IV-percentile short strangle
Option sellers often say the time to sell is when options are expensive. This strategy measures that with the IV percentile: the share of past days on which NIFTY's at-the-money implied volatility was lower than today. When it reaches 80 or more, it sells a 16-delta call and put on the nearest monthly expiry, then takes profit at half the credit, stops at twice the credit, or exits the day before expiry.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
With 14 trades, no condition reaches the evidence threshold, so read these as hints. Trades entered after India VIX closed above 14.5 made ₹49,636 over 8 trades, all winners: that is the situation the IV gate is built for, selling rich premium that then deflates. Trades held while NIFTY stayed within 1% made ₹26,135 over 7, while those held through a fall of more than 1% lost ₹20,399 over 5, since a fall pushes the short put towards the money and lifts put volatility at the same time. Entries on sessions that closed lower made ₹44,896 over 8 trades.
About this strategy
- Every day at 15:15, record NIFTY's ATM implied volatility: the average of the ATM call and put IV on the nearest expiry with at least 7 days left.
- Once 40 daily readings exist, compute the IV percentile: the percentage of earlier readings (up to 252) below today's.
- If the percentile is 80 or higher and no trade is open, sell the call and put closest to 16 delta on the nearest monthly expiry with at least 5 calendar days left. One lot each.
- Take profit when 50% of the credit has been captured.
- Stop out when the loss reaches twice the credit.
- Otherwise close at 15:15 one trading day before expiry. The next trade waits for a fresh qualifying day.
Why traders use it
Implied volatility tends to rise in fear and fall back afterwards. Selling only when it is high relative to its own history means collecting larger premiums with more room before the strikes are reached, and gaining as volatility returns to normal. Sixteen-delta strikes sit roughly one standard deviation away, and the 50% profit target banks gains early. IV percentile and IV rank are widely quoted filters among option sellers who want a rule for when to stay out.
The year in plain words
On NIFTY from 1 Oct 2025 to 30 Sep 2026 with default settings, the strategy traded only from January to May, because it needs 40 days of IV history before it can rank volatility and then needs IV to be in its top fifth. It took 14 trades and won 12, making ₹22,496 before costs (profit factor 1.55). Eleven hit the 50% target. The two losses were large, averaging ₹20,499 against average wins of ₹5,291, and the worst lost ₹28,291. May made ₹17,480; January lost ₹10,396. After ₹20 per order and bid-ask slippage it made ₹24,456: filling at bid and ask shifted exit timing enough that the costed run took 15 trades, and the extra winner outweighed the costs.
What the settings do
Risks
- Both short legs are uncovered by default, so a large move can produce losses well beyond twice the credit, especially through an overnight gap.
- Each of the two losing trades cost nearly as much as four average winners, which is typical of high-win-rate selling.
- High implied volatility can be justified before scheduled events, so selling it then can be selling into real risk.
- The IV percentile depends on the length of history used, and here it starts from the first backtest day.
Who it suits
Experienced option sellers with full margin for a naked monthly strangle who prefer trading rarely and only when premiums are rich. It needs tolerance for occasional large losses and multi-day overnight holds.
Questions traders ask
What is IV percentile?
IV percentile is the share of past days on which implied volatility was lower than today. An IV percentile of 80 means IV was lower on 80% of the days in the look-back window, so options are relatively expensive. It differs from IV rank, which compares today's IV with the window's high and low.
Is the IV percentile short strangle profitable?
In this backtest on NIFTY from 1 Oct 2025 to 30 Sep 2026 it made ₹22,496 before costs and ₹24,456 after ₹20 per order and bid-ask slippage, with statutory charges excluded. It took only 14 trades (15 in the costed run), all between January and May. Past results do not guarantee future ones.
Why did it not trade in October to December?
The percentile is built from IV readings collected during the backtest itself, and the rules require 40 readings first. After that, IV also had to rank in the top fifth of the readings so far, which first happened in January.
What is a 16-delta strangle?
It sells a call and a put whose delta is about 0.16, roughly one standard deviation away from the current price. Such options expire worthless most of the time, but when one is breached the loss can be several times the premium collected.