Seven Years of the 9:20 Straddle – Past, Present, and Future | In The Money by Zerodha

The title of this episode gives it away. And yes, it's about the legendary 920 straddle. But before we dive in, let me take you on a short detour. A detour into the world of microbiology. Some of you know I'm a seeker of rabbit holes. And a few days ago, I went down one while reading the book born to be good by Dasha Kelner. In it, I came across the story of Antony Phillips Van Leonuk, a Dutch brewer, basket maker, and cloth merchant, now remembered as the father of microbiology. Back in the late 1600s, while trying to study the weave of fabrics, he pushed the limits of the ordinary magnifying glass. By grinding and shaping the glass, he created lenses with 200 to 300x magnification, unheard of at that time. The ordinary compound microscopes of that era had magnification of 30x at best. In the process, he invented the single lens microscope. For the first time, humanity could see bacteria. What had long been just a theory suddenly became visible reality. An invention that not only changed the cause of biology, but gave birth to an entirely new field of science. In a way, something similar happened with intraday straddle selling in India. The idea of intraday straddles wasn't new. But when back testing tools with historical data became accessible, early adopters, especially those with a systematic bend, uncovered some real edges. Just as Van Leven Hook's lens opened a hidden world to biologists, these tools gave traders a new way to see the markets. Once people tasted the elegance and power of the 920 straddle, there was no turning back. [music] Whether for good or bad, it transformed how traders in India thought about option selling. I'm your host, Sundep Prao. [music] And in this episode, I'll explore the strategy that transformed intraday options trading in India, the 920 straddle. I'll take you through its past, examine its present, and together we will look ahead to its future. As with everything, let's begin by understanding what exactly is the 920 straddle. If you're new to options, the term may sound a little alien, and you might want to do your own research on what a straddle is. I'll also post a few varsity links for you, but here's what a 920 straddle means. At 9:20 a.m., you sell an addin straddle, one call and one put at the same strike with a 20% stop loss on each leg. You let the trade run until either or both stop losses a hit or you square it off around 3:20 p.m. For example, suppose the index is at 25,000. At 920, you sell a 25,000 call trading at around 100 and a 25,000 put trading at around 120. Then you set stop losses at 20% above your entry. [music] 120 for call and 144 for the put. Once those are in the system, you're done. You could [music] literally go about enjoying your day while the trade plays out. That's the whole strategy. Simple and repeatable day after day. [music] And for years, it worked like a charm. So much so that traders genuinely believed this was all they needed to hit their fire goals. I'm not exaggerating. On the other hand, the strategy is also responsible for giving birth to a generation of options traders whose whole idea of trading was intraday option selling and [music] nothing more. They genuinely believe Theta DK is an edge which may not always be the case as we get closer to the expiry. The reason I sound critical is while there may be an alpha in this time frame, [music] long-term trading is much more than just this. It's always more wiser to develop a broad basket of strategies that exploit a variety of market anomalies rather than rely on a single approach. Let me move further. I'm sure by now some of you are wondering why does this seemingly simple strategy even work in the first place. There are three broad reasons I can think of. But fair warning, this is where you'll need at least a basic grasp of options Greeks because a lot of what I'm going to say needs that context. Reason one is what is known as the extrinsic bleed or in other words extrinsic value decay in Greek terms largely theta. Options by design are decaying assets. Much like insurance contracts they come with [music] an expiry date and all the OTM contracts eventually expire worthless. This is the fundamental edge we are leaning on. And here's the kicker. The closer you get to expiry, right down to the final hours, especially on zero DTE, the faster the DK accelerates. That's the core phenomena powering the strategy. Second, it has built-in risk management. On worst days, when price action is choppy, you are capped at losing 20% on each leg. Painful, yes, but contained. The markets don't chop around every single day. There are trending days and then there are rangebound days. And when you play the long game, the law of large numbers starts working in your favor. You'll soon see that when I share the data. Third, the structure [music] is highly capital efficient. Because it's intraday, you can use the full collateral margin. And with low transaction costs and slippages, it was bound to become a favorite among traders. At its core, the structure is a simple yet powerful way to harness intraday DK, be it Theta DK or wall crash, whatever you may want to call it. So, up to this point, I've looked at two big questions. First, what exactly is 920 straddle? And second, what makes it work? But it's equally important to understand where it all started. Let me take you back in time for a moment. Well, if my memory serves me right, I've been around trading circles for quite some time, and by November 2019, this strategy was already being talked about in closed groups as a money spinner. When I show you the back test for 2019, you'll know why it was called a money spinner. By then, back test started floating