Option Strategies

Following writeup is just an example how to initiate a high probably trade with short strange/straddle. However much more can be achieved, please refer the design for more insights.

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Short strangles historically has given good returns, with high probablity of profit. However the risk is high if naked strangles/staddle are placed.

The focus here is HIGH PROBABILITY OF PROFIT.

On my experience and some backesting on stockmock and algotest.in platforms, if we short strikes near to 1 standard deviation OTM, there's a high probability of profit. And instead of hedging with yet another OTMs on individual legs, we can place a stop loss order at 65% from entry price on both legs. On expiry we can do same with straddle (short ATM PE and CE), with 65% stop loss on both legs.

Trailing stop loss also reduces loss days and can be tried out. Do check out the backtest for more interesting insights.

We can also place a live monitor feed to monitor MTM on both legs and sqaure off if either a provided MTM SL is hit or a provided MTM target is achieved for the day.

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This repository contains a Python-based automated trading strategy for implementing daily short strangle/straddle options trading on weekly contracts of NIFTY, BANKNIFTY, and FINNIFTY indices.

This README provides comprehensive instructions for setting up the environment and deploying the strategy effectively.

Prerequisites

Before you begin, ensure you have the following prerequisites in place: (currently works only with 5paisa brokerage account only)

• 5paisa Brokerage Account: You need an active brokerage account with 5paisa to execute trades through their API.
• Python 3.9+: The strategy is built using Python, so you need to have Python version 3.9 or higher installed.
• 5paisa Python SDK: You must install the py5paisa Python package, which serves as the SDK for interacting with the 5paisa API.

Installation and Setup

1. Create a virtual environment and activate it, you may use conda as well

   python -m venv .

2. Install py5paisa==0.6.7 and requests package or directly use requirements.txt file using the following command:

   pip install -r requirements.txt

3. Configure API Keys: Follow the instructions in the official 5paisa documentation to obtain your API keys. These keys will be used to authenticate and authorize the trading operations. One can use the use their TOTP login as well.

4. Create a creds.json file: Create a file named creds.json in the root directory of your project. Populate it with the following fields obtained from the API key setup and additional details as required for 0.6.7 version of py5paisa SDK:

{
   "APP_NAME": "YOUR_APP_NAME",
   "APP_SOURCE": "YOUR_APP_SOURCE",
   "USER_ID": "YOUR_USER_ID",
   "PASSWORD": "YOUR_PASSWORD",
   "USER_KEY": "YOUR_USERKEY",
   "ENCRYPTION_KEY": "YOUR_ENCRYPTION_KEY"
   "email": "YOUR_LOGIN_EMAIL",
   "passwd": "YOUR_LOGIN_PASSWORD",
   "dob": "YOUR_DOB",
   "totp_secret": "YOUR_TOTP_SECRET", 
   "pin": "YOUR_PIN",
   "clientcode": "YOUR_CLIENT_CODE",
   "telegram_token":"TELEGRAM_BOT_TOKEN" 
}

Note:

• totp_secret Can be obtained very first time you add TOTP based login to your authenticator app
• telegram_token Only if interested for telegram updates for MTM and order updates

Usage

The trading strategy is implemented through the daily_short.py script. Here are the available command-line options:

Click to expand

Options:
  -h, --help            Show this help message and exit
  --creds CREDS         Credentials file for 5paisa account login
  -s, --show-strikes-only
                        Display available strikes without placing orders
  --monitor-target MONITOR_TARGET
                        Continuously monitor for the specified target amount
  -cp CLOSEST_PREMIUM, --closest_premium CLOSEST_PREMIUM
                        Search for strangle strikes based on closest premium
  -sl STOP_LOSS_FACTOR, --stop_loss_factor STOP_LOSS_FACTOR
                        Set stop loss as a percentage above the placed price
  -q QUANTITY, --quantity QUANTITY
                        Quantity for shorting (Lot size = 50)
  --index INDEX         Choose index to trade (NIFTY/BANKNIFTY)
  --tag TAG             Display status of the last order with the given tag; when combined with --monitor_target, it polls the position for the given tag
  --log-level LOG_LEVEL
                        Set log level (INFO|DEBUG); default = DEBUG
  --pnl                 Display current Profit and Loss (PNL)
  --strangle            Place Strangle orders
  --straddle            Place Straddle orders

Sample Run

1. Short strangle with 8 lots of NIFTY (8*50 = 400) on strikes having preminum closest to 8.0 INR | Stop Loss: 55 %

python .\daily_short.py --index NIFTY -sl 1.55 --strangle -q 400 -cp 8.0

2. Short straddle with 10 lots of BANKNIFTY (15*10 = 150) | Stop Loss: 55 %

python .\daily_short.py --index BANKNIFTY -sl 1.55 --straddle -q 150

3. Short straddle with 2 lots of FINNIFTY (40*2 = 80) on strikes having preminum closest to 12.0 INR | Stop Loss: 65 %

python .\daily_short.py --index FINNIFTY -sl 1.65 --strangle -q 80 -cp 12.5

Backtest

A simulation using algotest.in is performed for period of Jan 1, 2021 to Aug 6, 2023. The results are added here

Deployment on Azure

For detailed deployment instructions on Azure, refer to the DailyShorts folder within this repository.

High Level Design

How to develop a strategy ?

Click to expand

@TODO add details

Future work

• Implement more the client interface for Zerodha, Fyers, Shoonya, Upstock, etc. - Need help from people having these broker accounts
• Improve Live monitoring
  • Update pnl calculate to incorporate any abstract strategy
  • Filter closed orders - Check 5paisa API support it ? - Sent email to 5paisa team - No response yet
  • Add indicators : VWAP, ADX and Supertrend
  • Add UX to see MTM more intutively
  • Move to asyncio, if possible - likely not possible with 5paisa client
• Order Manger is currently tied little too much with 5paisa, see if we can abstract details and put it behind individual clients ?
  • Add orders to mongodb - this should be ideally done from Order Manger ?
• Check how live monitor can work with cloud integrations - Look for suitable resource
• Add adapter to work with any broker's API
• Check why 5paisa fragments/split single order with multiple lot into multiple orders with smaller lot
• Add fake signal generator
• Add design doc
• Add access token in redis
• Add updates via telegram bot

Thank you for using this repository. Clarifications/suggestions/pull requests/discussions are welcomed.

Happy trading!