If you have been in the options trading space in India, it’s almost impossible that you have not heard of the 9:20 Straddle strategy. Some call it TBS (Time Based Straddles), essentially it’s an intraday ATM Straddle trade which is executed at some point during the day with a stop loss on each side of trade.
But where did it start? How did it become so damn popular? Does it really work? We’ll explore all these questions and more. So grab your cup of coffee and jump right in.
The Genesis
In late 2019, Jitendra Jain introduced this strategy to me, emphasizing its simplicity and effectiveness. Later, Vishal Mehta also advocated for it. It’s likely that Jitendra and his team uncovered this gem
It was late 2019 and I don’t clearly remember the month, that was the time when Jitendra Jain introduced this strategy to me, emphasizing its simplicity and effectiveness..A few months later I heard it from Vishal Mehta too.
I didn’t have options data at that time to test it, so I began trading it on a small scale to see how it works. This was few months before Stockmock was actually launched.
Possibly, the strategy existed in some form within prop circles even earlier. Nevertheless here we are, all devotees of the 9:20 Straddle strategy.
The Propogation
Anyways, it was Stockmock that was a game changer of sorts, because now people had an intuitive, easy to use tool and they could test such intraday straddles with any combination possible. It was just a matter of time that the trade had a cult like following and people started doing it across indices.
A casual search on X would give you a sense of the trade’s meme-like popularity. Here are a few for you to see.
Here is mine
— Jitendra Jain (@jitendrajain) September 24, 2023
9.00 am : Get up
9:15 am : Reach office
9: 20 am : Trade 920 straddle
3:15 pm. : Exit
3:30 pm : Reach home
4.00 pm Lunch/dinner
4:30pm : Backtest again all data
9:20pm : Decide what to trade for other day
930 pm : Watch American Markets with no corelation
1:300… https://t.co/qE3VDT9QuB
In 2022, another reason played out, the Covid batch traders who realised markets moved in directions beyond upward trends. This realisation gave birth to a new wave of option sellers, many fixated solely on 9:20 straddles.
This new found rush, witnessed the entry of execution algo markets like Quantiply, providing traders with tools for running a profitable book.
But as they say, in markets as in life, nothing is permanent. The gravy train of 9:20 straddles seemingly stopped after about four prosperous years. For a good 2 years, no one actually bothered as to why this trade worked, except for a few old guns. Majority were running it on auto pilot.
Here’s why it worked and why it stopped working.
Why did 9:20 work so well from 2019 till 2022?
Option prices are affected by what is known as IV, Implied Volatility, in other words the expected volatility in the market gets priced into options premiums, if the market foresees an event that could have an effect on the markets, then IV goes up.
So, 2019 to 2020 was an upward trending period for VIX, and from March 2020 VIX started moving down except for the Ukraine crisis in between, and that had an effect on both profitability and the win-rate of these strategies.
What happened in 2023?
Low IVs means low premiums and especially closer to expiry there was very little premium left for it to provide any buffer against index moves. What Option traders call ‘spikes’, one too many spikes leading to stop-losses being frequently hit, became the norm.
As with everything, Volatility is by nature mean-reverting, it’s only time that we will get back to normalcy.
That being the case, even low IV regimes have plenty of intraday strategies that work, so long as you understand the dynamics between the various greeks involved.
New Indices new expiry days
Exchanges obviously know whats happening and they didn’t want to be left behind, they launched four new indexes, two from NSE and two from BSE, to capture the options market and spread their expiry dates, enabling traders to structure a basket of indexes based on Days to Expiry (DTE: Days to expiry – a term used to define how far the expiry day is, of a given option contract.), especially for traders who understand how the dynamics of option pricing works.
The Naysayers
There are always two kinds of naysayers, one’s that are luddite, they have no sense of how options or derivatives work, but who loudly proclaim “its dangerous”, the second set of folks are those whose businesses are affected, it could be folks who sell portfolio services and the likes.
In other words both types seem to have an agenda and its hard to find folks who speak with a nuanced understanding of the product.
Then there are others who refer to the SEBI study that 90% of F&O traders lose. All of whom only speak without much context. As a market participant who has traded options perhaps from the time it was launched on NSE, I have seldom seen a serious option seller who has blown his account due to intraday option selling or even in defined risk positional strategies. But do option buyers lose, yes many.
It’s a losers game when it comes to option buying, but then who’s interested in nuance.
The Advocates
One of the good things that has happened because of 9:20 straddle’s popularity is that, it has introduced many new traders to the wonderful product, what I call the swiss army knife of the capital markets. It has also in a positive sense led to a creation of a whole new ecosystem to quantitatively test-and-trade options. These are great beginnings.
Yes excessive focus on just one kind of strategy has never been good, and that is understandably the down side, because a lot of newbie traders never explored the multitude of strategies that can be deployed across timeframes because they were so engrossed with the intraday straddles. But that too is just a matter of time and the traders will evolve.
Is it a India specific trade?
Conversations with who trade both in the US and Indian markets, say that there are variants of this that work in the US markets, however, the transaction costs in the US are relatively higher for it to become as attractive as it is in India.
In Summary
Discovered by seasoned options experts in 2019, this strategy gained traction due to user-friendly tools like Stockmock and execution platforms such as Quantiply and Stoxxo. Its surge in popularity from 2020 to 2022, amidst a declining VIX, enticed retail traders seeking easy gains, when broader equity markets were stagnant. The strategy’s popularity, in India owes much to its low transaction costs, adding to its Return on Investment (ROI).
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