around. Nifty data for maybe 10 months and Bank Nifty going back to a few years. Do remember weekly expiry on Nifty was introduced on Nifty only in Feb 2019 while it was there in Bank Nifty since 2016. And yes, anyone who saw the back test then was quite literally blown away. I must also add at that time I knew a few so-called highly evolved quans the kind who wouldn't take you seriously unless you knew calculus and could derive black and shs on the back of a napkin. They laughed at this 920 stupidity dismissing it as an anomaly. This isn't how options trading works and these back tests are a joke they'd say with a smirk. Within a year the invisible hand of capitalism did its work. trade automation tools arrived and since this was a fully rules-based strategy, it lent itself to automation perfectly. Having been in the automation space, I can attest that automation is like tasting blood. Once you had it, there's no going back. To top it, many brokerages came up with zero brokerage plans or low brokerage plans specifically for such option trades. They also made API access free. Then traders being traders acted smart. They took the so-called hedges by buying cheap farms to trade more lots at small capital. But that increased their risk. Brokers didn't mind that at all. Think about it. Super simple strategy with an edge. Brokers offering cheap brokerage plans, free API, something you could trade even with low capital. Plus, you could automate it using no code tools. Now, what wasn't to like about it? No wonder 920 straddle gained a cult following in a short time. From those early days all the way to this day when the regulator actually has been debating whether weekly expiry should continue. We've indeed come a long way. [music] Though there is that uncertaintity hanging, but what better moment than now to step back and look at the back tests and ask, has the 920 straddle really stood the test of time? And more importantly, was it just a fleeting anomaly or was there a genuine robustness to it? Some disclaimers before I get started with the next section as I present the back test for the 920 strategy. First, this is not a trading recommendation. Second, even if you ignore that and trade it, there is absolutely no guarantee it'll work. Third, the strategy isn't viable at smaller sizes. up to five lots the alpha is eaten away by brokerage and transaction costs and finally the back test I'm sharing are net of brokerage which is rupees 20 per order transaction cost and a25% slipage per leg also I have normalized the lot size to 75 that way the results are comparable across the entire look back period and for this back test I've taken five lots you know the reason now if some of the jargon feels new like DTE don't worry I explained it in detail [music] in the key market metrics video. If you're curious about how to actually read and interpret these kinds of results, the back testing episode is worth a watch too. I have chosen to test it DT- wise to avoid any day of the week issues due to holidays or permanent shift in expiry day which happened a few weeks ago. All right, with [music] the disclaimers out of the way, let's get into the fun part, the back test. Here's what I tested. For each of the 5 days from 4DT all the way to expiry, [music] that is 0DT, we sell an at the minute straddle at 9:20 a.m. Put a 20% stop-loss on each leg and then simply close everything at 3:20 p.m. Nothing more complicated, no bells and whistles, just a straightforward rules-based setup. Let's look at the table. The numbers tell a clear story. 2019 was a dream year with returns so strong that drawdowns look trivial. 2020 and 2021 was steady. Nothing spectacular, but solid enough to keep faith. And then 2022 reignited the excitement with another big performance spike only for 2023 to turn into the year where much of finit was busy writing the strategies arbitrary. Yet 2024 quietly proved that there was still life left, not spectacular but effective. And now in 2025, the 920 style continues to deliver even if the Rockstar performance of the past has given way to a more mellow return profile. Looks like those abituaries were a bit premature. Apart from 2023, this thing is still chugging along. At this point, I want to put the back test under the microscope and break it down DT by DT and see if there is a story hiding in there. Let's start with 4DT. Other than 2019 and 2024 where we see a bit of green, the returns to max draw down look pretty poor for a single day trade [music] and the results don't really inspire confidence. Looking at 4DTE, it's pretty clear this day wasn't adding anything to the overall P&L. And that's useful. It shows us where the real edge is hiding. Let's move to 3DT. Now, except for 2021, the strategy hardly worked on 3D. So that's 3 days down already. 2021 was a year when WIX came off its postcoid high sliding down from around 28 all the way to nearly 12. That kind of a drop is a bit of a historical anomaly. Something you don't get to witness too often. Take a look at this India Wix chart from 2019 till today. You will see why the strategy worked spectacularly when it did. If you are an options trader, you probably know exactly why the strategy didn't work on four and 3DT. The straddle premium on 4DT and 3DT is higher than that on say 1DT or 0DT. So your risk increases since 20% on rupees 200 is higher than 20% on 100. And the profits don't compensate for the risk since the premium decay is slower compared to days closer to expiry. Now let's move on to 2DT and see what's a scene in there. After 5 years of non-performance, something has changed for 2DT. Definitely worth keeping [music] an eye on and exploring further. So that takes 2 days off the table. 