RBI policy straddle
RBI monetary policy announcements can move Indian markets sharply, especially when the decision or the tone surprises. This event strategy buys both the at-the-money NIFTY call and put near the close of the session before each scheduled decision and sells them at 11:30 on the decision day, after the announcement at about 10:00. It profits if the reaction is bigger than the premium paid and the fall in volatility afterwards.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
With five trades, no condition can be judged. The record is one large winner and four small results: the single policy day on which NIFTY moved more than 1% made ₹18,577, while the four on which it stayed within 1% lost ₹3,398 between them. That is the mechanism of a bought straddle into an event: implied volatility is bid up beforehand and falls after the announcement, so only a move bigger than that volatility drop pays. Small losses on quiet decisions are the normal cost of waiting for a large reaction.
About this strategy
- Keep a list of scheduled RBI policy decision dates; it must be updated if the RBI moves a meeting.
- At 15:15 on the trading session before a decision date, choose the nearest NIFTY expiry that expires after the decision day.
- Buy one lot each of the ATM call and ATM put (a long straddle). A setting can widen it into a strangle with strikes a set percentage either side.
- No stop loss; hold overnight through the announcement.
- Sell both options at 11:30 on the decision day. Other exit times such as 10:30 or 15:15 can be tested.
Why traders use it
Policy days are known in advance, and a surprise on rates or guidance can trigger a sharp move in either direction. A long straddle does not need to guess the direction, and the loss is limited to the premium paid. Many traders like event trades because they are infrequent and easy to plan around, and the RBI decision is one of the few market-wide events that happens on a fixed calendar.
The year in plain words
On NIFTY from 1 Oct 2025 to 30 Sep 2026 with default settings, the strategy traded five RBI decisions (the 1 Oct 2025 meeting fell before the test could enter). It made ₹15,179 before costs and ₹14,600 after ₹20 per order and bid-ask slippage. Almost all of that came from the April 2026 decision, which made ₹18,577. Of the other four, three lost small amounts, the worst ₹2,785 in February, and one made ₹500. With five trades and one dominant winner, the result shows how the trade behaves but cannot show whether it has a lasting edge.
What the settings do
Risks
- Implied volatility usually falls right after the decision, so a modest move can still lose money.
- With about five or six events a year, results depend on one or two decisions.
- Event dates must be kept up to date by hand; a moved meeting means a trade on the wrong day.
- The straddle is held overnight, paying a night's time decay on both options.
Who it suits
Traders interested in event-driven setups who want a rare, small, defined-risk trade around RBI decisions. Capital need is the premium of one straddle, and it requires accepting several small losses between big reactions.
Questions traders ask
How do you trade options on RBI policy day?
A common approach is to buy a straddle or strangle before the announcement and sell after the reaction, betting on a big move in either direction. Others do the opposite and sell options to profit from the fall in volatility after the event. This strategy tests the buying approach on NIFTY.
Is the RBI policy straddle profitable?
In this backtest on NIFTY from 1 Oct 2025 to 30 Sep 2026 it made ₹15,179 before costs and ₹14,600 after ₹20 per order and bid-ask slippage, with statutory charges excluded. Nearly all of it came from one decision in April 2026. Past results do not guarantee future ones.
What is IV crush after an RBI policy?
Before the decision, option prices include extra implied volatility because traders expect a move. Once the decision is out, that uncertainty disappears and implied volatility drops, lowering option prices even if the index barely moves. A long straddle needs the index move to outweigh this drop.
Can it trade BANKNIFTY?
Yes. Set the symbol to BANKNIFTY and the expiry to monthly, since BANKNIFTY no longer has weekly options. Banking stocks often react more to RBI decisions, but option premiums and lot sizes differ from NIFTY.