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Strategy Name: "Delta-Neutral Volatility Skew Arbitrage"

This is a market-neutral intraday strategy for Nifty 50 and Sensex. It is not designed to predict the market's direction. Instead, it aims to profit from two specific market phenomena:

Selling Overpriced Volatility: Capitalizing on the tendency for option premiums (Implied Volatility) to be inflated, especially when the India VIX is high.

Exploiting Volatility Skew: Profiting from the imbalance between the Implied Volatility (IV) of Out-of-the-Money (OTM) puts and OTM calls. Typically, OTM puts have higher IV than equidistant OTM calls, a sign of market fear. This strategy will systematically trade this skew.

This strategy is complex and requires active management, making the choice of platform for each phase critical.

Phase 1: Concept Validation & Parameter Tuning on AlgoTest

Before deploying a complex strategy, we must test its foundational principle: Is selling volatility when the VIX is high a profitable venture?

Core Concept to Test:

Strategy: Selling a Short Strangle (selling an OTM Call and an OTM Put simultaneously).

Entry Condition:

Enter a trade only when India VIX is above a specific level (e.g., 18). This is our filter to ensure we are only selling "expensive" volatility.

Action on Signal (at 9:30 AM):

Sell 1 lot of Nifty/Sensex Weekly Option Call at a strike price that is 1% above the current spot price.

Sell 1 lot of Nifty/Sensex Weekly Option Put at a strike price that is 1% below the current spot price.

Risk Management:

Overall Stop-Loss: Exit the entire position if the combined premium (marked-to-market loss) reaches 40% of the total premium collected.

Overall Profit Target: Exit the entire position if the combined premium has decayed by 50% (i.e., you have made 50% of the maximum possible profit).

Time Exit: Exit all positions at 3:00 PM IST, regardless of P&L.

Implementation using AlgoTest Features:

Multi-Leg Strategy Builder: Use AlgoTest's builder to create a single strategy that includes two legs (one short call, one short put).

Indicator-Based Entry: Use the India VIX indicator in the entry condition block. Set the condition to India VIX > 18.

Strike Price Logic: Use AlgoTest's formula capabilities to define the strike prices dynamically (e.g., Round(Spot Price * 1.01, 50) for the call and Round(Spot Price * 0.99, 50) for the put).

Combined P&L Management: Crucially, apply the stop-loss and profit target to the overall strategy P&L, not the individual legs. AlgoTest supports this feature, which is essential for managing strangles and condors.

Backtest & Analyze: Run the backtest over multiple years of data. The goal is to confirm that the positive expectancy from theta (time decay) and volatility crush outweighs the losses from large market moves. Analyze the drawdown and win rate to ensure the risk is acceptable.

Phase 2: Dynamic Hedging & Skew Analysis with Stoxxo

This is where the strategy becomes truly advanced. We will move beyond a static strangle and introduce dynamic delta hedging and skew analysis, which requires an external tool connected via Stoxxo.

Advanced Logic:

Signal Generation (Custom Python Script): You will write a Python script that does the following:

Fetches the live Nifty/Sensex option chain data.

Calculates the IV for the 25-delta OTM Put and the 25-delta OTM Call.

Calculates the Volatility Skew Ratio: (Put IV / Call IV).

Advanced Entry Signal: The script generates an entry signal only if India VIX > 18 AND the Volatility Skew Ratio > 1.15 (meaning puts are at least 15% more expensive than calls, indicating significant fear premium to sell).

The Position: Instead of a naked strangle, we create a risk-defined Iron Condor by buying further OTM options as protection.

Sell 25-delta Put

Sell 25-delta Call

Buy 10-delta Put

Buy 10-delta Call

Dynamic Delta Hedging: The Python script continuously monitors the overall delta of the 4-leg Iron Condor.

If the position's delta moves outside a predefined range (e.g., +/- 10), it means the position is no longer market-neutral.

Hedging Action: The script automatically sends an order to buy or sell Nifty/Sensex futures to counteract the delta and bring the total position delta back to near zero. For example, if the position delta becomes +12, the script sends a signal to sell a small quantity of futures to neutralize it.

Implementation using Stoxxo Features:

Python Integration: Stoxxo is built to listen to signals from external applications. Your Python script will send HTTP POST requests (webhooks) to Stoxxo's listener to execute trades.

Complex Order Execution: The initial 4-leg Iron Condor can be sent as a single complex order signal to Stoxxo, which will then place the legs on the broker terminal, ensuring precise execution.

High-Speed Bridge for Hedging: The dynamic delta hedging requires millisecond-level reaction time. Stoxxo's nature as a local execution bridge makes it ideal for this, as the signal for the hedge (e.g., "BUY 1 NIFTY FUT") goes directly from your local script through Stoxxo to the broker API, minimizing latency.

Live Simulator: Before going live with real money, you can run this entire Python script + Stoxxo setup using Stoxxo's "live trade simulator" to see how the dynamic hedging performs in real-time without risk.

Phase 3: Automated Repair & Scaling with TradeTron

It is difficult to replicate true dynamic hedging with futures in a fully automated, keyword-based system. However, we can create a highly sophisticated, rule-based version of this strategy using TradeTron's advanced features.

Automated Logic:

Entry Condition: Use TradeTron's keyword library.

INDIAVIX() > 18

Position: Use the "Position Builder" to construct a Short Strangle (selling an OTM Call and Put based on a fixed number of points or a percentage away from spot).

Advanced Management (The "Repair" Feature): This is the key to automating the adjustments.

Repair Condition 1 (Testing the Put Side):

Condition: LTP > (Strike of Short Put) — meaning the market has fallen and is threatening your put.

Action: Execute a "Repair Once" block. The action will be to roll the untested Short Call down closer to the current market price (e.g., roll it down by 100 points). This collects more premium, widens your breakeven point on the downside, and rebalances the position's risk.

Repair Condition 2 (Testing the Call Side):

Condition: LTP < (Strike of Short Call) — the market has risen.

Action: Execute a "Repair Once" block to roll the untested Short Put up closer to the market, again collecting more credit.

Implementation using TradeTron Features:

Keyword Logic: Build the entry logic using the INDIAVIX() keyword in the "Set" condition builder.

Advanced Repair Conditions: This is one of TradeTron's most powerful features. You will create multiple "Repair Once" blocks within your strategy. This rule-based adjustment mechanism is an excellent proxy for the more complex dynamic hedging, making the strategy adaptive without needing an external script.

Cloud Automation: Deploy the strategy on TradeTron's cloud servers. It will run independently, monitor the market, and execute the initial trade and any subsequent "repair" adjustments automatically.

Marketplace Potential: A consistently performing, market-neutral strategy with built-in adjustment logic is highly attractive. Once proven, this "self-repairing" volatility strategy could be listed on the TradeTron Marketplace for other users to subscribe to.

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