Trend monthly option buy
This positional option-buying strategy trades once a month at most. About 12 days before the NIFTY monthly expiry, it checks the daily trend: price against its 200-day EMA, the 20-day EMA against the 50-day, and RSI within a band. In a clear uptrend it buys the ATM call; in a clear downtrend it buys the ATM put; otherwise it sits the month out. The option is held to a 45% stop, a 100% gain or expiry.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
With nine trades, no condition has enough trades to judge. The one consistent pattern is the market's movement during the hold: the five trades held while NIFTY moved less than 1% all lost, ₹34,249 together, while the four held through a move of more than 1% made money overall. That is how a bought monthly option behaves in its last fortnight: it needs a real move before time decay and the 45% stop take it out. The trend filter chose the direction correctly often enough; what decided each trade was whether the move came quickly.
About this strategy
- Each month, wait for the first session when the NIFTY monthly expiry (last Tuesday) is 12 calendar days away or less, but at least 3.
- Read the previous close of the near-month future against its daily EMA 200, EMA 20 and EMA 50, and its RSI(14).
- Uptrend: close above EMA 200, EMA 20 above EMA 50 and RSI between 40 and 75. Buy one lot of the ATM call of that monthly expiry at 09:20.
- Downtrend: close below EMA 200, EMA 20 below EMA 50 and RSI between 25 and 60. Buy the ATM put. Otherwise skip the month.
- Sell if the option loses 45% of its premium, or if it doubles.
- Otherwise sell at 15:15 on expiry day. No second trade in the same month.
Why traders use it
Buying an option in the direction of an established trend limits the loss to the premium while keeping the chance of a large gain. Stacking a long-term EMA, a medium-term crossover and an RSI band aims to trade only when trend signals agree and the market is not already stretched. Entering about 12 days out gives the move some time while still using a relatively cheap near-month option, and a 100% target against a 45% stop needs only one win in three to break even.
The year in plain words
On NIFTY from 1 Oct 2025 to 30 Sep 2026 with default settings, the trend filter allowed trades in nine of twelve months. Three won and six lost, for ₹3,182 before costs and ₹2,644 after ₹20 per order and bid-ask slippage, a profit factor just above 1. Every trade ended at the 45% stop or the 100% target; none reached expiry. The three winners, in October, December and March, averaged about ₹15,262; the six losers averaged ₹7,101. The last five trades in a row all lost, producing a maximum drawdown of ₹35,315 before costs.
What the settings do
Risks
- Bought options lose time value fast in the last 12 days before expiry, so a correct but slow view can still lose.
- Only about nine trades a year means one or two outcomes decide the result.
- Positions are held overnight, and stops and targets fill at market after gaps.
- Long losing streaks, such as five in a row here, are part of a one-in-three win rate.
Who it suits
Traders who prefer a few rule-based positional trades a year with risk limited to the premium paid. It needs patience through losing streaks and the discipline to skip months when the trend is unclear.
Questions traders ask
How do you trade monthly options with a trend filter?
Decide the trend from daily indicators first, such as price against the 200-day EMA and a 20/50 EMA crossover. Then buy only calls in an uptrend and only puts in a downtrend, and stay out when signals disagree. This strategy does this once a month, about 12 days before the monthly expiry.
Is trend-filtered monthly option buying profitable?
In this backtest on NIFTY from 1 Oct 2025 to 30 Sep 2026 it made ₹3,182 before costs and ₹2,644 after ₹20 per order and bid-ask slippage, with statutory charges excluded, from nine trades. That is close to breakeven and a very small sample. Past results do not guarantee future ones.
Why use the previous day's close for the signal?
A decision taken on today's close could not be traded until that close has happened. Using the previous session's indicators and buying at 09:20 keeps the backtest free of look-ahead, matching what a trader could actually do.
Can it be used on BANKNIFTY?
Yes. It only needs monthly options, which BANKNIFTY still has, so changing the symbol is enough. The lot size and option prices will differ, so results will not match the NIFTY figures shown here.