Trend-Following with Moving Average Breakouts and Out-of-the-Money Options A Quantitative Analysis of Multi-Timeframe Strategy Performance

This independent research paper presents a systematic trend-following trading methodology that combines 20-period and 50-period Exponential Moving Averages (EMA 20/50) with out-of-the-money (OTM) option selling. The methodology is designed from the perspective of an option seller and uses closing-price confirmation, directional trend filtering, option delta selection, and disciplined position management. The study evaluates the strategy across multiple timeframes—15-minute, 30-minute, 1-hour, and daily—using representative Indian market indices, particularly the Nifty 50 and Bank Nifty. The analysis examines trade frequency, win rate, average premium collected, average loss, profit factor, maximum drawdown, Sharpe ratio, Calmar ratio, and the impact of transaction costs. A key feature of the methodology is the EMA 20/50 trend filter, which is intended to reduce false signals and whipsaw losses compared with using the EMA 20 alone. The framework also incorporates a “no-flip” approach, in which positions are maintained until a confirmed opposite signal or predefined exit condition occurs. The paper further examines the relationship between option delta and potential risk-reward characteristics, with particular attention to 0.3–0.6 delta OTM options. A risk-management framework covering position sizing, concurrent exposure, transaction costs, and option Greeks is also presented. The results presented in this working paper are based on illustrative/simulated backtests and scenario analysis. They are intended for research, educational, and discussion purposes and have not been independently verified or subjected to peer review. Actual trading outcomes may differ because of market conditions, liquidity, slippage, transaction costs, volatility, and other factors. This work is published as an independent public working paper to document the proposed methodology and provide a basis for further research, validation, and development of systematic trading strategies in Indian financial markets.