The effectiveness of the 920 Straddle strategy seems to have diminished in recent months due to increased market volatility. This strategy involves selling short at-the-money (ATM) call and put options at 9:20 am, with a fixed stop loss percentage. When one leg of the trade hits the stop loss, it is exited, while the other leg is held until the end of the trading day. The strategy is profitable when the market moves strongly in one direction, as the remaining leg benefits from option decay.

The popularity of the 920 Straddle strategy has grown alongside the rise of no-code platforms, which make backtesting easier. Traders can run various combinations of this strategy without coding or accessing intraday data. However, recent market volatility has had a significant impact on many similar strategies.

An analysis of the 920 Straddle with a 25% stop loss reveals the most and least profitable trading days. Wednesdays have consistently generated the highest profits, while Fridays have been the least profitable. The analysis also examines the strategy’s performance on gap days and different levels of the VIX (volatility index).

Live profits from trading bots implementing the 920 Straddle strategy confirm the trend of Fridays being unprofitable when accounting for all charges. Wednesdays continue to be the most profitable trading days. Surprisingly, the analysis shows that the strategy can still generate profits even in high VIX conditions, dispelling the misconception that high volatility leads to losses.

It is important to note that the majority of profits from the 920 Straddle strategy come from a small number of trades. Out of 1300 trades over the past five years, removing the top 10% (130 trades) would result in an overall negative result. This is characteristic of a typical breakout system, where returns are nonlinear and periods of prolonged drawdown are to be expected. Many traders abandon such strategies during these challenging phases, believing they no longer work. Traders who use OTM (out-of-the-money) hedges for margin benefits may experience even greater drawdowns. Those who manage risk and money effectively during rough periods are more likely to reap the long-term benefits.

The premium of ATM options varies each day, which affects the strategy’s profitability. The provided table displays the average premium, total points lost if the 25% stop loss is hit on either leg, the loss per lot, the loss per lot if both legs hit the stop loss, and the percentage of loss relative to the capital.

It is evident that traders who maintain the same quantity throughout the week would suffer more if their stop loss is frequently hit on Fridays due to higher premiums. However, by adjusting lot sizes based on risk per trade, traders can mitigate drawdowns to some extent. When a strategy falls out of sync with the market, it may take days, weeks, or even months to recover from a drawdown. During such periods, trading with appropriate position sizing can minimize damage and help navigate the drawdown phase successfully.