was quite evident to see that nothing can beat positive gamma(i know only Delta, theta and gamma in Greeks :)) in directional trading

Summary of the account so far:

3L to 15L –> NF Monthly Options buying
15L to 26L –> NF Monthly/Weekly Options selling
26L to 60L –> NF Synthetic futures on Weekly options
60L onwards -> NF and BNF Weekly options buying

Important points to keep in mind

1. If one is buying options intraday, money management should take the theta decay factor into account.

2. Drawdowns can be deeper due to theta decay but positive gamma will compensate over long run. If one is long options, nothing can be done about theta decay but can be taken care with carefully planned money management.

3. Time drawdowns could be a bit steeper compared to regular futures/synthetic futures route but Gamma is intraday option buyer’s saviour 🙂

4. When i started with 3Lacs account, losing it was pretty OK but losing 60L is not that OK and hence, the account will be treated with the same vigor and earnestness as my positional account


I would be using the account to buy same number of lots in Nifty and Banknifty going forward (starting today) and the plan is to trade 200 lots of NF/BNF each in ITM,ATM and OTM eventually.

Happy trading all !!

rss | E-Mail | Twitter