Overnight skew credit spread
This strategy sells option premium only overnight. At 15:20 each session it checks which side of the NIFTY option chain is priced richer, sells a 0.20-delta credit spread on that side with a wing four strikes further out, and buys it back at 09:20 the next morning. The idea is to collect the night's time decay, and the skew premium, with a hedge in place for gaps.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
Because NIFTY's put side is usually richer, the skew rule mostly sold bull put spreads, and in this test the overnight direction decided the result. The 40 trades during which NIFTY rose more than 1% made ₹18,666 with an 80% win rate; the 43 during which it fell more than 1% lost ₹28,196, as a lower open pushed the short put toward the money. Trend days made ₹4,932, while quiet sessions lost ₹7,688 and choppy days ₹6,638. Entries on weekly expiry day, when the next weekly was used, made ₹5,330 over 50 trades.
About this strategy
- At 15:20 each session, pick the nearest NIFTY weekly that does not expire today or next morning.
- Compare the implied volatility of the 0.25-delta put and the 0.25-delta call; the richer side is the one to sell.
- If puts are richer, sell the 0.20-delta put and buy the put four strikes lower (bull put spread). If calls are richer, do the mirror with calls (bear call spread). One lot each.
- In RSI mode instead, pick the side from daily RSI and trade only when India VIX is below 22; a neutral RSI sells both spreads.
- Hold overnight with no stop.
- Buy the spread back at 09:20 the next session, then repeat at 15:20.
Why traders use it
Options lose value overnight even though the market is shut, and a credit spread sold near the close collects that decay. Selling on the side where implied volatility is higher means selling the more expensive insurance. The wing caps the damage from a gap, and exiting at 09:20 avoids most of the trading day's moves. It is a compact way to harvest overnight premium with defined risk.
The year in plain words
On NIFTY from 1 Oct 2025 to 30 Sep 2026 with default settings, the strategy made 242 overnight trades and won 55%, but lost ₹9,066 before costs, a profit factor of 0.89. Average losses (₹795) were larger than average wins (₹573), the usual shape for premium selling. Eight months were positive, but March (−₹10,329) and September (−₹7,678) outweighed them. Two legs bought and sold nearly every session add up: after ₹20 per order and bid-ask slippage the loss was ₹32,969. In this test, overnight decay did not pay for the gap risk.
What the settings do
Risks
- Overnight gaps can carry the short strike into the money before the 09:20 exit.
- The skew rule mostly sells put spreads, so the strategy is effectively bullish overnight.
- Trading every session means close to 1,000 orders a year (four per trade), which costs far more than the edge before costs.
- There is no stop, so a bad open is taken up to the spread's maximum loss.
Who it suits
Traders who cannot watch markets during the day but can place orders near the close and open, with hedged-spread margin and tolerance for a small edge eaten by frequent trading costs.
Questions traders ask
What is an overnight option selling strategy?
It sells options near the close and buys them back the next morning, to earn the time decay that happens overnight. Using a spread instead of a naked option limits the loss if the market gaps. Positions are held only while the market is shut.
Is the overnight credit spread strategy profitable?
Not in this test. On NIFTY from 1 Oct 2025 to 30 Sep 2026 it lost ₹9,066 before costs and ₹32,969 after ₹20 per order and bid-ask slippage (statutory charges not included). Past results do not guarantee future ones.
What is volatility skew?
Skew is the difference in implied volatility between options at different strikes. On NIFTY, out-of-the-money puts usually carry higher implied volatility than equally distant calls, because traders pay more for downside protection. This strategy sells whichever side is richer.
Why exit at 09:20 and not at the open?
The first few minutes after 09:15 can show stale or erratic option prices. Waiting until 09:20 gives quotes time to settle while still exiting before most of the day's movement.