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Capstone C3 · 10,11,14,17 weeks · draws on M02, M03, M07, M08, M09, M09A, M13, M14

A Nifty volatility trade plan from real bhavcopy data, with post-mortem

Brief

C3 · A Nifty volatility trade plan from real bhavcopy data, with post-mortem#

Objective#

Write a complete, pre-committed plan for one Nifty options position whose thesis is about volatility (implied too high or too low relative to what you forecast will be realised, or a view on skew or term structure), using end-of-day prices from the NSE F&O bhavcopy. Then follow the position on paper to expiry or exit, and write a post-mortem that attributes the P&L to its sources and judges the process separately from the outcome. This is a paper exercise. Nothing here is a recommendation to trade; SEBI's studies (M01 · 1.11 Case 1) show that most individual option traders lose money.

Deliverables#

  1. Trade plan (written and dated before the entry date; 2,000–3,500 words), following the outline below.
  2. Code that downloads or reads the bhavcopy files, extracts the chain, computes implied volatilities and Greeks, and reruns every table.
  3. Daily log from entry to exit: settlement prices, the position's mark, Greeks, margin, and any action taken with the rule that triggered it.
  4. Post-mortem (1,500–2,500 words) after expiry or exit.

Time budget#

Realistically 20–30 hours: about 10–12 hours for the chain extraction, the volatility view and the plan, a short daily log (15–20 minutes a trading day) from entry to expiry, and 4–6 hours for the post-mortem. The full-track plan budgets about 14 hours of sessions plus the daily log. The minimum viable version uses one expiry, one structure and the six required stress scenarios of analysis 7 without a finer full-revaluation grid; everything else is required, because the point of the capstone is that the plan is complete and dated before entry.

Required analyses#

  1. Data (M09A; M08 · 8.11). Download the UDiFF F&O bhavcopy for the analysis date (https://nsearchives.nseindia.com/content/fo/BhavCopy_NSE_FO_0_0_0_{YYYYMMDD}_F_0000.csv.zip). Extract TckrSymb = NIFTY, FinInstrmTp IDO (options) and IDF (futures); use SttlmPric, OpnIntrst, TtlTradgVol, XpryDt and the lot size from NewBrdLotQty for that date (65 as of 5 Nov 2026). Discard strikes with no trades or prices at the tick floor.
  2. Implied volatility surface (M08 · 8.8, 8.10). Back out IV with Black-76 against the future of the same expiry (state the rate used and its source). Present the smile for at least two expiries and the ATM term structure. Check put–call parity on settlement prices and report the deviations.
  3. Realised volatility and forecast (M09 · 9.2; M13 · 13.4). Close-to-close, Parkinson and Yang–Zhang realised volatility of the Nifty over 10, 20 and 60 days; a GARCH(1,1) forecast of volatility to expiry fitted on at least five years of daily returns; India VIX level and percentile (M09 · 9.6). State your forecast distribution of realised volatility to expiry, not a point.
  4. The variance premium and expected P&L (M09 · 9.3–9.4). Using the delta-hedged P&L formula, compute the expected P&L of your structure if realised volatility equals your forecast, and the break-even realised volatility. Report the historical distribution of (implied − subsequently realised) volatility for the Nifty over at least three years at a comparable tenor.
  5. Structure selection (M09 · 9.7). Choose among straddle, strangle, iron condor, calendar, ratio spread or vertical, and justify the choice against the alternatives by exact payoff conditions and Greek profile. For short-premium structures, prefer defined risk; if you choose undefined risk, justify it against M09 · 9.9.
  6. Greeks in rupees (M08 · 8.9; M14 · 14.14). Position delta, gamma, vega and theta in ₹ per 1%, per (1%)², per volatility point and per day, at entry and on each day of the log.
  7. Stress tests by full revaluation (M14 · 14.14–14.15). At least six scenarios, including: an 8–12% gap down with a volatility jump (calibrate to 23 Mar 2020 or 4 Jun 2024, citing the moves), a 5% gap up with volatility down, a two-sigma move on expiry day with the expiry-day gamma of M09 · 9.8, and a volatility-only shock. Compare full revaluation with the Greek expansion and explain the errors with Proposition 14.23.
  8. Margin (M09A; M14 · 14.15). Margin at entry from a broker margin calculator or NSE SPAN files (state which, with date), the extra expiry-day ELM on short options (M09 · 9.10), and margin utilisation under each stress scenario. A plan whose stressed utilisation exceeds 50% fails this criterion.
  9. Sizing (M03 · 3.4–3.9; M09 · 9.9; M14 · 14.13). Size so that the worst stress loss is at most a stated fraction of capital (for example 5%), and so that 97.5% ES of the position's daily P&L, estimated from a filtered historical simulation, is within your daily loss limit. Show the Kelly fraction implied by your edge estimate and use a small fraction of it.
  10. Exit rules, written before entry (M04A on stops; M09 · 9.11 checklist). Profit target, loss limit in ₹ and as a multiple of credit or debit, a time stop (days before expiry), event rules (RBI policy, US CPI, budget, results of heavyweights), and an adjustment rule if any. Each rule is a condition on observable end-of-day data so that the log can show which rule fired.
  11. Post-mortem (M13 · 13.8; M14 · 14.9). P&L attribution: decompose daily P&L into delta, gamma, vega, theta and residual using the previous day's Greeks; compare realised volatility to expiry with your forecast distribution (where did it land, what percentile); grade rule adherence; separate decision quality from outcome (a good plan can lose and a bad one can win).

