Option writing flow bias
Option writers are usually the larger, better-funded traders, so many intraday traders watch where they are adding positions. This strategy classifies the open interest change at nine strikes around the money into writing, buying, covering and unwinding for calls and puts. When put writing clearly outweighs call writing and buying flow agrees, it buys a call; the mirror case buys a put.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
Buying an option only pays when the index moves far and fast enough to beat time decay. Trend days that closed near their high or low made ₹2,40,540 over 69 trades with a 59% win rate. Quiet sessions lost ₹1,72,172 over 108 trades and choppy days ₹1,47,826 over 66, as the flow signal fired but the option decayed or hit its stop. Expiry days were the worst single condition, losing ₹68,488 over 51 trades with a 6% win rate, because a nearest-weekly option bought late in the morning of its last day loses value very quickly. After a calm VIX evening it made ₹30,731 over 65 trades.
About this strategy
- Record the option chain of the nearest NIFTY weekly at 09:20 as the reference.
- From 10:15 to 14:00, every 15 minutes, compare each option within four strikes of ATM with the reference: OI up and price not up is writing, OI up and price up is buying, OI down and price up is covering, OI down and price not up is unwinding.
- Bullish if put writing exceeds call writing by 1.25 times and bullish buying flow agrees; bearish in the mirror case.
- At the first agreed signal, buy two lots of the first OTM call (bullish) or put (bearish); one trade a day.
- Stop: the option falls by its delta times 0.6 of the 14-day ATR, but never to less than half the premium paid.
- Target: the option rises by its delta times 1.2 ATR; one lot is booked and the other's stop moves to cost.
- Close anything still open at 15:15.
Why traders use it
Heavy put writing suggests sellers are confident the market will not fall below those strikes, and heavy call writing suggests they doubt it will rise. Reading the change in open interest together with the price change separates fresh writing from short covering and long unwinding. Requiring both writers and buyers to point the same way filters out mixed signals. Buying the option rather than writing it keeps the risk to the premium paid.
The year in plain words
On NIFTY from 1 Oct 2025 to 30 Sep 2026 a flow signal appeared on 245 days. The strategy won 35%: 95 trades were stopped and 149 were still open at 15:15. The average win (₹6,204) was larger than the average loss (₹3,865), but not by enough. Net P&L was an ₹87,205 loss before costs and ₹1,13,025 after ₹20 per order and slippage, with only 3 profitable months; June lost ₹41,758. The writing-flow signal pointed the right way on trend days, but on most other days the bought option decayed before any move came.
What the settings do
Risks
- Bought options lose value every hour the move does not come, and on expiry day very quickly.
- Open interest can shift on a few large writers, so the flow signal can flip within minutes.
- One trade a day means a wrong first signal leaves no second chance that day.
- A low win rate means long losing streaks, 9 in a row here.
Who it suits
Option buyers who follow open interest data intraday, want a capped risk per trade, and can tolerate a low win rate and long losing runs. It needs automation or close monitoring to read the chain every 15 minutes.
Questions traders ask
How do you read put writing and call writing?
Compare each option's open interest and price with an earlier moment. If OI rose and the price did not, new positions were mostly sold, so that is writing. Heavy put writing is read as support below the market; heavy call writing as resistance above.
What do short covering and long unwinding mean in options?
Short covering is OI falling while the price rises: sellers are buying back. Long unwinding is OI falling while the price falls: buyers are exiting. Call covering and put unwinding are bullish signs; the opposite pair is bearish.
Is the option writing flow strategy profitable?
In this NIFTY backtest from 1 Oct 2025 to 30 Sep 2026 it lost ₹87,205 before costs and ₹1,13,025 after ₹20 per order and bid-ask slippage, with a ₹1,44,582 drawdown before costs. Statutory charges are not included. Past results do not guarantee future ones.
Why buy the option instead of writing it?
Buying limits the loss to the premium paid, while writing has open-ended risk. The trade-off is that a bought option needs the move to come quickly, which is why this strategy lost most on quiet days and expiry days.