IV inversion calendar
Normally options further from expiry carry higher implied volatility than near ones. When the nearest NIFTY weekly's IV jumps well above the next week's, the curve is inverted, usually because of an event or a sharp move. This strategy bets that the inversion will unwind: it sells the near week's ATM straddle and buys the next week's straddle at the same strike, and closes when the curve returns to normal, at a stop, or before near expiry.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
Three trades cannot show where this calendar works, only how it behaves. In this test the one trade entered on a quiet session that had opened with a gap up lost ₹4,192, reaching the stop at half the debit: the front-week volatility that inverted the curve came with a move, and the short near straddle took it. The trade entered after a nervous, gap-down session with India VIX above 14.5 made ₹5,476, as near-week IV fell back while the market settled. The third made ₹916. Inversions are rare, so the strategy spends almost all its time waiting.
About this strategy
- Each session at 15:15, compute the ratio of the nearest weekly's ATM implied volatility to the next weekly's.
- If the ratio is 1.10 or higher and the nearest weekly still has at least two trading sessions to run, sell its ATM call and put and buy the next weekly's call and put at the same strike, one lot each.
- The position starts close to delta-neutral and costs a net debit; only one is held at a time.
- Close it if the loss reaches 50% of the debit paid.
- Each session at 15:10, recheck the ratio; once it is back to 1.00 or lower, close the position.
- Otherwise close at 15:15 one trading session before the near weekly expires.
Why traders use it
An inverted volatility curve means the market is paying extra for very short-dated protection, usually around an event or after a shock. Once the event passes, near-week IV tends to fall faster than next-week IV. A calendar profits from exactly that: the sold near options lose value quicker than the bought far ones. The long next-week options also cap the risk, which makes this a defined-risk way to sell elevated short-term volatility.
The year in plain words
With default settings on NIFTY from 1 Oct 2025 to 30 Sep 2026, the curve inverted enough to trigger a trade only three times, in late January, February and March 2026. Two trades were closed before near expiry with gains of ₹916 and ₹5,476, and one was stopped at half its debit for a ₹4,192 loss. That came to ₹2,200 before costs and ₹1,795 after ₹20 per order and bid-ask slippage on four legs each way. Three trades are too few to judge the idea.
What the settings do
Risks
- Inversions occur around events and big moves, so the sold near straddle faces the very risk that caused the signal.
- Signals are rare; the strategy may not trade for months.
- Four legs per trade make bid-ask spreads and brokerage a meaningful share of small gains.
- Holding through expiry day would lose the calendar margin benefit, which is why the rules exit a session early.
Who it suits
Experienced option traders who follow the volatility term structure, understand calendar spreads and margin, and are content with a strategy that trades only a few times a year.
Questions traders ask
What is IV term structure inversion?
Term structure is how implied volatility changes with time to expiry. Normally longer-dated options have higher IV, called contango. When near-dated IV rises above longer-dated IV, the curve is inverted, or in backwardation, which usually signals short-term fear or an imminent event.
Is the IV inversion calendar profitable on NIFTY?
This backtest is too small to say. From 1 Oct 2025 to 30 Sep 2026 it traded three times, making ₹2,200 before costs and ₹1,795 after ₹20 per order and bid-ask slippage. Past results do not guarantee future ones.
Why buy the next week's straddle instead of selling the near one alone?
The long next-week options hedge the short near-week ones, capping the loss and lowering margin. The trade then profits from the gap between the two IVs narrowing, rather than from the market staying still.
Why close one session before expiry?
On expiry day the calendar's margin offset is removed and near-week options become very sensitive to small moves. Closing a session early avoids both, at the cost of giving up the final day of fast time decay on the sold near-week options.