Data sources#

  • NSE F&O UDiFF bhavcopy (as above) for every day of the log; NSE index archives or Yahoo ^NSEI for the index; India VIX from NSE (or Yahoo ^INDIAVIX).
  • Rates: RBI 91-day T-bill (DBIE) or the MIBOR/overnight rate, dated.
  • Margin: NSE Clearing SPAN risk-parameter files or a broker calculator (screenshot with timestamp).
  • Event calendar: RBI MPC schedule, MoSPI CPI release dates, US BLS CPI dates, company results calendar for Nifty heavyweights.
  • Current context while you log the trade: the Nifty 50 level and India VIX at https://oicharts.com/indices, and option OI by strike, put–call ratio and max pain for the index heavyweights on their stock pages (e.g. https://oicharts.com/stocks/RELIANCE). These are for looking; every number in the plan comes from the bhavcopy.

Acceptance criteria#

  1. The plan's timestamp precedes the entry date; entry uses only data available at the entry decision (for end-of-day plans, enter at the next day's prices or state the assumption).
  2. IVs reproduce settlement prices to within ₹0.05 when re-priced; put–call parity deviations are reported.
  3. The realised-volatility forecast is a distribution with a stated method, and the break-even realised volatility is computed.
  4. At least six full-revaluation stress scenarios, each with margin utilisation.
  5. Sizing satisfies the stated stress-loss and ES limits; the arithmetic is shown.
  6. Every exit is attributable in the log to a written rule; any discretionary action is labelled as a rule breach.
  7. The post-mortem's P&L attribution sums to the realised P&L within 5% of gross premium; the residual is explained.
  8. All contract details (lot size, expiry day, STT, ELM) are dated and sourced.

Template outline#

Trade plan

  1. Thesis in two sentences (what volatility view, against what market pricing).
  2. Market snapshot: date, future, IV smile and term structure, India VIX and percentile.
  3. Realised volatility and forecast distribution; variance premium history.
  4. Structure, strikes, expiry; payoff diagram; exact profit conditions.
  5. Greeks in ₹.
  6. Stress table (full revaluation vs Greeks) and margin utilisation.
  7. Sizing and its justification.
  8. Entry, exit, adjustment and event rules.
  9. What would prove the thesis wrong before expiry.

Post-mortem

  1. What happened: the path of the Nifty, realised volatility, IV.
  2. P&L attribution table.
  3. Forecast evaluation: where realised volatility fell in the forecast distribution.
  4. Rule adherence and every deviation.
  5. Decision quality versus outcome; what changes in the next plan.

Common failure modes#

  • Selling volatility because IV is "high" in absolute terms without comparing it with a forecast of realised volatility to the same expiry.
  • Using last traded prices for illiquid strikes; use settlement prices and discard stale strikes.
  • Ignoring the skew: a short strangle's put leg is priced off a higher IV for a reason (crash risk); compare like with like.
  • Stress tests with volatility held fixed, or Greek-expansion stress tests for large moves (M14 Proposition 14.23).
  • Sizing on margin rather than on stress loss: margin is the exchange's minimum, not a risk budget.
  • Adjusting without a rule: rolling a losing short strike outward to avoid realising a loss is the disposition effect (M14 · 14.9).
  • Expiry-day exposure by accident: holding short gamma into expiry day without planning for the extra ELM and the pin risk of M09 · 9.8.
  • Judging the plan by its P&L: one trade says almost nothing about edge (M03 · 3.1.1).

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