4DT and 3DT just don't cut it. And 2DT, well, it's shown some action in the last couple of [music] years. Definitely worth exploring. The reason we see this action in 2D is possibly because Sensex expireies came in on Tuesday, but cannot say if that's the primary cause. Now, let's look at 1DT. It was fairly consistent between 2019 and 2023, but since 2024, the action has clearly moved to 2DT. Lastly, let's talk about zerodt. Except for 2023 and 2024, the years when people were busy writing its arbitary, it seems to be working. though nowhere near the levels we saw before 2022. Is that a case of alpha decay or it's simply the effect of lower implied walls? Hard to say really. Now let's put all the DTS together and compare them. Here's a composite heat map comparing year-wise return to max draw down across DTS. The regime shifts are clearly visible. While zerodt was the most consistent performer across years, it went quiet in 2023 and 2024 before picking up again in 2025. 1DT2 showed steady performance for a period but has recently lost momentum. In contrast, 2DT is emerging as a new frontr runner, signaling a potential structural shift in where the edge lies. I know what you're thinking right now. How do these results look when calculated against the margin required? That's exactly what the next heat map shows. Returns expressed as a percentage of margin. The overall structure of this heat map isn't very different from the returns to max draw down view you saw earlier. But this lens makes it clear how much you would have truly made or loss relative to the capital at risk each year. One fair warning though, no sensible trader runs positions at bare minimum margin. In practice, you'd always keep a buffer. For example, if the margin to sell one lot straddle is a two lakhs and [music] you have 10 lakhs capital, running five lots is far too aggressive. You would realistically size it down to maybe two or three lots. Keep in mind when reading this returns matrix, it shows theoretical returns, not practical riskmanage outcomes. Also, do note that these returns are calculated based on historical margin requirements. Let's start with zero DT here. With the increase in margin requirements, especially for zerod, and the increase in lot size, it was earlier 25 now 75, the returns are visibly reducing. For example, the margin required to trade one lot normalized to 75 size [music] has increased significantly. So if you were trading five lots earlier with say 7.5 lakh margin, the same five lots will now require 17.5 lakhs. [music] And I'm not even talking about the buffer. That's a 100 plus percentage increase in margin. For all you know, with the increase in margins, the strategy may get to a point where it would lose all its alpha. If you look at 1DT and 2DT, they may still be some alpha, but with Nifty's expiry shifting from Thursday to Tuesday, the DK profile could change further. You see, we are now closer to the weekend and the so-called weekend effect in options may come into play. How that impacts Nifty options is yet to be seen. In summary, while many have already written the obituary, the data shows that there is still some alpha left in the 920 straddle strategy. True and agree totally [music] that it's nowhere close to the glory of its heyday, but it isn't entirely dead either. That said, the sword still hangs over the product itself. If weekly options are sunset, this entire discussion will simply become a chapter in the financial history books. [music] Either way, I'll leave you with a few variations that you can explore. And just to be [music] clear, this is not a trading recommendation, only ideas for you to test and evaluate. One, you could try different types of stop- losses. Rather than fixed ones, experiment with P&L or MTM based stop- losses or combined premium based stop- losses or even trailing stop- losses to see if they change the outcomes meaningfully. Second, [music] you could run the same structure with fixed premium entries. technically not a straddle, but it'll tell you whether DK profile for straddle differs from fixed premium strangles. Third, play with entry time. Maybe 920 isn't the sweet spot. Perhaps initiating trades later in the day, say 1220 works better. As a trivia, this fixed entry time gave birth to a new term called timebased straddles, TBS. That is there's another thing you could experiment with. Maybe you could take trades based on volatility, running the strategy only when IBS cross a certain threshold. There are endless ways to slice and dice the strategy to figure out what works and what doesn't. And yes, I know some of you may be thinking, [music] Sepul, why can't you just run all the tests and tell us what works? But that's not the point of this series. The intent is to take you into the kitchen, show you the ingredients and tools, and give you a sense of the recipes you can try. Please don't think of this as some sort of a soup kitchen. Instead, think of this as an inspiration to cook your own meal. That brings us to the end of this episode. Today, we explored what the famed 920 strategy is all about and why it works. Then, we walked through 7 years of data to see how its performance has evolved. Yes, as we speak, there is uncertainty around weekly expireies, but that's the nature of any regulated market. Change is constant and the only way forward is to keep evolving, testing new strategies and moving ahead. My hope is that this data sparks new ideas in you, encouraging you to test variations one DT at a time. And who knows, much like Van Leuvenuk with his accidental discovery, you too might stumble upon something extraordinary of your own. I hope you found this episode valuable. Do share your questions, thoughts, and feedback in the comments. I'll do my best to respond. Thank you for watching and see you in the next