Futures-hedged short straddle
A positional option-selling book that sells the NIFTY ATM straddle three sessions before the weekly expiry and holds it to expiry, using futures to keep the overall delta close to zero. The aim is to collect the straddle's time decay while removing directional exposure. A stop closes everything if the loss reaches half the credit collected.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
In this test, weeks when NIFTY stayed within 1% while the straddle was held made ₹3,84,934 over 23 trades, all but one winning: time decay outran the cost of re-hedging. Weeks with a rally of over 1% lost ₹2,69,937 over 10 trades. A short straddle is short gamma, so in a steady move each futures hedge is bought after the price has already risen, locking in the loss step by step, and a gap leaves no time to hedge at all. Entries on days that opened with a gap down lost ₹2,39,024 over 8 trades, while nervous evenings with VIX above 14.5 earned ₹1,23,247 over 16 thanks to richer premiums.
About this strategy
- Three trading sessions before each NIFTY weekly expiry, at 15:00, sell four lots each of the ATM call and ATM put.
- Every 5 minutes, add up the delta of the two short options and any futures held.
- If net delta is more than one futures lot away from zero, trade near-month NIFTY futures to bring it back to the nearest whole lot of zero, closing opposite hedges first.
- Close the whole position, options and futures, if the loss reaches 50% of the credit received.
- Otherwise hold through the overnight sessions and close everything at 15:15 on expiry day.
- Sell one straddle per weekly expiry.
Why traders use it
Professional option desks often run short straddles hedged with futures: they earn time decay and use the hedge to stay neutral to direction. Holding for several sessions captures the steep decay of the final days before expiry. Re-hedging only when delta drifts more than a lot keeps futures trading under control. The approach separates the volatility bet from the directional bet, which appeals to traders who think options are usually overpriced.
The year in plain words
With default settings (four lots) on NIFTY from 1 Oct 2025 to 30 Sep 2026, the book sold 52 weekly straddles and won 71%, making ₹90,806 before costs with a profit factor of 1.16. The shape is lopsided: wins averaged ₹17,884 but losses ₹38,061, and a single trade lost ₹3,28,932, which made February a ₹3,14,470 loss month. Four trades ended at the stop and 48 ran to expiry. Hedging adds many futures orders, and after ₹20 per order and bid-ask slippage the result turned into a ₹9,040 loss. The maximum drawdown before costs was ₹3,90,930.
What the settings do
Risks
- The loss can far exceed the 50% stop when the market gaps between sessions; the worst trade lost ₹3,28,932 on four lots.
- Short gamma means hedging locks in losses on every move; the profit relies on decay exceeding those costs.
- The hedge is the monthly future, not a weekly one, so the two can move slightly differently (basis risk).
- Holding a 4-lot short straddle overnight needs large margin for both the options and the futures.
Who it suits
Experienced traders with large margin who understand gamma and delta hedging and can run automated futures adjustments. The year's outcome hinged on one very large loss, so it fits only those who can absorb such a hit.
Questions traders ask
What is a delta-hedged short straddle?
It is a short ATM call and put whose combined delta is kept near zero by trading futures. When the market rises, the position becomes short delta, so futures are bought; when it falls, futures are sold. The trader aims to earn the options' time decay without a directional view.
Is the futures-hedged short straddle profitable?
In this backtest on NIFTY from 1 Oct 2025 to 30 Sep 2026 it made ₹90,806 before costs on four lots but lost ₹9,040 after ₹20 per order and bid-ask slippage, with statutory charges extra. One trade lost over ₹3 lakh. Past results do not guarantee future ones.
Why does the default use four lots?
The hedge trades whole futures lots. With a one-lot straddle the options' combined delta can never exceed one futures lot, so a one-lot band would never trigger. Four lots let the hedge actually work.
Why does hedging lose money in trending weeks?
A short straddle's delta moves against you as the market moves. Each hedge buys after a rise or sells after a fall, so in a steady trend the hedges keep locking in losses. The time decay collected has to be larger than those to end in profit.