Event-eve IV crush straddle
This event strategy sells the NIFTY at-the-money straddle, with protective wings by default, a few minutes before the close on the day before an RBI policy decision or the Union Budget. It buys the position back after the announcement. The thinking is that option prices are inflated by uncertainty before the news and lose that extra value once the decision is out.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
Six event trades are far too few for any condition to be judged, and no bucket in the evidence reaches the eight trades needed. Still, the losses have a recognisable shape. The three events whose eve was a gap-down session lost ₹20,494 together and none won: the market was already moving and kept moving after the announcement, so the ATM short options lost more than the drop in volatility gave back. The four events where NIFTY stayed within ±1% while held were close to flat, which is what the idea expects, but the volatility drop after the news was too small to leave a profit.
About this strategy
- Keep a list of scheduled RBI policy decision days and Union Budget days.
- On the session before an event day, five minutes before the close, pick the nearest NIFTY expiry that falls after the event day.
- Sell one lot each of the ATM call and put; with the default 3% wings, also buy a call 3% above and a put 3% below the forward, making an iron fly.
- Close the position if its loss reaches 50% of the net credit; an overnight gap through that level is charged in full.
- On an RBI day, buy everything back at 10:45, about 45 minutes after the 10:00 announcement.
- On a Budget day, buy it back at 15:15.
Why traders use it
Implied volatility tends to build in the days before a scheduled announcement because traders pay up for protection against a surprise. Once the decision is known, that uncertainty premium often collapses within minutes, even if the index barely moves. Selling just before and buying back just after aims to capture only that drop, while choosing an expiry after the event keeps the trade from being mixed up with expiry-day decay. The wings cap the damage from a genuine surprise.
The year in plain words
Between 1 Oct 2025 and 30 Sep 2026 the rules found six events to trade on NIFTY. Only two made money, for a combined loss of ₹19,594 before costs and ₹20,806 after ₹20 per order and bid-ask slippage. The profit factor was 0.09. Five trades closed at the planned exit after the RBI announcement and one hit the stop. The two winners averaged under ₹930, while the four losers averaged about ₹5,360, with the worst at about ₹11,350. February and April 2026 accounted for almost all of the loss. Six trades is far too few to judge the idea, but the year gave no support for it.
What the settings do
Risks
- The position is held overnight into a scheduled event, which is exactly when large gaps are most likely.
- Only a handful of events happen each year, so results depend on very few trades.
- Even with wings, an ATM iron fly can lose a large share of its maximum loss on a moderate move.
- Event dates must be kept up to date by hand; a moved meeting means a trade on the wrong day.
Who it suits
Traders curious about event-driven volatility selling who can hold a defined-risk position overnight a few times a year and accept that a small sample tells little about the long run.
Questions traders ask
What is an IV crush trade?
It sells options while implied volatility is high just before a known event, then buys them back once the event is over and volatility drops. The gain comes from the fall in option prices rather than from the index moving in a chosen direction.
Is selling a straddle before RBI policy profitable?
Not in this backtest. On NIFTY from 1 Oct 2025 to 30 Sep 2026 the six event trades lost ₹19,594 before costs and ₹20,806 after ₹20 per order and bid-ask slippage, with two winners. Statutory charges are excluded. With so few trades, past results do not guarantee anything about future events.
Why use an expiry after the event day?
If the option expired on the event day itself, its price would collapse from expiry-day decay as well as from the volatility drop, mixing two effects. Using the next expiry isolates the change in implied volatility around the announcement.
Why add wings to the straddle?
A surprise announcement can move NIFTY sharply. Buying a call and put 3% away turns the straddle into an iron fly, which caps the worst case and lowers margin, at the cost of some of the premium collected.