Event Day Strategy in Action: Long Strangle on RBI Policy Day
Strategy: Deep OTM Long Strangle
Event: RBI Monetary Policy Announcement
Instrument: Index Options (Nifty or BankNifty)
Objective: Capture IV spike and directional movement using limited capital
🔍 Market Setup: Clues from FII Data
The day before the RBI announcement (Tuesday EOD), open interest data revealed that Foreign Institutional Investors (FIIs) had built up large positions:
Such balanced and aggressive buying across calls and puts indicated expected volatility, which is perfect for a long strangle strategy—buying both CE and PE, but at different strikes.
🧪 The Actual Trade
- Entry Time: 9:16 AM (event scheduled at 10:00 AM)
- Strategy: Long Strangle with Deep Out-of-the-Money strikes
- 26150 CE contracts bought qty 100 lots, i.e, 7500 entry price .45
- 22800 PE contracts bought, qty 100 lots, i.e, 7500 entry price .45
- Capital Deployed: ₹6,750
🔼 Performance Snapshot
| Metric | Value |
|---|---|
| 📈 Max Profit | ₹1,500 |
| 🕒 Time of Peak IV | 9:50 AM |
| 💰 ROI at Peak | + 22% |
This profit was achieved within 35 minutes, as Implied Volatility (IV) spiked due to market uncertainty around the RBI policy.
🔽 What Happened Next?
- By 12:50 PM:
- IV dropped from 16 to 13
- Position P&L was at -₹375
- Loss on deployed capital was just ~5%
Even after IV cooled off, the risk remained limited—showing the advantage of using deep OTM strikes in strangles.
💰 Bigger Picture Simulation (₹1 Lakh Capital)
| Scenario | Approx. P&L (₹) | ROI |
|---|---|---|
| Peak IV (9:50 AM) | +22,000 | +22% |
| IV Drop (12:50 PM) | -5,000 | -5% |
This real-world experiment shows how timing and volatility can turn simple setups into high-reward trades with limited downside.
💡 Key Learnings from This Strangle Setup
✅ Works best during macro events (RBI, Fed, Budget, Elections)
✅ Low capital required due to deep OTM strikes
✅ Maximum gains occur before or during IV spike
✅ Can exit early or trail based on momentum
❌ Not ideal for flat or low IV environments
🧠 Strategy Recap: Why We Call This a “Deep OTM Long Strangle”
- Straddle = Same Strike CE + PE
- Strangle = Different Strikes CE + PE
- This strategy utilized deep OTM CE and PE, resulting in lower premiums, a larger breakeven range, and higher IV sensitivity.
📢 Final Thoughts
If you’re looking for a smart way to trade event days, the Long Strangle with deep OTM options can deliver strong results—especially when IV spikes or price makes a breakout move.
A modest capital of ₹6,750 gave up to 22% return in under 1 hour with a max risk of ~5%. That’s the power of right setup + right timing.
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